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Understanding the Trade
Lifecycle and Operations
A Complete Guide to the Stages of Trade Processing
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What is Trade Lifecycle?
The trade life cycle is the step-by-step process
that a trade goes through from when it is started
until it is completed. It includes everything from
placing an order to finalizing the transfer of
money and securities between the buyer and
seller.
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1. Order Initiation and
Capture
This is the first step where a trade order is created
and captured by a system. It could be initiated by
an investor through brokers or directly through
trading platforms.
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2. Order Matching and
Validation
The trade order is matched with a counterparty
order. Validation ensures that orders comply with
trading rules and account requirements.
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3. Trade Execution
Once matched, the trade is executed on the
exchange or trading platform. The execution
phase results in a legally binding agreement.
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4. Trade Confirmation
Both parties receive confirmation that the trade
has been executed. It includes trade details like
price, quantity, and order type.
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5. Trade Clearing
The process where the trade details are verified,
and the obligations of the buyer and seller are
defined. This step minimizes risks between
parties.
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6. Settlement Process
The actual transfer of securities from the seller to
the buyer and payment from the buyer to the
seller. Typically follows a T+2 timeline (trade date
plus two days).
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7. Custody and
Recordkeeping
The final stage where securities are stored with a
custodian bank and transaction records are
maintained for compliance.
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