0

When I buy 100 shares, does the trade volume increase by exactly 100 shares?

Suppose there are 4 entities involved in a transaction: me, my broker, dealer A, and dealer B. When I place an order to buy 100 shares, my broker contacts dealer A. Suppose dealer A does not have any shares in stock. Dealer A buys 100 shares from dealer B. Then, dealer A sells 100 shares to me via my broker. As you can see, there were two transactions of 100 shares each. Did this whole process increase the volume by 100 shares or 200 shares?

(Answers need not be specific to the US, but if this is a region-specific issue, feel free to answer about the US stock market)

5
  • I think you might want to be more careful about the terms "broker" and "dealer" here. Broking (matching a buyer and seller, as A and your broker do) is not the same as dealing (trading that alters the trader's inventory, which B does). – kurtosis Aug 6 '20 at 17:59
  • @kurtosis Doesn't my buying from A briefly alter A's inventory? Where can I read more about the specific definitions? If A has 20 shares in inventory, but needs to get 80 shares from B, is A a broker or a dealer? – Flux Aug 7 '20 at 4:18
  • That depends. Sometimes A will have both sides live and get the commitment simultaneously; sometimes it is almost simultaneously (aka a riskless principal trade). Both would fall under broking. If A has partial inventory of 20 but does not immediately cover the 80 share change in inventory, that is dealing. – kurtosis Aug 7 '20 at 6:34
  • 1
    Also relevant is NASD Notice to Members 99-65, which explains the elimination of some double-counting. – Flux Aug 13 '20 at 20:30
  • Thanks for noting that. I was trying to find it, but did not quickly and then forgot about it after I found the Nasdaq page on how counting is now. That said, correcting for double counting is crucial with historical research. – kurtosis Aug 13 '20 at 21:07
2

In modern stock exchange there is no dealer A and B. You place your order via broker and it matches to the order placed by other parties via their broker. So there is a single transaction of 100 shares

0

Suppose there are 4 entities involved in a transaction: me, my broker, dealer A, and dealer B.

That is a wrong assumption. The BROKER is not involved in the transaction - it is merely handling the paperwork and holding the shares in your name. The transaction is between you and the other side, totalling 100 shares. Why do you assume 2 dealers? EVERY transaction has ONE buyer (or seller) and the other side has as many participants as are needed to fill the order (in case of large orders).

Dealer A buys 100 shares from dealer B. Then, dealer A sells 100 shares to me via my broker.

This is not how it works. Your broker pushes the order on the exchange where A counterparty picks it up. Why would you assume a dealer buying from ANOTHER dealer?

0

If you buy from a market maker and they do not have the shares in their inventory, the volume will increase by a multiple of your trade size. These examples provided by Nasdaq illustrate this and how volume gets counted.

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.