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I have been wondering while learning about finance, how do stock exchange work? I mean when you ask your broker to buy stock at this company, what does the broker do to buy it? What steps does the broker take to buy the stock for you?
Sorry if it's a stupid question.
yes Dheer but where dose the broker go or do to order the stock dose he talk to someone at the exchange or dose he use a website that is what I mean in my qustion
Here are a couple of articles that can help highlight the differences between a broker and an online investment service, which seems to be part of the question that you're asking.
Pay attention to the references at the end of this link.
http://finance.zacks.com/online-investing-vs-personal-broker-6720.html
Investopedia also highlights some of the costs and benefits of each side, broke and online investment services.
http://www.investopedia.com/university/broker/
To directly answer your question, a broker may do anything from using a website to making a phone call to submitting some other form of documentation. It is unlikely that he is talking directly to someone on the trading floor, as the volume traded there is enormous.
You or the broker place an order to buy the share with the stock exchange. There has to be a matching sell order by someone.
Once a match is made, you pay the money and get the share.
My answer isn't a full one, but that's because I think the answer depends on, at minimum, the country your broker is in, the type of order you place (limit, market, algo, etc.,) and the size of your order.
For example, I can tell from watching live rates on regular lot limit orders I place with my UK-based broker that they hold limit orders internally until they see a crossing rate on the exchange my requested stock is trading on, then they submit a limit order to that exchange. I only get filled from that one exchange and this happens noticeably after I see my limit price print, and my fills are always better than my limit price.
Whereas with my US-based broker, I can see my regular lotsize limit order in the order book (depth of book data) prior to any fills. I will routinely be notified of a fill before I see the limit price print. And my fills come from any number of US exchanges (NYSE, ARCA, BATS, etc.) even for the same stock.
I should point out that the "NBBO" rule in the US, under SEC regulation NMS, probably causes more complications in handling of market and limit orders than you're likely to find in most countries.
