Why MARKET order can be filled at a price worse than price quote?

[ddunbar]

Quote from Trader_Herry:

If you wish to have speedy execution (but not at all costs) in the above 3 cases, what orders do you use - "marketable" limit order (ie for a buy, send at a price at or above best ask), or market order?

Simplified:

Case 1: Market or limit@.

Case 2: Market but expect possible slippage or use a limit above if a buy to factor in your slippage.

Case 3: Limit only. Best placed above Market for a buy.

There are other order qualifiers you can add, like fill or kill(FOK), All or None(AON), Immediate or cancel(IOC). Also various order types like MArket w/ protection, market to limit...

 

[Trader_Herry]

Quote from ddunbar:

Simplified:

Case 1: Market or limit@.

Case 2: Market but expect possible slippage or use a limit above if a buy to factor in your slippage.

Case 3: Limit only. Best placed above Market for a buy.

There are other order qualifiers you can add, like fill or kill(FOK), All or None(AON), Immediate or cancel(IOC). Also various order types like MArket w/ protection, market to limit...

Yes, there are many options. Too many that I don't see some of their practical differences.

Something like MTL and Mkt with protection, sweep-to-fill orders

 

[MTE]

Quote from Trader_Herry:

1)
As to MARKET order, I can't understand why I can get a worse fill than the price quote in the market. For example, if there's queue for the following:
0.24 x 13 <-- Best Bid
...
0.25 x 10 <-- Best Ask
0.26 x 20
0.27 x 25

The market is NOT under serious volilatity.
I sent a buy market order of 10 lots. I expect it will always try to fill at the "Best Ask" available in the market.

However one says it's possible that I may get filled at, say 0.26 or 0.27. How come it is possible?....

There's a simple answer to your question and it lies in the definition of a market order.

A market order is to be filled immediately at any price. In other words, you want immediate execution and you don't care about the price.

By the time your market order reaches the market it may have already moved.

 

[Trader_Herry]

Quote from MTE:
A market order is to be filled immediately at any price. In other words, you want immediate execution and you don't care about the price.

No. Market order is supposed to be filled at the best possible prices offered in the market, but not any price like $0.30 even if the market is doing $0.25.

 

[MTE]

Quote from Trader_Herry:

No. Market order is supposed to be filled at the best possible prices offered in the market, but not any price like $0.30 even if the market is doing $0.25.

Yes, that's what I meant.

Let me rephrase - The market order doesn't specify the price so you are essentially willing to get filled at any (market prevailing) price.

There is the risk of slippage! So if someone pushed the send button "1 ms" before you did and that order lifts the 0.25 offer, then you may get 0.30 (which is the next best offer) even though the market was showing 0.25 when you clicked.

 

[Trader_Herry]

Quote from MTE:

Yes, that's what I meant.

Let me rephrase - The market order doesn't specify the price so you are essentially willing to get filled at any (market prevailing) price.

There is the risk of slippage! So if someone pushed the send button "1 ms" before you did and that order lifts the 0.25 offer, then you may get 0.30 (which is the next best offer) even though the market was showing 0.25 when you clicked.

I see.

The situation I refer to is the best offer is 0.25. When I send the order and to the market, it is still 0.25 (no change occurs. The offer is still there). However for some unknown reasons, it is filled at 0.26 or 0.27!

I don't mind if when the order reached the market, 0.25 order is cancelled, and the best offer is actually 0.30! In this case, it is fine.

 

[kotika]

i think you should first tell us whether you are trading listed, ECN or nasdaq ... afaik the answer depends on the venue. secondly, it is not clear that you are not trading at a retail bucket shop. Places like ameritrade, etrade, etc dont seem to be sending your orders to any actual exchange but fill them at whatever prices they want. this is known in the industry as "internalizing the order flow"

i would love to get more precise explanation of what goes on at the retail brokerages by the people in the know on this board, though.


i once had a stop loss filled at something like 85.55 even though the days high-low range reported by NYSE was 85.65-88.25. This was some years back , i dont have any more recent data, since i never ever put in another stop loss order since then and never will.

 

[skulltrader]

Quote from MadCow:

Say you want to buy a stock at $10 (current price quote), it may very well be that the broker can get the stock at $10 or lower then sell it to you at $10.10 or higher. The broker rips you off. You thought it was market fluctuate. This is how they make money other than commission.

This is incorrect. Your broker can not participate in this type of transaction. He is acting in the quality of an "agent" not a "principal therefore he gets commision and can not mark up the price unless disclosed.

 

[Arnie]

You say you trade through IB, right? Make sure you have your symbols entered to reflect the quotes that you're executing against. When you type in a symbol, IB gives you a choice of what exchange/ecn you will be executing through. Try this. Type in AMD and select SMART order routing, then type in AMD and select NYSE. You will see that the best bid/ask can vary. What may be happening is that you see the best inside offer, which could be a thin ECN, then your order gets executed at the next offer, which could be another ECN a penny higher. Another thing, if you buy on a market order, try to sell on an offer so you capture one side of the spread. Anytime I have to take on offer to get long I will try to offer out as opposed to having to hit a bid.

 

[MTE]

Quote from kotika:

...i once had a stop loss filled at something like 85.55 even though the days high-low range reported by NYSE was 85.65-88.25. This was some years back , i dont have any more recent data, since i never ever put in another stop loss order since then and never will.

You should have questioned your broker about this fill!