What Is a Trade?
A trade is the completed exchange of a financial asset, such as a stock, bond, option, or currency, between a buyer and a seller. Each trade has a price and a quantity, and it records the moment when agreement is reached on the exchange. Trades are the basic activity that makes financial markets function, because they show what buyers and sellers are willing to pay at a given time.
A trade usually begins when an investor places an order through a brokerage account. The order is routed to an exchange or other trading venue, where it is matched against an opposing order. Once matched, the trade is executed and reported. The cash and securities do not change hands instantly. The final transfer is completed later in a process called settlement.
How Trade Prices Are Set
The price of a trade depends on the type of order used and on market conditions at the time. A market order is filled at the best available price, which may differ from the last quoted price, especially in fast-moving or thinly traded markets. A limit order sets a maximum buying price or a minimum selling price, so the trade occurs only if the market reaches that level.
The gap between the highest price a buyer will pay and the lowest price a seller will accept is the bid-ask spread. A trade executed at a price that is less favorable than the midpoint of this gap effectively costs the investor part of the spread, which makes the spread one of the less visible costs of trading.
Types of Trades
Trades are often described by direction. A buy trade increases an investor's holdings, while a sell trade reduces them. A short sale is a trade in which an investor sells borrowed shares with the plan of buying them back later, reversing the usual sequence of buying first and selling later.
Trades can also be grouped by purpose. Some are made to adjust a long-term portfolio, while others respond to short-term news or price movements. The same security may be traded by individual investors, large institutions, and market makers, each with different goals and time horizons.
Why Trades Matter to Investors
Trades are the underlying record of market activity. Their prices and volumes are used to measure liquidity, track how investors respond to news, and evaluate the quality of execution. For individual investors, understanding trades helps explain why the price shown on a screen may not match the price actually received, and why commissions and spreads affect overall returns.
Updated October 25, 2026. For general education only; not financial, tax or legal advice.