BA-101 · Lesson 2 of 9

How a Stock Exchange Works

Discover how the order book forms the price, how a trading session unfolds and what T+2 settlement means.

12 min read Beginner First Steps on the Stock Exchange
Track contents Introduction to the Capital Market
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BA-101 · First Steps on the Stock ExchangeWhat Is the Capital MarketHow a Stock Exchange WorksMarket ParticipantsBIMx: The Stock Exchange of the Republic of Moldova
BA-102 · Shares and Bonds Made SimpleSharesBondsReturn and Risk
BA-103 · How to Open an Account with a BrokerChoosing a Broker and Opening an AccountOrder Types and Your First Trade

The exchange as a meeting place for orders

A modern stock exchange is no longer a hall full of people shouting prices. Today, trading takes place in an electronic system that receives buy and sell orders sent by authorized intermediaries and matches them automatically according to clear rules that are the same for all participants.

The difference between the best ask price and the best bid price is called the spread. A narrow spread usually indicates a liquid instrument, with many active buyers and sellers.

How the price is formed

The price of a share on the exchange is set neither by the exchange nor by the company. It emerges when a buyer and a seller agree on the same price. As a rule, orders are executed according to price priority, then time priority: the best price comes first, and at an equal price, the order entered earlier.

Buyers (bid)QuantitySellers (ask)Quantity
MDL 49.80300MDL 50.20150
MDL 49.70500MDL 50.40400
MDL 49.501,000MDL 50.60250

The example shows why the price changes continuously: each trade "consumes" orders from the book, and newly arriving orders shift the balance between supply and demand. If more buyers are willing to pay more, the price rises; if sellers dominate, the price falls.

The trading session

Trading takes place during intervals set by each exchange's rules, called trading sessions. The exact schedule and phases differ from one exchange to another and are published by the market operator. In general, a trading day may include the following phases:

  1. Pre-openParticipants can enter, modify or cancel orders, but these are not yet executed.
  2. OpeningOn some markets, the system calculates an opening price that allows the largest possible volume of accumulated orders to be executed.
  3. Continuous tradingMatching orders are executed as soon as they appear, following the price-time priority rule.
  4. ClosingThe closing price is set; it is often used as a reference for the next day and for valuing portfolios.

Settlement: what happens after the trade

The moment your order is executed does not necessarily coincide with the moment you actually receive the shares or the money. The actual transfer is called settlement and is carried out through the post-trading infrastructure, where the central depository records the change of ownership.

The T+2 settlement cycle
Settlement date = T (trade date) + 2 business days
T+2 is a cycle used on many markets; each market sets its own period, which may be shorter or longer. Check the period that applies on the market where you trade.

For example, on a market with a T+2 cycle, if you buy shares on a Monday, settlement takes place on Wednesday: only then are the shares registered in your name and the money reaches the seller. If a weekend or a non-business day falls in between, the period is extended accordingly.

Key takeaways

  • The stock exchange is an electronic system that matches buy and sell orders according to transparent rules.
  • The order book shows bid and ask prices; the difference between them is the spread.
  • The price is formed where supply meets demand, following price priority, then time priority.
  • Session hours and phases differ from one exchange to another and are set by the market rules.
  • Settlement is the actual transfer of money and securities; on many markets it takes place at T+2.

Check your knowledge

Answer all the questions. If you answer all of them correctly, the lesson is marked as completed automatically.

Question 1 of 3In the order book, the best bid price is MDL 30.00 and the best ask price is MDL 30.50. What is the spread?

Explanation: The spread is the difference between the best ask price and the best bid price: 30.50 − 30.00 = MDL 0.50.

Question 2 of 3Two buy orders have the same price. Which one is executed first under the price-time priority principle?

Explanation: At an equal price, priority goes to the order entered into the system earlier.

Question 3 of 3On a market with a T+2 settlement cycle, you buy shares on Tuesday (with no days off that week). When does settlement take place?

Explanation: T is Tuesday; adding two business days (Wednesday and Thursday), settlement takes place on Thursday.

Finished the lesson?Mark it as completed to track your progress.

Educational material only. It does not constitute investment, legal or tax advice. Numerical examples are hypothetical.