Case study Broker trade executions

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lazyday
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Re: Case study Broker trade executions

Post by lazyday » Sat Jan 20, 2018 10:03 am

Caduceus wrote:
Sat Jan 20, 2018 8:56 am
I place limit order of 10,000 shares for $30, with stock currently at $31. A pair of transactions takes place at $30 and I don't get filled (the order was placed before mine.)
My challenge trading stocks with large spreads (such as 500 basis points) is not that another bid executes at $30 before mine executes at $30. It's that other trades execute at $30.01 or so. And my bid of $30 would only get executed if the spread moves so that the ask is nearly $30.

For the last several years, I've found limit orders on most very thinly traded stocks (not ETFs) to be useless. Instead I usually wait for a narrow-ish spread and place small market orders. If there's a burst of volume after an earnings announcement, the spread might narrow during parts of the day.

Years ago, I don't recall having this problem, and my limit orders could execute at good prices without the spread moving to my order price. I think I had good luck with limit orders for years after stocks stopped trading in fractions.

I'm not a frequent trader, and don't understand the workings of the market, so please take the above for what little it's worth.

Luckily most of my illiquid shares are gone now.

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triceratop
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Re: Case study Broker trade executions

Post by triceratop » Sat Jan 20, 2018 1:03 pm

livesoft wrote:
For the past 2 days I never got fills on some limit orders to buy set at the bid even though many orders were filled at that price. The volume was about a million shares at the end of the day, so not thinly traded. I am thinking collusion is why my orders did not execute.
Were you looking at the order book at the time? That happens to me too and my guess is always that the volume wasn't sufficient to hit me given how low in the book I am.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

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Re: Case study Broker trade executions

Post by livesoft » Sat Jan 20, 2018 1:45 pm

triceratop wrote:
Sat Jan 20, 2018 1:03 pm
Were you looking at the order book at the time? That happens to me too and my guess is always that the volume wasn't sufficient to hit me given how low in the book I am.
Yes. Here is a screen capture from about 20 to 25 minutes after entering orders:

Image

The thing to note in the above is that trades happen every 30 seconds or so and 5 trades happened at the bid price of 30.36 or about one-third of the trades shown.

Below I show 4 trades I entered. My earliest order (at the bottom) was a market order and filled right away at a price about halfway between the bid/ask. My other three orders were limit to buy at 30.36. The first of those limit orders was executed at 12:58:16 about 4 minutes after it was entered. The other two expired at 4 pm and were never executed. Clearly, the 5 trades that executed at 30.36 shown in the screen capture above were not my orders. Not shown are the trades between when I entered my orders and 13:13:58 first shown trade in the screen capture above. There were many trades at 30.36 which were not my trades. So whose trades were they? Yes, you can say I was low in the book since thousands of shares are offered. I believe all those shares are just computers trading with retail investors who place marketable limit orders. If the retail investor had just placed a market order instead, I would guess they would get a price about halfway between the bid and ask as seen for many of executions shown. I'm sure ftobin or someone will correct me since I am probably wrong. :)

Image
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Re: Case study Broker trade executions

Post by livesoft » Sat Jan 20, 2018 1:55 pm

Here is another SPSB example from January 11:

Image

There is one trade that really stands out. That is one reason for the screen capture. I had several orders to buy at the 30.42 that were getting no love. Then all of a sudden, they all executed. I surmise that somebody got their broker to sell with a block trade over 100,000 shares for a penny less than the prevailing bid/ask spread. Their broker knew they had willing buyers at the current bid price and just made a quick thousand dollars for their trouble. OTOH, if the entity that sold the 100K+ shares went to cash, then over the next week, they saved themselves $5,000.
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saver007
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Re: Case study Broker trade executions

Post by saver007 » Sat Jan 20, 2018 2:58 pm

Well, one big problem is if your broker sell your order to a internalizer rather than to route it to a public exchange, your order won't be part of the exchange order book shown in that level 2 quote. The internalizer/market maker who bought your order from the broker have the legal obligation to execute at no worse than nbbo but they are not going to go out of their way to make sure you get the best price possible. Their profit depends on giving you the worst execution legally possible! Since your order might not have went to exchange, consider it to be the last in the orderbook perpetually.

