How a Stock Trades: Exchanges, Market Makers and Auctions

Before you read: What You Can Trade: Stocks, ETFs, Futures and Options

What you will learn

• What a share is, and where US stock orders are actually filled.
• What market makers, the NBBO and payment for order flow are.
• How the opening auction and closing auction work, and what a trading halt is.

What does one share represent?

If a company has 100 million shares and you own one, what do you own?

A share of common stock is a small slice of ownership in a company. It usually carries a claim on a share of future profits (paid out as dividends only if the company chooses), a vote on some company matters, and a claim on what is left if the company is wound up, after everyone the company owes has been paid. Owning a share does not give you a say in daily decisions or a right to any particular return.

A company’s market capitalization is its share price times the number of shares outstanding. A $40 stock with 100 million shares has a market capitalization of $4 billion. The share price on its own says nothing about whether a company is large or small; the share count matters just as much.

Where are stock orders filled?

When you press buy, does your order go to the exchange named next to the ticker?

In the United States, a stock is listed on one exchange, such as the New York Stock Exchange or Nasdaq, but it can trade on many venues: more than a dozen exchanges, alternative trading systems (some of which are called dark pools because they do not display quotes), and brokers and wholesalers that fill orders themselves.

Rules tie the venues together. The best displayed bid and best displayed offer across all exchanges form the National Best Bid and Offer (NBBO). Under the SEC’s Order Protection Rule (Rule 611 of Regulation NMS), trading centers must have policies to avoid filling orders at prices worse than the best displayed quotes on other exchanges, with some exceptions. So an order sent anywhere is generally meant to be filled at the NBBO or better, and brokers also owe customers a duty of best execution. In June 2026 the SEC proposed removing Rule 611; the SEC’s website has its current status.

Order routing diagram

Illustrative diagram constructed for teaching. Not real market data.

The diagram shows how a fictional buy order can be routed from a broker to a wholesaler, an exchange or an alternative trading system, with every fill checked against the NBBO. A timeline below marks the opening auction, the continuous session and the closing auction. It is constructed for teaching and is not real market data.

What do market makers and wholesalers do?

Who is on the other side when you buy 10 shares and no other investor is selling at that moment?

A market maker continuously quotes a bid and an offer and earns, on average, part of the spread in return for taking the risk of holding inventory. Many retail stock orders in the United States are sent by brokers to wholesale market makers, which fill them, often at a price slightly better than the NBBO. In return, the wholesaler may pay the broker a small amount per share, which is called payment for order flow. That arrangement is legal in the United States and must be disclosed; it is restricted or banned in some other countries. Brokers publish reports on where they route orders.

How do the opening and closing auctions work?

If thousands of orders arrive before the market opens, at what single price should they trade?

The main listing exchanges begin and end each regular session with an auction. Orders gather before the open (or before the close), and the exchange publishes indicative information such as the price at which the most shares would trade and any order imbalance. At the auction time, all matched orders trade at one price.

The closing auction often has some of the heaviest volume of the day, partly because many index funds and other investors want the official closing price. Opening and closing prices from these auctions become the reference points used in charts, fund valuations and indexes.

What are trading halts and limit up-limit down?

What should happen when a stock moves 10% in a few seconds?

An exchange can halt a stock while important news is released or when it needs to restore an orderly market. US stocks are also covered by a limit up-limit down mechanism, which sets bands around a recent reference price and can pause trading for five minutes, sometimes longer, if price tries to move outside them. Separate market-wide circuit breakers can pause all stocks after the S&P 500 index falls 7%, 13% or 20% from the prior day’s close. The first two levels pause trading for 15 minutes if reached before 3:25 p.m. Eastern Time; the third stops trading for the rest of the day. Halts and pauses can mean orders do not fill, or fill far from the last price when trading resumes.

What this does not tell you about how stocks trade

• Routing and fees differ by broker. Your broker’s own disclosures say where your orders go.
• Market structure rules change, and rules differ outside the United States.
• The NBBO covers displayed quotes; larger orders can still move the price.
• Nothing here recommends any broker, venue or stock.

Trademark note. S&P 500 is a trademark of S&P Dow Jones Indices LLC or its affiliates. Nasdaq is a trademark of Nasdaq, Inc. New York Stock Exchange and NYSE are trademarks of Intercontinental Exchange, Inc. or its affiliates. All are used only for identification.

Check yourself

1. A stock trades at $25 and has 200 million shares outstanding. What is its market capitalization? Hint: price times shares.
2. What is the NBBO, and why does it matter for where an order is filled? Hint: best displayed prices across all exchanges.
3. Why does the closing auction often carry heavy volume? Hint: who wants the official close?

Last reviewed November 8, 2026. Spotted a mistake? Report an error.