How to trade stocks: orders, spreads and costs
Buying a share takes seconds. Knowing what actually happens when you click “buy” makes you a better trader and saves money.
The order book
Every stock has an order book: a list of buyers (bids) and sellers (asks) and the prices they are willing to trade at. The gap between the best bid and best ask is the spread.
Order types
- Market order: buy or sell now at the best available price. Fast, but you pay the spread, and in thin or fast markets you can get filled worse than expected (slippage).
- Limit order: buy or sell only at your price or better. You control price, but it may never fill.
- Stop order: becomes a market order once a price is hit. Used to limit losses, but in a gap it fills at whatever is available.
- Stop-limit: becomes a limit order at the trigger. Protects price, but may not fill in a fast move.
Costs that add up
- Spread: the hidden cost on every round trip. Tight in large caps, wide in small ones.
- Commission and FX fees: many brokers charge to convert pounds into dollars, often more than the commission itself.
- Stamp duty: UK share purchases usually carry 0.5% stamp duty. US shares don’t.
- Tax: in the UK, an ISA lets gains and dividends grow tax-free within the yearly allowance.
Settlement
A trade isn’t final the moment you click. US trades settle one business day later (T+1). The UK currently settles in two days (T+2), moving to T+1 on 11 October 2027.
Trading hours
The LSE trades 8:00 to 16:30 UK time. US markets trade 9:30 to 16:00 New York time (14:30 to 21:00 UK for most of the year). Pre-market and after-hours sessions exist, but liquidity is thinner and spreads wider.
Key takeaway
Use limit orders when liquidity is thin, know your all-in costs including FX, and remember that small frictions compound over many trades.
Educational content only, not financial advice. Investing involves risk and you can lose money.