By the end of this lesson you recognize the costs of trading beyond the broker's visible commission: the spread and, depending on the case, custody or currency-conversion fees.
\nThe most visible cost of buying or selling is the brokerage commission: what your broker charges to execute the order, either as a flat amount, a percentage of the amount traded, or a combination of both. It's the cost that shows up explicitly in your broker's information, and the one most compared when choosing one.
\nBut it isn't the only real cost. The spread is the difference between the price at which you can buy an asset at that instant and the price at which you can sell it -- the market always offers two slightly different prices, not just one. That spread is always paid whenever you buy or sell, even though it never appears as a separate cost line in any summary: if you bought and immediately sold the same asset without its "market" price having moved, you'd already lose money purely from that difference.
\nDepending on the broker and the market, other less obvious costs can add up: custody fees for holding the securities in your account, or currency-conversion fees if the asset trades in a currency different from your account's. None of these costs is necessarily large on its own, but it's worth considering them together, not just the explicit commission, to understand the real cost of a strategy.
\nThese costs matter especially in two situations: trading frequently, because each individual trade pays its own cost and these add up; and trading with small amounts, because a flat commission weighs proportionally more the smaller the trade amount.
\nQuickly buying and selling the same stock, with its market price unchanged between one trade and the next, can result in a net loss purely from the spread and the two brokerage commissions -- even though, at first glance, "the price hasn't moved."
\nBuying or selling has an explicit cost -- the brokerage commission -- and less visible costs, like the spread and, depending on the case, custody or currency-conversion fees, which are worth considering together to understand the real cost of trading.
\nWhy can immediately buying and then selling the same stock result in a loss even if the price hasn't changed?
\nWhy does trading more frequently increase total costs, beyond the visible commission on each trade?
","sortOrder":3,"readingMinutes":5,"difficulty":"Básico"},"previous":{"id":15,"moduleId":5,"slug":"how-is-an-order-executed-on-an-exchange","title":"How is an order executed on an exchange?","summary":"You understand what happens between sending an order and having the trade settled: the role of the broker and the market.","bodyMarkdown":"## Objectives\n\nBy the end of this lesson you understand what happens between sending an order and having the trade settled, and what role the broker and the market play in that process.\n\n## Content\n\nWhen you send an order, your broker isn't the one buying from or selling to you directly -- its role is to transmit your order to the market, where a real counterparty is found: someone willing to do the opposite trade to yours (a seller if you're buying, a buyer if you're selling).\n\nWhen the market finds that counterparty and the price matches -- depending on the order type you used, see the previous lesson -- the trade is considered **executed**: both parties have agreed to the exchange. But execution isn't the same as settlement.\n\n**Settlement** is the subsequent process in which ownership of the securities and the corresponding money is formally transferred between the buyer's and seller's accounts, handled by a clearinghouse. This process isn't instantaneous -- it traditionally takes a couple of business days after execution, though the exact timeframe varies by market. While a trade is executed but not yet settled, for practical purposes it's already considered yours -- you could even sell it again -- but formally, the change of ownership hasn't been completed yet.\n\n## Example\n\nYou send a market order to buy shares on a Monday morning: it executes almost instantly, as soon as the market finds a seller at the best available price. Actual settlement -- the formal transfer of the securities and money between accounts -- completes a few days later, not at the exact moment of execution.\n\n## Common mistakes\n\n- Thinking execution and settlement are the same thing -- execution is the moment the trade is agreed; settlement is the actual transfer that follows, handled by a clearinghouse.\n- Believing the broker is the counterparty to your trade -- the broker only transmits your order to the market; the real counterparty is another market participant willing to take the opposite side.\n\n## Summary\n\nAn order goes from the broker to the market, where it executes once a real counterparty is found at the right price, and it settles -- with the formal transfer of securities and money -- a few days after that execution.\n\n## Self-check\n\nWhat's the difference between an order executing and it settling?\n\nIs the broker the counterparty to your trade? Why or why not?","bodyHtml":"By the end of this lesson you understand what happens between sending an order and having the trade settled, and what role the broker and the market play in that process.
\nWhen you send an order, your broker isn't the one buying from or selling to you directly -- its role is to transmit your order to the market, where a real counterparty is found: someone willing to do the opposite trade to yours (a seller if you're buying, a buyer if you're selling).
\nWhen the market finds that counterparty and the price matches -- depending on the order type you used, see the previous lesson -- the trade is considered executed: both parties have agreed to the exchange. But execution isn't the same as settlement.
\nSettlement is the subsequent process in which ownership of the securities and the corresponding money is formally transferred between the buyer's and seller's accounts, handled by a clearinghouse. This process isn't instantaneous -- it traditionally takes a couple of business days after execution, though the exact timeframe varies by market. While a trade is executed but not yet settled, for practical purposes it's already considered yours -- you could even sell it again -- but formally, the change of ownership hasn't been completed yet.
\nYou send a market order to buy shares on a Monday morning: it executes almost instantly, as soon as the market finds a seller at the best available price. Actual settlement -- the formal transfer of the securities and money between accounts -- completes a few days later, not at the exact moment of execution.
\nAn order goes from the broker to the market, where it executes once a real counterparty is found at the right price, and it settles -- with the formal transfer of securities and money -- a few days after that execution.
\nWhat's the difference between an order executing and it settling?
\nIs the broker the counterparty to your trade? Why or why not?
","sortOrder":2,"readingMinutes":5,"difficulty":"Básico"},"next":null,"pathContext":null,"curatedLinks":{"prerequisite":[],"continuation":[],"related":[]},"relatedConcepts":[{"concept":{"id":20,"slug":"brokerage-commission","term":"Brokerage commission","shortDefinition":"The explicit fee a broker charges for executing an order -- the most visible cost, but not the only real cost of trading.","longDefinition":"The brokerage commission is what a broker charges to process an order, whether as a flat fee, a percentage of the amount traded, or a combination of both. It's the most visible cost of trading, but not the only one: the spread (the difference between the price at which you can buy an asset and the price at which you can sell it at any given moment) is always paid, even though it never appears as a separate cost line, and depending on the broker or market, custody fees or currency-conversion fees can add up too. These costs matter especially when trading frequently -- each trade pays its own cost, which adds up -- or with small amounts, where a flat fee weighs proportionally more."}}]}