Limit order question (very puzzled)

S

sbbi

Hi,

This question has puzzled me for a long time.. It happens quite often in thin stock, like OTC. For example, I set a limit order to sell at $0.15 for 100 shares (just a example) (not an AON order), later I found a transaction happened at $0.2 for 100 shares. So why my order was not filled (at leat at $0.15) first?

I think it boil down to the determination of priorities of limit orders (and market orders) and how a transaction price is determined with multiple market participants. (Maybe another trader was selling at $0.14 so her limit order had higher priority than mine. But still in that case how $0.2 was decided? by whom?)

Thanks.
 
Thanks Hurricane.

You mean there are multiple ECNs for OTC stocks in US and my broker did not send my order to all of them? How can I tell?
Thanks again.

Quote from Hurricane:

One possibility is that your order was displayed at ECN 1 but the higher price execution you saw was executed at ECN 2.
More...
 
Also, my order has never been displayed on Level II (or ECN). All I can see on Level II is either bid/ask orders from market makers, or nothing.
Is this because my order has been set up as a hidden limit order by my broker (penson)?

Thanks.

Quote from Hurricane:

One possibility is that your order was displayed at ECN 1 but the higher price execution you saw was executed at ECN 2.
More...
 
Your broker wouldn't send your order to multiple market makers as they could be simultaneouly executed resulting in short selling. Some brokers also maintain the orders in their system until they can be executed. Probably saves them money. You can see this happen when your limit price is better than the displayed price.

If you use a direct access broker (like Interactive Brokers), you can control the routing of your order. But you still risk with a low volume stock not getting an execution because your order wasn't in the right venue for execution.
 
"Some brokers also maintain the orders in their system until they can be executed. Probably saves them money. You can see this happen when your limit price is better than the displayed price."

How does a broker decide if an order "can be executed"?

Keeping my order in the broker is fine with me because I do not want market makers to see my order...but how does my broker know when to show his hand?

Also if my order is kept in my broker than being sent to an ECN or market maker, my broker should potentially monitor multiple ECNs and get the best price for me, right?


Quote from Hurricane:

Your broker wouldn't send your order to multiple market makers as they could be simultaneouly executed resulting in short selling. Some brokers also maintain the orders in their system until they can be executed. Probably saves them money. You can see this happen when your limit price is better than the displayed price.

If you use a direct access broker (like Interactive Brokers), you can control the routing of your order. But you still risk with a low volume stock not getting an execution because your order wasn't in the right venue for execution.
More...
 
When selling, the broker can hold your order until the best available bid is at or above your asking price. This would be at any available ECN. Then they know the order can be executed. Better, of course, is that your order is placed with one ECN so that a prospective buyer sees it and has a chance to take it. If a bid is placed at or above your asking price at another ECN, your broker should cancel the order and switch the order routing.

None of this really matters for higher volume stocks. But on thinly traded stocks, it would explain why you won't get a guaranteed execution.
 
"When selling, the broker can hold your order until the best available bid is at or above your asking price. "
Then the execution price will be equal to or higher than my limit price, right?

"If a bid is placed at or above your asking price at another ECN, your broker should cancel the order and switch the order routing."

But what happened is it did not happen (in my case). Maybe it is because my broker was not fast enough to switch to another ECN and catch the bid before the bid got filled?

For me, I do not want others see my order, in case others outbid or undersell mine.

Thanks. Your explaination makes a lot sense anyway.
 
Let's say the bid is 9 and the ask is 11. You place an order to sell at 10 and the broker either holds it or places it at an ECN different than where the 11 is asked. Someone sees the 11 and hits it. The order is executed at 11, above your asking price. Your broker had no time to change the routing of your order.

Again, this won't happen with most stocks. But crazy things can happen with a thinly traded stock.
 
It also depends on which exchange the stock is listed. The rules are different for different exchanges. For example, if the stock was listed on the Nasdaq National Market or Nasdaq Small Cap market your scenario should not have happened. However, things like this happen all the time on the OTC Bulletin Board and Pink Sheets.
 
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