Where Trades Actually Go

You tap 'buy' and it feels instant and free. Behind that tap is a routing decision, a market maker, a settlement cycle, and a business model that explains exactly why the app costs you nothing.

Last verified 2026-07-16

Your order probably never reaches an exchange

Tapping buy doesn't send your order to the NYSE. Your broker decides where to route it, and for retail orders the destination is usually a wholesale market maker — a firm that will take the other side directly rather than matching you against another investor on an exchange.

The SEC's own investor education states plainly that some market makers pay brokers for routing orders to them. That's payment for order flow, and it's how a commission-free app funds itself, alongside interest on idle cash and margin lending.

Retail orders are attractive to trade against because they carry little information — a small buy order is unlikely to be someone who knows something. So the market maker earns the spread with modest risk, and shares some of that with your broker. Legal, disclosed, and not automatically bad. It does mean 'free' describes the commission line only.

The trade isn't finished when the app says it is

Execution and settlement are different events. Your app shows the trade instantly, but the actual exchange of shares for cash completes one business day later — the US moved from T+2 to T+1 on May 28, 2024.

Shortening the cycle reduces counterparty risk: less time between agreeing a trade and completing it means less exposure if someone fails in between. That's the systemic reason for the change.

The practical consequence is smaller but catches people out. Proceeds from a sale aren't fully settled the moment the number appears, which affects when cash can actually be withdrawn — and in a cash account, repeatedly buying with unsettled proceeds is what triggers a good-faith violation.

What the safety net does and doesn't catch

SIPC covers up to $500,000 per customer for missing securities, including a $250,000 sub-limit on cash. It exists for one scenario: your brokerage fails and the assets that should be in your account aren't there.

It is not insurance against losing money. If your stock falls 80%, SIPC does nothing, and isn't supposed to — the securities are all present and correct, they're simply worth less. This is the most misunderstood protection in investing, and the misunderstanding runs in the direction of false comfort.

It also doesn't cover bad advice, promised returns that didn't materialise, commodity futures, or most crypto held at non-member firms. Checking that a firm is actually a SIPC member is worth the thirty seconds, because the logo appearing on a website is not the same as membership.