PosiStep 5: How a trade works: orders, bid and ask, liquidity, settlement
You have a demat and trading account (PosiStep 2). What actually happens when you press "buy"? This PosiStep walks through an order from your phone to your demat account, and the words you will see on the way.
Bid, ask and the spread
At any moment, some people want to buy a share and others want to sell. The highest price a buyer is offering right now is the bid; the lowest price a seller will accept is the ask (or offer). The small gap between them is the spread.
A trade happens when a buyer and a seller agree on a price. Your broker's app shows the best bids and asks waiting in the queue.
Market orders and limit orders
A market order buys or sells straight away at the best price available. It is fast, but you do not control the exact price, which matters when prices are moving quickly.
A limit order sets your price: buy only at ₹100 or less, or sell only at ₹120 or more. It may not fill if the market never reaches your price, but you will never pay more than you chose. A stop-loss order is a sell instruction that triggers if the price falls to a level you set, used to limit losses.
Liquidity: how easily a share trades
A share is liquid when many people trade it every day, so you can buy or sell quickly near the last price with a narrow spread. Large companies like Infosys and Apple are very liquid.
Many very small or very low-priced shares trade only a few times a day. Their spreads can be wide, a big order can push the price, and selling when you want to can be hard. In India, many shares also have daily price bands (circuit limits) that stop trading beyond a set percentage move.
Settlement: when the shares are really yours
After a trade, the exchange's clearing system makes sure money and shares change hands. India moved to T+1 settlement (trade day plus one working day) in 2023, and the US did the same in 2024. So shares bought on Monday reach your demat or brokerage account on Tuesday.
The charges on a trade
Each trade has costs. In India these usually include the broker's brokerage, Securities Transaction Tax (STT), exchange transaction charges, a small SEBI fee, GST on the charges and stamp duty. In the US, many brokers charge no commission, but small regulatory fees can apply. Charges differ between brokers, so check the contract note your broker sends after each trade.
Frequent trading means paying these costs again and again, which is one reason PosiStep 7 compares investing and trading.
Where PositoAI fits
PositoAI is a research site, not a trading app: it shows each company's last closing price and the date it is from, not live prices, and it does not place orders.
Key terms
- Bid and ask
- The highest price buyers offer and the lowest price sellers accept right now.
- Spread
- The gap between the bid and the ask; narrow for liquid shares, wide for thinly traded ones.
- Market order
- Buy or sell immediately at the best available price.
- Limit order
- Buy or sell only at your chosen price or better.
- Liquidity
- How easily a share can be bought or sold without moving its price much.
- T+1 settlement
- Shares and money are exchanged one working day after the trade (India and the US).
Try it
For a made-up company, Orbit Tech, the best bid is ₹99.50 and the best ask is ₹100.00. You place a market order to buy 10 shares. About how much will the shares cost, before charges?
A market buy order takes the best ask, ₹100.00, so 10 shares cost about ₹1,000 before charges. The ₹99.50 bid is what buyers are offering; you would get roughly that if you sold.
See it live on PositoAI
Open Infosys on PositoAI and find its price and the date that price is from. Then open the Low Price Stocks page and read its note on why very low-priced shares are often thinly traded.
What this does not tell you
Knowing how to place an order says nothing about what to buy or when. Order types control price and speed, not risk: a limit order can still buy a share that later falls.
Quick quiz
What is the bid price?
The bid is the best price buyers are offering; the ask is the best price sellers will accept.
You want to buy only if the price is ₹250 or lower. Which order fits?
A limit order fills only at your price or better, so you will not pay more than ₹250.
What does T+1 settlement mean?
T+1 means trade day plus one working day; India and the US both settle share trades this way.
Which share is usually more liquid?
Large, widely traded companies are liquid: you can trade quickly near the last price with a narrow spread.
Which of these is a charge on share trades in India?
STT is charged on share trades in India, along with brokerage, exchange charges, a SEBI fee, GST and stamp duty.
Answer every question on this page correctly to complete this PosiStep.
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PosiCourse is for education only. It does not recommend buying or selling any share. Examples with made-up numbers are not real companies. PositoAI is for research and education only and is not investment advice.