I recommend using a broker who don't sell your order flow and have a good order routing algorithm
.

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Re: Case study Broker trade executions

Post by ftobin » Sat Jan 20, 2018 3:50 pm

Tanelorn wrote:
Sat Jan 20, 2018 8:27 am
ftobin wrote:
Sat Jan 20, 2018 6:29 am
If you have a buy order with Fidelity, they cannot buy at a price equal or lower than your price without giving you the shares.

But they can certainly sell to you, which is generally to your benefit.

In your story, your limit orders at $30 would executed anyways if the stock was at $29.
Could this be an example of a situation where an AON order might get filled at a worse price than $30 when the broker or market maker bought the shares for $29?

In non-NMS markets like bonds, I think it's also possible that the broker may keep inventory or buy up orders at $29 only to flip them to customers at $30.
Yeah, I was not including AON orders with my statement because you shouldn't be sending AON orders :-). However, your scenario is, I'd say, 50% true for AON orders (different market makers' compliance departments rules can differ here). AON orders are "not held" and subject to laxer rules and different interpretations/implementations.
In non-NMS markets like bonds, I think it's also possible that the broker may keep inventory or buy up orders at $29 only to flip them to customers at $30.
I'm not familiar with the bond market, but it's still true for non-NMS equities markets like OTC Markets.

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Re: Case study Broker trade executions

Post by ftobin » Sat Jan 20, 2018 3:57 pm

Caduceus wrote:
Sat Jan 20, 2018 8:56 am
Thanks Ftobin. Yes, it makes sense that brokers with their own inventory can always sell to clients. But I am thinking specifically of thinly traded securities. For example, I place limit order of 10,000 shares for $30, with stock currently at $31. A pair of transactions takes place at $30 and I don't get filled (the order was placed before mine.) Next spread is $29-$30, and with 4,000 ask paired with my 10,000 bid. If I'm reading you right, Fidelity is not allowed to buy the next block of 4,000 shares at $29, and then turn around the next second and sell the same block of 4,000 shares to me at $30.

If that's the case, then how do brokers "front-run" their clients? I've read various finance articles which say that placing large limit orders (esp. for institutions) runs the risk of front-running by brokers. How would that happen then?
A couple of possibilities:
  • The order was not subject trade ahead protections (which is why you shouldn't trade AON orders). E.g., institutional orders have less protections.
  • If the order was large enough to create a support level, the market maker, if they had enough alpha, could buy at 29.01 and encourage the stock upwards, knowing they flip to you at 29.00 for, at most, a 1-penny loss.

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Re: Case study Broker trade executions

Post by ftobin » Sat Jan 20, 2018 4:00 pm

saver007 wrote:
Sat Jan 20, 2018 2:58 pm
Well, one big problem is if your broker sell your order to a internalizer rather than to route it to a public exchange, your order won't be part of the exchange order book shown in that level 2 quote. The internalizer/market maker who bought your order from the broker have the legal obligation to execute at no worse than nbbo but they are not going to go out of their way to make sure you get the best price possible. Their profit depends on giving you the worst execution legally possible! Since your order might not have went to exchange, consider it to be the last in the orderbook perpetually.

I recommend using a broker who don't sell your order flow and have a good order routing algorithm.
You generally do *not* want your order routed to the open market. An internalizer is usually going to generally provide 40% of the spread as price improvement because of best-ex rules and price-improvement competition among market makers. You aren't getting that in the open market.

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Re: Case study Broker trade executions

Post by saver007 » Sat Jan 20, 2018 4:58 pm

Open market has many more participants than a handful of internalizers typical retail broker brokers exclusively route order to. When I last looked into it, I saw some brokers using just one internalizer or market maker. I don't know how much price competition happen in those scenarios.

