A general trade life cycle includes the various stages from order placement to execution and settlement. This life cycle is described step-by-step as follows:

• Pre-execution: An order is placed at this stage.
• Execution and booking: When the order is matched and executed, it converts it into a trade. At this stage, the contract between counterparties is matured.
• Confirmation: This is where both counterparties agree to the particulars of the trade.
• Post booking: This stage is concerned with various scrutiny and verification processes required to ascertain the correctness of the trade.
• Settlement: This is the most vital part of trade life cycle. At this stage, the trade is final.
• Overnight (end-of-day processing): End-of-day processes include report generation, profit and loss calculations, and various risk calculations.

This life cycle is also shown in the following screenshot:

In all the aforementioned processes, many people and business functions are involved. Most commonly, these functions are divided into functions such as front office, middle office, and back office.

In the following section, you are introduced to some concepts that are essential to understanding the strict and necessary rules and regulations that govern the financial industry. Some concepts are described here and then again in later chapters when specific use cases are discussed. These ideas will help you understand the scenarios described.