Do trades take price from initiator or aggressor?

[dcobbold123]

Hi,

Say a stock is trading and the best offer is 10.05. If I insert a bid at 10.00 then my order should be matched with the offer.

So my question is will the trade be done at 10.00 or 10.05? I have a feeling that since the offer is older than my bid then then that should get the benefit of the trade and do it at the cheaper price of 10.00. Is this right?

Thanks,
David.

 

[samueldoernte]

nothing will happen till someone gives in and hits one of your prices.

 

[dcobbold123]

Quote from samueldoernte:

nothing will happen till someone gives in and hits one of your prices.

Don't exchanges match orders automatically and trade them if they are the right prices without waiting for anyone to hit them?

But I gave a bad example - Say the best offer is 10, and I insert a bid at 10.5, the exchanges should match these orders but will the trade happen at 10 or 10.5?

If it happens at 10 then it's worked out better for me, but if it happens at 10.5 then it's worked out better for the offer.

So since the offer was oldest i assume it gets the benefit and the deal happens at 10.5?

 

[promagma]

Quote from dcobbold123:


So since the offer was oldest i assume it gets the benefit and the deal happens at 10.5?

Since the offer was oldest, the offer price gets precedence and the deal happens at 10.0

 

[dcobbold123]

Quote from promagma:

Since the offer was oldest, the offer price gets precedence and the deal happens at 10.0

even though that means the deal is 0.5 worse for the offer?

i.e. they were willing to sell for 10.0 or better, and I was willing to buy for 10.5. So the better trade for the offer would be 10.5?

 

[dcobbold123]

According to this description of standard matching you're right:

http://www.gtnews.com/article/6096.cfm

"if a new offer to sell at £10 matches comes in with an existing offer to buy at £12, the deal will happen at £12)."

doesn't make sense to me, it's going against the whole rule that you're rewarded for getting in early...

 

[LoveOfProfit]

If someone is willing to sell at 10 and you're willing to buy at 10.5, you'll buy all the shares (offers) starting at 10 and going up in price until either your order fills or you hit the 10.5 limit.

 

[dcobbold123]

Quote from LoveOfProfit:

If someone is willing to sell at 10 and you're willing to buy at 10.5, you'll buy all the shares (offers) starting at 10 and going up in price until either your order fills or you hit the 10.5 limit.

Yep that's right, but say both the orders in my example are the same qty, then my order will match with only that order, and so the question is why does it trade at a price that favours the newer order and not the older one?

 

[limitdown]

most of these ancient discussions are acedemic

with the advent of ECN's

(and the crowd says: "whoa")

those crossing networks jealously guard their matching logic like their ........ cherry... (i.e. bottom dollar)

iow,

exactly what triggers or causes the prices on the (ladder) or dome or scale to shift just to take all offers and match all bids is a misnomer, however, if you watch (for example) the ES and its high volume high frequency trading in their dome, you might get some idea of price matching logic in real time.

the notion of price precedence, buy throughs, filling or sweeping the book and a few other level 2 / level 3 tricks of the trading trade, have mostly become mute because of the advent of the ECN's and how they match trades.

it mostly seems that the maximum amount of damage will be done to the most amount of orders listed on the electronic book most of the time,

and add to boot, without malice of forethought either.

these are the (so called) spreads that those high frequency trading firms go after and capture,

while there's no way of knowing for sure, one article (search on the topic) quoted the net earnings of these firms in 2008 of over $21 billion dollars,

whether true or not, it certainly was more than $21 million dollars earned

 

[LoveOfProfit]

Quote from dcobbold123:

Yep that's right, but say both the orders in my example are the same qty, then my order will match with only that order, and so the question is why does it trade at a price that favours the newer order and not the older one?

The seller has already committed that selling the stock at price $10 is acceptable to him. The buyer commits he'll buy at anything up to $10.5, but the lower the better. Hence the order fills by buying the stock at the price of $10.

Ok that didn't explain it as I intended, let me try again.

Go back to your common supply and demand curves from economics. If a supplier is willing to sell good X for $10, and good X is worth $10.5 to you, you'll certainly buy it for $10. There is nothing in place that would cause you to pay your maximum price for the good if you can buy it for cheaper though.