If you want best price execution, you need a broker that can smartly route to as many market centers as possible both public and dark.

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alec
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Re: Case study Broker trade executions

Post by alec » Sat Jan 20, 2018 4:59 pm

livesoft wrote:
Sat Jan 20, 2018 1:55 pm


There is one trade that really stands out. That is one reason for the screen capture. I had several orders to buy at the 30.42 that were getting no love. Then all of a sudden, they all executed. I surmise that somebody got their broker to sell with a block trade over 100,000 shares for a penny less than the prevailing bid/ask spread. Their broker knew they had willing buyers at the current bid price and just made a quick thousand dollars for their trouble. OTOH, if the entity that sold the 100K+ shares went to cash, then over the next week, they saved themselves $5,000.
Livesoft,

Chances are your orders to buy @ 30.42 got filled because (1) they were displayed on an exchange and (2) to be able to execute that big block (off exchange) 1 penny below the exchanges' bids of 30.42, by rule, the firm that executed at 30.41 was required to take out all the displayed liquidity on the exchanges, of which your orders were some.
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Re: Case study Broker trade executions

Post by livesoft » Sat Jan 20, 2018 5:02 pm

@alec, I agree. I often see my orders displayed which can be bad because it means my limit order is probably mis-priced and everybody else knows it. :twisted:
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Re: Case study Broker trade executions

Post by ftobin » Sat Jan 20, 2018 5:05 pm

saver007 wrote:
Sat Jan 20, 2018 4:58 pm
Open market has many more participants than a handful of internalizers typical retail broker brokers exclusively route order to. When I last looked into it, I saw some brokers using just one internalizer or market maker. I don't know how much price competition happen in those scenarios.

If you want best price execution, you need a broker that can smartly route to as many market centers as possible both public and dark.
For the most part, market centers don't price-improve. I assure you, orders that we, as a market maker, handled that got routed to the market had MUCH worse execution prices than those we internalized. There is *intense* competition between market makers on price improvement.

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Re: Case study Broker trade executions

Post by alec » Sat Jan 20, 2018 5:38 pm

ftobin wrote:
Sat Jan 20, 2018 5:05 pm
saver007 wrote:
Sat Jan 20, 2018 4:58 pm
Open market has many more participants than a handful of internalizers typical retail broker brokers exclusively route order to. When I last looked into it, I saw some brokers using just one internalizer or market maker. I don't know how much price competition happen in those scenarios.

If you want best price execution, you need a broker that can smartly route to as many market centers as possible both public and dark.
For the most part, market centers don't price-improve. I assure you, orders that we, as a market maker, handled that got routed to the market had MUCH worse execution prices than those we internalized. There is *intense* competition between market makers on price improvement.
:thumbsup
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Re: Case study Broker trade executions

Post by aaronl » Mon Feb 05, 2018 3:04 am

I just read this whole thread and the information contained here is fascinating.

I had always assumed that if I'm not in a rush for an order to get executed (and why would I be?), it's best to use a non-marketable limit order. If it's priced inside the spread, someone might trade against it. And even if it's slightly outside the spread, the random jitters in prices give me a decent chance that it will be filled within a few minutes. If not, I can try again later at a different limit price, but statistically I won't be worse off. Intuitively this makes sense because a non-marketable order provides liquidity, and I would be compensated for that through a statistically slightly better execution price than a market order.

But this thread makes me doubt that reasoning. By using a non-marketable order, you give up the possibility of price improvement and effectively pay the full spread after the market has moved towards your order. It might be preferable to take advantage of price improvement at the current price than to put in a non-marketable order and gamble that the price moves in your favor. The notion of being compensated for liquidity is something that happens with exchange-level fees and rebates, and doesn't extend to retail clients.

