The Life of a Trade
What happens after you submit an order to buy a stock on Robinhood? Almost immediately, you see your order executed, the stock shows up on your stock list, and you’re a proud investor.
But behind the scenes, it’s a little more complicated. Once executed, each trade goes through its own journey, including an exchange of cash and securities, processing, settlement and bookkeeping.
We’re eager to do our part to shed more light on our industry. Let’s talk about the life of a trade.
Processing your Trade
Once you hit that buy button on the Robinhood Financial (RHF) app or website, your order is sent to our clearing firm, Robinhood Securities (RHS), which is responsible for routing it to a market venue and seeking the best price reasonably available for execution. More specifically, RHS routes your order to market makers, which compete on the amount of price improvement they can provide to you, the investor. More on that here.
Your order executes and becomes a trade when there is a matching buy or sell order in the market, or if one isn’t immediately available, when the market maker steps in to take the other side of your order. This is captured in RHS’s trading systems and reported back to RHF and you in the form of a trade confirmation.
Settlement of your trade
There’s more work to do, though, once your order is executed. RHS makes sure that the price and number of shares you are buying matches the price and number of shares of the seller, and market makers ensure the trade is reported to the consolidated tape — the ticker display you see on CNBC — as well as to Depository Trust & Clearing Corporation (DTCC)/National Securities Clearing Corporation (NSCC) for trade comparison and clearance. This all happens the day the trade is executed.
Then, through a process called trade settlement, RHS oversees the transaction and ensures each side fulfills their obligations. This generally happens two business days after the trade date for equities and next day for options trades. We’ve called for a shorter settlement process — learn more about that here.
DTCC, with its subsidiary NSCC, provides the post-trade infrastructure for clearance and settlement of securities trades, custody and safekeeping of securities. They also process interest and dividend payments on securities they hold on behalf of member firms like RHS.
Bookkeeping and accounting
Once cash or shares settle from the trade, two business days after the trade date, RHS will handle the books and records that detail where the customer assets are. As long as you continue holding the stock, RHS will handle all custody related functions and other security processing events.
These intricate processes ensure you get the stock that you want in your account, with the quality of execution you deserve, in a seamless and efficient way. The clearing operations team under RHS is the backbone of the trade lifecycle for Robinhood customers. This includes all aspects of the trade life cycle — a chain of events that make it possible for RHF customers to access the markets and invest with ease.
All investments involve risk and loss of principal is possible. Robinhood Financial LLC is a registered broker dealer (member SIPC). Robinhood Securities, LLC provides brokerage clearing services (member SIPC). All are subsidiaries of Robinhood Markets, Inc. (‘Robinhood’).
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