Trade life cycle encompasses the whole process of a trade, from A to Z. Accordingly, it starts from the initiation of a trade by investor, right until the financial transaction takes place.
To begin with, the actor or actress participating in the trade life cycle is an investor. It, additionally, can be an individual or institution that invests on their own behalf, or an organization that trades for its clients.
Furthermore, the complete stages of a trade life cycle cover the following.
Also Read: How can You Determine Your Trade is Good or Bad?
Stage One: Order
During this stage, an investor informs a broker and usually a bank, the money safekeeper, about the securities it wants to purchase. Accordingly, the information also includes the desirable price, either the market price or lower.
Stage Two: Front Office Action
The front office action describes the condition where brokerage front office, known as sales, receives the order. As a continuation, the sales forwards the order to middle office, specifically to risk management experts.
Stage Three: Risk Management
The risk management experts will examine the order. In this point, examination covers the viability of the order, determining whether it can pass to the next stage.
Stage Four: The Exchange
After passing the experts’ validation, the brokerage sends the order to the stock exchange. Furthermore, the brokerage will also check the availability of the security in the market.
Stage Five: Match Making
At this point, the exchange will take over the next step. They have to match the buy order and sell order that best suit the request.
Stage Six: Trade Made
Upon finding the best match, the exchange will get in touch with the brokerage again regarding the matter. Then, the front office of the brokerage will convey this news to the client(s).
Stage Seven: The Confirmation
The brokerage confirms the trade to the clients, both seller and buyer, and floors the terms and conditions. If the confirmation is made, the back office will begin the clearing.
Stage Eight: The Clearing
In this stage, the back office performs clearing, which will determine the best condition of the transaction to happen. Additionally, it covers the when, the amount of money, and the availability.
Stage Nine: Settlement
The transaction happens at this point, but neither the buyer nor the seller will directly trade. The back office will facilitate the security and money transfer by accommodating accounts for them. Afterwards, the trade is finished.
Also Read: What Should Traders Knows about Order Driven Market?