Also, the caveats for odd lots are interesting. I don't pay any attention to creating round lots for trades. I'll generally have a certain dollar amount I want to buy or sell and the share count will follow from that, and it's very likely to either be an odd lot or mixed lot. Combining non-marketable limit orders with odd/mixed lots may explain some of the weird execution behavior I've seen in the past.

I don't think any of this matters much to a buy-and-hold investor. But it is definitely interesting to understand the inner workings.

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Re: Case study Broker trade executions

Post by livesoft » Mon Feb 05, 2018 6:30 am

aaronl wrote:
Mon Feb 05, 2018 3:04 am
[...]
Combining non-marketable limit orders with odd/mixed lots may explain some of the weird execution behavior I've seen in the past.
This is the thread to post the "weird execution behavior" when you see some. I always enjoy seeing such trades.
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saver007
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Re: Case study Broker trade executions

Post by saver007 » Thu Mar 01, 2018 5:50 pm

https://www.stockbrokers.com/guides/order-execution

Came across this article while googling. Pretty relevent to subject of this thread.

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Re: Case study Broker trade executions

Post by livesoft » Mon Mar 12, 2018 10:36 am

Here is an example of replacing a limit order to buy at 30.73 (the current bid) that was languishing unfilled for many minutes with a market order that was immediately filled. The bid/ask was 30.73/30.74. Can you guess what price was paid for the buy?

[I'll wait for some guesses before I post the screen capture.]

Image
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Re: Case study Broker trade executions

Post by triceratop » Mon Mar 12, 2018 10:44 am

I'll play. It was <=30.73.
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Re: Case study Broker trade executions

Post by livesoft » Mon Mar 12, 2018 10:50 am

Yes, the fill was at the bid price which surprised me, thus proving that a limit order is not always better/worse than a market order. :twisted:
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Re: Case study Broker trade executions

Post by livesoft » Sat Mar 24, 2018 12:21 pm

Here's another recent trade execution that might be of interest for the following reasons:

1. It was a market order to sell.
2. It was one of the SPDR ETFs at TDAmeritrade, so it was a free trade.
3. It was 1700 shares in one order, so not a large order, but not a small order.
4. Trading was what I would call "light" with one execution about every 25 seconds.
4. Who paid the spread?
5. Why did the transactions on either side of mine timewise execute at a lower price?

Screen capture below shows order book and executions around this trade:

Image

Conclusion: A market order to sell does not always give you a poor execution. These no-commission SPDR ETFs may be OK after all. The broker, TDAmeritrade, did not rip me off. Your mileage may vary. OK, I paid 34 cents of the spread (1700 * $0.0002). I guess it could have been worse.
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Re: Case study Broker trade executions

Post by deltaneutral83 » Sat Mar 24, 2018 12:32 pm

TDA reinvested my SPTM in my HSA 2 minutes before the close 3/22/2018 when it was never above $33 and my fill price was $33.25??? SPTM was between $32.85-$32.90 best I can tell at that time frame.

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Re: Case study Broker trade executions

Post by ftobin » Sun Mar 25, 2018 11:10 am

deltaneutral83 wrote:
Sat Mar 24, 2018 12:32 pm
TDA reinvested my SPTM in my HSA 2 minutes before the close 3/22/2018 when it was never above $33 and my fill price was $33.25??? SPTM was between $32.85-$32.90 best I can tell at that time frame.
TDA probably sent your order, along with all clients who had re-investment for the security, as one big long-lived passive order to a broker (e.g., all day VWAP), during which 03/22 the price of the stock was mostly over $33. The "two minutes before the close" is just when the order received its final fill and completed. You likely got the average execution price, along with all the other clients.

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Re: Case study Broker trade executions

Post by ftobin » Sun Mar 25, 2018 11:13 am

livesoft wrote:
Sat Mar 24, 2018 12:21 pm
Conclusion: A market order to sell does not always give you a poor execution.
99.999% of the time market orders will always give you the same price a marketable limit. The broker's systems are largely going to treat them the same. The market order only becomes a problem if the bid disappears due to you or someone else taking it out.

