Bid and Ask

• When an investor wishes to buy a certain stock, they must decide what price they will pay for the security. The price they will is called the "bid," because the investor is "bidding" to make the purchase. Conversely, when an investor wishes to sell a stock, that is called the "ask," because the seller has an "asking price" for what they wish to sell.
  
  

Order Size

• When a stock trade is executed the exchange will try and match buyers and sellers who have the same order size. For instance, if someone wanted to buy 1,000 shares of Company X, and someone wanted to sell 1,000 shares of Company X, the order matched together if the two investors agree on price. If the order size are out of balance but the prices are the same, the exchange will combine several buyers and sellers to meet the demand on either side of the trade.
  
  

Order Type

• While there are many types of orders that can be placed on stock market exchanges, two of the most common orders are market and limit orders. A market order means that the investor is willing to buy or sell the stock at whatever price the market is currently bearing. You should note that because of the fast pace of many stock trades the price you are seeing on the screen might not be the price you pay when you execute the trade because you have agreed to the "market price." The other type of popular order is a limit order. When executing a limit order trade, the buyer or seller sets a limit for the price they wish to purchase or sell the security at on the market. Only when that price is met will the order be executed.
  
  

Execution Location

• Many people think that if they are trading stock that is listed on the New York Stock Exchange, for example, that the trade is routed all the way down to Wall St. and back instantaneously. Actually, your broker has several places where they are allowed to execute the trade aside from Wall Street and the actual exchange. Think of these other locations as "mini-exchanges." Some of these include places such as a regional exchange (which works in conjunction with the larger exchange), a ECN or Electronic Communications Network (think of a virtual space where orders are matched), or a third market maker. A third market maker is essentially a firm which will execute the transaction at a publicly quoted price in-house.
  
  

Best Execution

• The Securities and Exchange Commission or SEC, mandates that every broker has the duty to perform the best execution possible for your trade. This does not mean that they will adjust your trade, but that they will find the lowest possible price for a buyer and highest possible price for a seller among the entire transaction pool in front of them. This is most often important in market orders where the broker should provide the best market price available at the time of trade.