You will be able to describe how an order moves through a broker to an exchange and who takes the other side.
Marcus taps buy on 5,000 shares of his small SGX chip supplier, and a second later the app says filled. It feels like he bought from the app. He didn't. Somebody sold him those shares, at a price they chose, for reasons of their own. Module 5 is about that somebody: who sits on the other side of your trades, what they charge, and what their behaviour tells you.
For the rest of this course, Marcus's SGX supplier gets a name. We'll call it Larkspur Precision. It's a made-up company with made-up figures, built to look like the small SGX precision engineers that sell parts to chip equipment makers. From module 6 onwards it becomes the company we read, model and value.
Your broker doesn't own the shares you buy. When you place an order, the broker checks you have the cash or the shares, then sends the order to a trading venue. For an SGX-listed stock that venue is SGX's own market. For a US stock it could be one of many venues, which is where things get more interesting.
On an exchange, your order meets the order book: the list of buy orders and sell orders resting at each price, waiting for someone to trade with them. The best buy price is the bid, the best sell price is the ask, and the quantity waiting at each level is the depth. SGX matches orders by price first, then by time, so an earlier order at the same price fills before a later one.
Here is a made-up order book for Larkspur, with the last trade at S$1.60. Buyers wait with 12,000 shares at S$1.59, 20,000 at S$1.58 and 15,000 at S$1.57. Sellers offer 4,000 shares at S$1.61, 6,000 at S$1.62 and 10,000 at S$1.63. If Marcus sends a buy order at S$1.61 for 4,000 shares or fewer, it fills at once against the sellers resting there. If he bids S$1.60, his order joins the book and waits for a seller to come down to him.
Every resting order is a choice someone made. The investor who left 4,000 shares on offer at S$1.61 decided that price was good enough to sell. When you trade at it, you take their deal.
Some of the orders in the book come from people like Marcus. Others come from market makers: firms that post a bid and an ask at the same time and stand ready to trade either way. Most ETFs listed on SGX have a designated market maker for this job, and large market-making firms quote US stocks all day.
A market maker earns the spread. In a perfect day it buys at S$1.59 from one customer, sells at S$1.61 to another, and keeps two cents a share. In a bad day it buys from a seller who knows something it doesn't, and the price keeps falling. The spread is its pay for that risk, and the risk is higher when a stock trades rarely, swings a lot or is about to report results. That's why you see wide spreads on thin stocks and in the minutes before news, and narrow ones on busy large companies.
So the spread isn't a fee the exchange invents. It's the price of trading now rather than waiting, set by whoever is willing to stand in the middle.
The US works differently. A US stock trades on many competing exchanges, plus off-exchange venues. US rules require brokers to seek the best execution for customers, and trades generally can't happen at a price worse than the best bid and ask displayed across the exchanges, the national best bid and offer.
Many US retail brokers don't send customer orders to an exchange at all. They send them to a wholesaler, a large market-making firm that fills the order from its own inventory. Some brokers are paid by the wholesaler for this flow, which is called payment for order flow. The wholesaler pays because retail orders are small and, on average, not driven by information the wholesaler lacks, so it can earn a thin spread on them with less risk than on the open exchange.
The customer usually gets a fill at the national best price or slightly better, which the industry calls price improvement. Critics point out that the broker has a reason to route orders where it gets paid, not necessarily where you'd get the best price. Supporters point to the low or zero commissions it funds. You don't need to settle that argument. You only need to know the mechanism, because your broker's order routing disclosure tells you where your US orders go and what the broker receives for them. If you hold a US account through a Singapore broker, the order may pass through a US partner first. Read the disclosure once.
Opening an account, board lots and the difference between a basic limit order and a market order are taught in Investing 101: from zero to your first ETF. Lesson 6.2 of that course, Limit orders, market orders and the bid-ask spread, walks through a market order climbing the ask levels, and lesson 6.3, After you click buy: settlement, contract notes and your CDP statement, covers what happens after the fill. This module starts from there and asks what the book tells you about the cost of a trade before you place it.
Marcus did one thing differently after this. Before placing any order he now opens the full depth screen, not just the last price, and notes how many shares sit at the best bid and ask. For a large bank stock it barely matters. For Larkspur, with 4,000 shares at the best ask, it decides whether his order fills at one price or three.
Many broker apps show several levels of depth for SGX stocks and at least the best bid and ask for US stocks. Open both screens during trading hours, one SGX stock and one US stock, and write down what you see at each.
Open the order book for one SGX stock and one US stock in your broker and write down the best bid, best ask and depth at each.
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