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Re: Case study Broker trade executions

Post by deltaneutral83 » Sun Mar 25, 2018 11:19 am

ftobin wrote:
Sun Mar 25, 2018 11:10 am
deltaneutral83 wrote:
Sat Mar 24, 2018 12:32 pm
TDA reinvested my SPTM in my HSA 2 minutes before the close 3/22/2018 when it was never above $33 and my fill price was $33.25??? SPTM was between $32.85-$32.90 best I can tell at that time frame.
TDA probably sent your order, along with all clients who had re-investment for the security, as one big long-lived passive order to a broker (e.g., all day VWAP), during which 03/22 the price of the stock was mostly over $33. The "two minutes before the close" is just when the order received its final fill and completed. You likely got the average execution price, along with all the other clients.
Thank you for explanation.

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Re: Case study Broker trade executions

Post by livesoft » Sun Mar 25, 2018 11:26 am

ftobin wrote:
Sun Mar 25, 2018 11:13 am
livesoft wrote:
Sat Mar 24, 2018 12:21 pm
Conclusion: A market order to sell does not always give you a poor execution.
99.999% of the time market orders will always give you the same price a marketable limit. The broker's systems are largely going to treat them the same. The market order only becomes a problem if the bid disappears due to you or someone else taking it out.
OK, the bid was 0.98 cent less than what I got. We read all the time on bogleheads.org about how the spread is something that everyone pays especially on big market orders. That does not jive with my experience.

Note: In this case a marketable limit order to sell would be 30.14 and not 30.1498 nor 30.15.
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Re: Case study Broker trade executions

Post by lazyday » Sun Mar 25, 2018 11:45 am

ftobin wrote:
Sun Mar 25, 2018 11:13 am
99.999% of the time market orders will always give you the same price a marketable limit. The broker's systems are largely going to treat them the same. The market order only becomes a problem if the bid disappears due to you or someone else taking it out.
I've been using market orders in recent years because I was unhappy with my executions on (non marketable) limit orders, especially for thinly traded stocks.

I have generally been quite happy with executions on market orders, though for my lowest volume stocks it took a lot of work.

It sounds like there is no disadvantage to using a marketable limit order, instead of a market order?

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Re: Case study Broker trade executions

Post by livesoft » Sun Mar 25, 2018 11:49 am

lazyday wrote:
Sun Mar 25, 2018 11:45 am
It sounds like there is no disadvantage to using a marketable limit order, instead of a market order?
I think the disadvantage would be that you would pay the full spread more often than not.
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Re: Case study Broker trade executions

Post by lazyday » Sun Mar 25, 2018 11:56 am

livesoft wrote:
Sun Mar 25, 2018 11:49 am
I think the disadvantage would be that you would pay the full spread more often than not.
So I guess you think that price improvement is less likely with a marketable limit order than with a market order.

I only tried marketable limit orders a couple of times because I suspected this might be true.

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Re: Case study Broker trade executions

Post by pshonore » Sun Mar 25, 2018 12:07 pm

deltaneutral83 wrote:
Sun Mar 25, 2018 11:19 am
ftobin wrote:
Sun Mar 25, 2018 11:10 am
deltaneutral83 wrote:
Sat Mar 24, 2018 12:32 pm
TDA reinvested my SPTM in my HSA 2 minutes before the close 3/22/2018 when it was never above $33 and my fill price was $33.25??? SPTM was between $32.85-$32.90 best I can tell at that time frame.
TDA probably sent your order, along with all clients who had re-investment for the security, as one big long-lived passive order to a broker (e.g., all day VWAP), during which 03/22 the price of the stock was mostly over $33. The "two minutes before the close" is just when the order received its final fill and completed. You likely got the average execution price, along with all the other clients.
Thank you for explanation.
You should ask TDA how they reinvest dividends. I did ask ask Fido once and here is their reply
Dividend reinvestments are priced at the average price that the security is purchased by Fidelity. This process typically results in a different reinvestment price than the price that the security is currently trading.

