What happens when you click “Buy”.

At any moment a stock has two prices: the bid (the highest price a buyer is willing to pay) and the ask (the lowest price a seller will accept). The “price” shown everywhere is just the last trade struck between the two.

The gap between them — the spread — is a real, invisible cost: if you buy at the ask and immediately sell at the bid, you lose the spread, without the stock having moved.

• Highly liquid stocks (Apple, Royal Bank…): a one- or two-cent spread — negligible.
• Illiquid stocks (small caps, some TSX Venture names): a 1 to 5% spread — a round trip can cost more than years of an ETF's MER.
• Off hours (pre-market, after-hours): spreads widen sharply, even on large names.

Reflex: before buying a stock you don't know, look at the spread as a percentage of price. Above ~1%, every trade already costs you dearly before the stock even moves.

The order book is the moment-by-moment list of all resting limit orders: buys ranked highest to lowest, sells lowest to highest. Market depth is the quantity available at each price level.

• Price priority, then time — the best price goes first; at equal price, first in is first served.
• A large order “eats” several levels — if you buy 5,000 shares of a stock with only 500 at the best ask, your order walks up the book and your average price worsens. That is slippage.
• Depth can be read — a thin book on both sides means a stock where every order moves the price. Be careful with your order size.

The three basic orders, and what they guarantee (or don't):

1. Market order — immediate execution, price not guaranteed: you take what the book offers. Perfect on highly liquid stocks; dangerous on thin ones where you may pay well above the last shown price.
2. Limit order — price guaranteed, execution not guaranteed: you set your maximum buy (or minimum sell) price. The order waits in the book until someone reaches it. The reasonable default for the long-term investor.
3. Stop order — a trigger: when the price hits your threshold, an order (market or limit) is sent. Used to cap a loss or protect a gain. Mind the gap: if the stock opens 15% below your stop, a stop-market sells 15% lower, not at your threshold.

Classic mistake: a market order placed in the evening for the next day's open. At the open, spreads are wide and volatile — you can pay 2-3% more than the prior close. A limit order fixes it.

An IPO (Initial Public Offering) is a company's first sale of shares to the public. The process, simplified:

1. The investment banks (underwriters) value the company, prepare the prospectus and gauge institutional appetite.
2. The issue price is set the night before — institutions and favoured clients buy at THAT price.
3. On the first trading day, the stock opens where supply meets demand — often well above the issue price. The individual investor usually buys that opening price, not the issue price.
4. The lock-up (90-180 days) prevents insiders and early investors from selling — its expiry often brings a wave of selling.

• The first-day “pop” is not yours — it goes to those who had the issue price.
• Historically, buying IPOs on day one has been disappointing on average over 3-5 years; the spectacular exceptions make people forget the average.
• Waiting a few quarters gives you public financial statements, a price history and the lock-up expiry — more information, less euphoria.