Most people who buy shares have never thought about what happens in the seconds after they tap the button. I hadn't either, for years, and then I spent a while reading about order routing and found the whole thing considerably odder than I expected.
The order does not go to the exchange
That is the first surprise. When you place a market order with most retail brokers, it does not travel to a stock exchange in the way the word suggests.
It goes to a wholesaler — a market making firm that has an arrangement with your broker to handle retail flow.
That firm fills the order from its own inventory, or matches it against other retail orders it holds, or routes it onward if it cannot.
The exchange, in a large share of retail trades, is never involved at all.
Why brokers do this
Because the wholesaler pays them for it. The arrangement is called payment for order flow, and it is the reason commission-free trading exists.
The logic is that retail orders are, on average, less informed than institutional ones. A market maker filling them faces less risk of being on the wrong side of information it does not have.
That lower risk is worth paying for, and the payment funds the zero commission you see.
Whether this is good or bad for you is genuinely contested, and I don't think the honest answer is obvious in either direction.
The argument that it is fine
Wholesalers are required to provide price improvement — a fill better than the publicly quoted best bid or offer — and they frequently do.
So a retail buyer often gets a slightly better price than they would have received on an exchange, plus no commission.
On that reading, the retail investor is the beneficiary, and the arrangement is a straightforward transfer of the value of uninformed flow back to the people providing it.
The argument that it is not
The price improvement is measured against a benchmark that the wholesaler's own activity helps set, which is not an independent yardstick.
And the broker's incentive is to route where the payment is highest, which is not necessarily where execution is best. Those two can coincide and there is no mechanism guaranteeing they do.
Regulators in several jurisdictions have looked hard at this, and one major market banned the practice outright. Others have kept it with disclosure requirements attached.
The disclosure nobody reads
Brokers publish quarterly reports on where they route orders and what they receive for it. These are public and they are genuinely readable if you spend twenty minutes with one.
They will tell you which wholesalers get your flow, the payment per hundred shares, and the average price improvement claimed.
I looked up my own broker's and found it more informative than anything the marketing material had told me. It is not hidden. It is just formatted in a way that discourages reading.
Limit orders behave differently
This is the part that has practical consequence.
A market order says fill me at whatever the price is. A limit order says fill me at this price or better, and otherwise don't.
A market order hands the execution decision entirely to whoever is filling it. A limit order does not.
For a liquid large-company share during regular hours, the difference is usually pennies and does not matter much. For anything thinly traded, or outside regular hours, or during a volatile open, the difference can be substantial.
I use limits by default now, not because I think I'm being cheated, but because it costs nothing to specify what I'm willing to pay and it occasionally saves something.
Settlement takes longer than the confirmation suggests
Your screen says the trade is done. Legally, ownership transfers on the settlement date, which is one business day after the trade in most major markets now, having been shortened from two.
In between, the trade sits in a clearing process where a central counterparty stands between buyer and seller so that neither is exposed to the other failing.
That clearing house requires collateral from brokers against the trades in flight, and the size of that requirement is what caused several brokers to restrict trading during the meme stock episode.
Understanding that made the whole event considerably less mysterious to me than the conspiracy framing did.
Why any of this matters
Not because you need to change what you do. For a long-term holder buying a broad fund monthly, none of this materially affects outcomes.
It matters because a lot of confident commentary about markets is written by people who have not thought about the plumbing, and it shows.
Once you know that retail orders mostly don't touch an exchange, that the broker is paid by someone other than you, and that settlement carries a collateral requirement, a fair amount of market news becomes legible rather than mystifying.
That is the actual benefit. Not better trades. Better reading.