Fidelity pre-identifies all customers that will be reinvesting their dividend and goes to the market to purchase shares three days prior to the payable date. We purchase as many shares as possible on a best-efforts basis, determine the average share price, and reallocate these shares proportionately to the customers that are reinvesting their dividend

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Re: Case study Broker trade executions

Post by ftobin » Sun Mar 25, 2018 12:23 pm

lazyday wrote:
Sun Mar 25, 2018 11:56 am
livesoft wrote:
Sun Mar 25, 2018 11:49 am
I think the disadvantage would be that you would pay the full spread more often than not.
So I guess you think that price improvement is less likely with a marketable limit order than with a market order.

I only tried marketable limit orders a couple of times because I suspected this might be true.
Just so I can clarify myself, when I use the term "marketable limit" I mean a limit that is crossing the spread (like a market order). Any order that broker receives that is crossing the spread is subject to best-execution regulations. Therefore markets and marketable limits are pretty much going to be given the same treatment.

The days of a multitude of "bad" brokers in the electronic space has been gone for 5-10 years. They are forced by regulation to compete on price improvement, and so margins are incredibly thin. Furthermore, it costs the broker a lot of money to actually access the open market and cross the spread (~$0.0020/share). They're always going to try to internalize and provide price improvement.

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Re: Case study Broker trade executions

Post by lazyday » Sun Mar 25, 2018 12:58 pm

ftobin wrote:
Sun Mar 25, 2018 12:23 pm
Just so I can clarify myself, when I use the term "marketable limit" I mean a limit that is crossing the spread (like a market order).
Googling "crossing the spread" there doesn't seem to be a clear definition.

I'm using this definition of marketable limit order, at least for a small order so that for example I'm buying no more shares than are offered at the ask:
ft wrote:A marketable limit order is a buy order with a price at or above the lowest offer in the market or a sell order with a price at or below the highest bid in the market. [source given]

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Re: Case study Broker trade executions

Post by livesoft » Sun Mar 25, 2018 1:24 pm

^Right, a marketable limit order is NOT:
An offer to buy at the current best bid or less.
An offer to sell at the current best ask or more.
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Re: Case study Broker trade executions

Post by deltaneutral83 » Mon Mar 26, 2018 8:59 am

pshonore wrote:
Sun Mar 25, 2018 12:07 pm
You should ask TDA how they reinvest dividends.
This is correct, they (TDA) buy throughout the day so as to not sway the market and give everyone the average price at the end of the day. I imagine that's how every brokerage does it but it does leave a lot to be asked as they can pretty much tell you whatever. I assume the case study brokerage thread dives deeper into this but I can easily see how a brokerage shaves a penny or something.

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Re: Case study Broker trade executions

Post by livesoft » Mon Mar 26, 2018 11:13 am

deltaneutral83 wrote:
Mon Mar 26, 2018 8:59 am
I imagine that's how every brokerage does it ...
Vanguard buys at the opening cross on the Payable Date.

See also the Case Study thread on dividends: viewtopic.php?t=87742
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Re: Case study Broker trade executions

Post by aj76er » Mon Mar 26, 2018 12:27 pm

livesoft wrote:
Sun Mar 25, 2018 1:24 pm
^Right, a marketable limit order is NOT:
An offer to buy at the current best bid or less.
An offer to sell at the current best ask or more.
So, when trading at Fidelity using the normal trading ticket, all I see is the current "ask" and current "bid" prices. If I set a limit order to buy at the "ask" or sell at the "bid", is this executing a "marketable limit order"?
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Re: Case study Broker trade executions

Post by triceratop » Mon Mar 26, 2018 12:36 pm

aj76er wrote:
Mon Mar 26, 2018 12:27 pm
livesoft wrote:
Sun Mar 25, 2018 1:24 pm
^Right, a marketable limit order is NOT:
An offer to buy at the current best bid or less.
An offer to sell at the current best ask or more.
So, when trading at Fidelity using the normal trading ticket, all I see is the current "ask" and current "bid" prices. If I set a limit order to buy at the "ask" or sell at the "bid", is this executing a "marketable limit order"?
It is placing a marketable limit order. If the market hasn't moved, it should immediately execute.

