You Place a Trade in Your Brokerage Account. What Happens Next?

Let's say you want to buy 100 shares of a stock. You place an order in your brokerage account. What happens next? How do you go from mouse click to owning shares in a company? And what happens when a hedge fund wants to do the same thing, but on a scale 10,000 times larger?

I recently met up with longtime New York Stock Exchange floor trader Doreen Mogavero. I asked her to explain the process. Here's what she had to say. (A transcript follows.)

Morgan Housel: Let's say I'm at home on my online brokerage account. I want to buy 100 shares of Coke. What happens then?

Doreen Mogavero: Well, your hundred shares of Coke may never reach this floor. It may be internalized at the vendor that you use. More than likely, an order that size would be internalized at a vendor. What we do here primarily as brokers these days is not so much the small retail order, but it's more dealing with the money managers and the pension funds and the larger orders.

Morgan Housel: So let's say I'm a hedge fund that wants to buy 1 million shares of Coke. How does that get to you? What is your job? How do you process that transaction?

Doreen Mogavero: Well, most of us have direct lines to the clients that we talk to, whether they're hedge funds or pension plans or whatever they may be, and the manager will send us an order electronically into our system. That will send into our handhelds, and then we will manage the order from there. We can from the floor here trade not just on this floor; we trade wherever the best price is. The New York Stock Exchange will, if the best price is not here, automatically route our order to the best price. We are compliant with all of the regulations of Reg NMS, so we are bound by Reg NMS to find the best price, so we have to be allowed and not restricted to just one area.