How Buying & Selling Actually Works

Placing a stock order looks simple — you open your app, type in a ticker, choose a quantity, and hit "buy." But behind that tap is a mini-auction happening in milliseconds. Understanding what actually happens will make you a smarter, less panicked trader.

Bid and ask prices

At any moment, there are two prices for every stock:

• Bid price — the highest price someone is willing to PAY right now
• Ask price — the lowest price someone is willing to SELL at right now

Let us say Reliance is showing "Bid: ₹2,499 | Ask: ₹2,501." That means:

• If you want to sell immediately, the highest offer is ₹2,499.
• If you want to buy immediately, the lowest asking price is ₹2,501.

The difference between bid and ask (₹2 in this case) is called the spread. On liquid stocks (high volume), the spread is tiny. On illiquid stocks (low volume), the spread is wide and you lose more money when you trade.

The order book

Behind those bid and ask prices is the order book — a queue of all pending buy and sell orders. It looks like this:

SELL ORDERS (people wanting to sell)
₹2,505 — 500 shares
₹2,503 — 300 shares
₹2,501 — 1,000 shares  ← Current best ask (lowest sell price)

BUY ORDERS (people wanting to buy)
₹2,499 — 2,000 shares  ← Current best bid (highest buy price)
₹2,497 — 800 shares
₹2,495 — 600 shares

The bid and ask you see are simply the top of the order book. As people cancel orders and new orders arrive, the book changes constantly.

Market order vs. limit order

When you place an order, you have two choices:

Market order: "I want to buy 100 shares RIGHT NOW at whatever price the market is." Your order executes immediately at the best available price (the ask price for a buy, the bid price for a sell). You get in fast, but you might pay slightly more than you expected if the spread is wide or the price is moving.

Limit order: "I want to buy 100 shares, but ONLY at ₹2,500 or lower." Your order sits in the queue and waits. If the price drops to ₹2,500 or below, your order fills. If it never gets there, you never buy — and you stay in cash. Limit orders are safer because you control the price, but you might miss out if the stock rallies.

For long-term investing, limit orders are smarter. You are not in a race; you can wait for your price.

How a trade executes

Let us trace a real example:

1. You place a market buy order for 100 shares of Infosys at the current market price.
2. The exchange checks the order book. The best ask is ₹1,800 with 500 shares available.
3. Your order matches with one of those sell orders. You get 100 shares at ₹1,800 each.
4. The seller's order is reduced by 100 (they still have 400 left in the queue).
5. The trade is recorded, and your 100 shares are credited to your demat account the next day (T+1).
6. Money leaves your bank account the next day (T+1) as well.

All of this happens in less than a second. The T+1 settlement is when the actual movement happens.

Delivery vs. intraday

There are two ways to trade:

Delivery (also called "cash" or "equity"): You buy shares and hold them in your demat account. They are truly yours. If you hold for years, you own a piece of the company. Dividends go to you. Voting rights are yours. This is real investing.

Intraday (also called "MTF" or "margin trading"): You borrow money from your broker to buy more shares than your cash allows. You must sell the same shares back before market close on the same day. You never actually own the shares — you are betting on the day's price movement. Intraday charges margin interest (a percentage fee, which is riba/interest-based), and it is extremely risky.

Settlement and your timeline

• Day 0 (T): You place your order. It executes immediately. You see it in your app as "pending" or "executed."
• Day 1 (T+1): Settlement happens. Shares are credited to your demat, money is debited from your bank. Now you really own the shares.
• Day 2 onwards: The shares are yours. You can sell them, hold them for years, or pass them to an heir.

During T+1, the stock price can move. If you bought at ₹2,500 and it is ₹2,480 by T+1, you are down ₹20 per share — but you still own the shares. This is normal.

Key takeaways

• Bid is what buyers offer, ask is what sellers want; the spread is the difference
• Market orders execute immediately; limit orders wait for your price
• Trades execute in seconds but settle the next day (T+1)
• Delivery = you really own the stock (halal); intraday = you borrow and bet (haram, involves interest)
• Always trade in delivery mode and hold for the long term

Try it

Now that you know HOW to trade, learn what actually moves the prices you are trading. Discover what moves stock prices — earnings, news, macro events, and why long-term investors ignore the noise.