BTW: The example livesoft gave is instead called a resting limit order; a related term is a "passive" order.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

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Re: Case study Broker trade executions

Post by livesoft » Tue Mar 27, 2018 7:02 pm

Here's another instance of "How does my broker do this?"

The setup is that there wasn't enough money in my IRA to buy 753 shares at the Ask price, but there was enough money to buy 753 shares at the bid price. With bid/ask 78.21/78.22 the spread was 1 cent. I didn't want to buy only 752 and leave a cash turd of about $78.22 around.

I didn't want to submit a limit order at the bid price because from past experience I would not expect it to execute. So I submitted a market order to buy to see what would happen.

I figured the possibilities were:

1. Broker software would reject the order because 753 * 78.22 was not available to pay for the purchase.

2. Order would be accepted and executed at some amount between 78.21 and 78.22 (say 78.218 or 78.22) and then I would be informed that there were insufficient funds and I would get a margin call even though this was not a margin account.

3. Order would be accepted and executed at a price between 78.21 and 78.22, but low enough that there was enough money to pay for it and avoid a margin call while leaving a few cents in the settlement account.

Are there other possibilities?

And the result was: #3 above.
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Re: Case study Broker trade executions

Post by Doc » Tue Mar 27, 2018 7:12 pm

livesoft wrote:
Tue Mar 27, 2018 7:02 pm
Here's another instance of "How does my broker do this?"

The setup is that there wasn't enough money in my IRA to buy 753 shares at the Ask price, but there was enough money to buy 753 shares at the bid price. With bid/ask 78.21/78.22 the spread was 1 cent. I didn't want to buy only 752 and leave a cash turd of about $78.22 around.

I didn't want to submit a limit order at the bid price because from past experience I would not expect it to execute. So I submitted a market order to buy to see what would happen.

I figured the possibilities were:

1. Broker software would reject the order because 753 * 78.22 was not available to pay for the purchase.

2. Order would be accepted and executed at some amount between 78.21 and 78.22 (say 78.218 or 78.22) and then I would be informed that there were insufficient funds and I would get a margin call even though this was not a margin account.

3. Order would be accepted and executed at a price between 78.21 and 78.22, but low enough that there was enough money to pay for it and avoid a margin call while leaving a few cents in the settlement account.

Are there other possibilities?

And the result was: #3 above.
Can't have a margin account in an IRA. You messed up the rules. :) Maybe you got a pass.
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Re: Case study Broker trade executions

Post by ftobin » Tue Mar 27, 2018 7:48 pm

livesoft wrote:
Tue Mar 27, 2018 7:02 pm
2. Order would be accepted and executed at some amount between 78.21 and 78.22 (say 78.218 or 78.22) and then I would be informed that there were insufficient funds and I would get a margin call even though this was not a margin account.
I forget the details (Series 7 knowledge is fleeting), but I believe you need the funds by the settlement date or some similar T+n date, not the execution date.

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Re: Case study Broker trade executions

Post by lazyday » Wed Mar 28, 2018 5:27 am

livesoft wrote:
Tue Mar 27, 2018 7:02 pm
Are there other possibilities?
In a cash account, some brokers wouldn't have let you place the trade even if the ask were 1 penny lower, because they require for example a 5% cushion against the price moving after you click Submit.

In the past, some brokers wouldn't even let you place a limit order to buy if you didn't already have settled funds in your (cash) account. I don't know of any that still do this.

I did once place a limit order hoping to result in a balance just above zero, but had the order execute so that my balance was just below zero. So I sold a single share of something else, as planned in case of a negative balance.

Now I'm generally happy to use odd and mixed lot market orders, so next time I'll probably just buy one share less.

By "balance" above, I mean the amount available for purchasing stock shares today, including unsettled funds.

It might be against your broker's rules, but I doubt it's against regulations to have that balance appear negative for a moment, as long as it isn't negative overnight.

I don't know the details of how this works... above ftobin says to have funds by the settlement date. It seems ok to not have funds until the settlement date itself. Such as if you have no funds, sell one stock, and immediately buy another with the unsettled proceeds. At some brokers, maybe you could place the buy first and then the sell, without running into problems?

I don't know if any brokers still do this, but some have allowed you to purchase mutual fund shares without having funds available in time, for example if you sell stock shares and then use the unsettled funds to purchase a mutual fund which settles more quickly than stock shares.

From a brief discussion with a broker once, I suspect some of this comes down to how a brokerage interprets the regulations. And I suppose that includes how aggressive or conservative they want to be.

Of course, some brokers will have rules that are not required by regulations.

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Re: Case study Broker trade executions

Post by motorcyclesarecool » Wed Mar 28, 2018 5:54 am

livesoft wrote:
Tue Mar 27, 2018 7:02 pm
cash turd of about $78.22 around.
💵💩 I love it!
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Re: Case study Broker trade executions

Post by livesoft » Wed Mar 28, 2018 7:34 am

Thanks for the comments on this. I guess it just shows that "Try it!" is a valid way to determine how one's broker deals with it.

At another broker, I did have a margin call in my 401(k) due to an error on the part of the broker: They gave me too much dividend accidentally and I spent it immediately to buy more shares.

See: viewtopic.php?p=2740546#p2740546 So at least I know one can get a margin call in a cash account. :)

Generally though, my brokers have rejected orders in my IRA and 401(k) if I didn't have enough cash available within the account to pay for them including unsettled cash.
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Re: Case study Broker trade executions

Post by ftobin » Thu Mar 29, 2018 4:26 pm

lazyday wrote:
Wed Mar 28, 2018 5:27 am
From a brief discussion with a broker once, I suspect some of this comes down to how a brokerage interprets the regulations. And I suppose that includes how aggressive or conservative they want to be.
This is really what it comes down to. Regulations limit the amount of leeway the broker is allowed to give (e.g., it's something like funding by settlement date), but brokers are allowed to be more conservative if they wish.

The general impression of the regulations I had to learn was that they were created to make sure brokers stay solvent. This is accomplished by limiting the amount of debt clients can have.

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Re: Case study Broker trade executions

Post by motorcyclesarecool » Tue Apr 24, 2018 5:43 pm

Today at TD Ameritrade I submitted a marketable limit order for 730 shares VTI at $137.60. Executed immediately with apparent price improvement, at $137.579

Also submitted a marketable limit order for 4 shares SPTM at $33.29. Executed immediately, but no apparent price improvement.

Is this the sort of data point you’re looking for, Livesoft?
Understand that choosing an HDHP is very much a "red pill" approach. Most would rather pay higher premiums for a $20 copay per visit. They will think you weird for choosing an HSA.

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Re: Case study Broker trade executions

Post by livesoft » Tue Apr 24, 2018 5:45 pm

Yes, thank you.

You are saying the ask price for SPTM was $33.29? Because a marketable limit order would be any price above the ask price.
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Re: Case study Broker trade executions

Post by motorcyclesarecool » Tue Apr 24, 2018 6:04 pm

Yes. Is a limit order at the ask not marketable?
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Re: Case study Broker trade executions

Post by triceratop » Tue Apr 24, 2018 6:07 pm

motorcyclesarecool wrote:
Tue Apr 24, 2018 6:04 pm
Yes. Is a limit order at the ask not marketable?
Only if your limit order is a limit buy order.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

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