I placed a buy market order during trade hours. The broker executed the order at a horrible price far outside the spread. The security's spread was wide, but I expected the order to be executed at least at a price below the ask price. How is this possible?
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1"I expected the order to be executed at least at a price below the ask price" why? if you place a market order the ask should be the lowest price you should expect to pay. If you want to pay less than the ask you should place a limit order (and realize that no one may take the other side)– D StanleyApr 25, 2022 at 15:13
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@DStanley Isn't the ask the price the seller is asking for? Why would my broker offer a price higher than what the seller is asking for?– AxiomaticNexusApr 25, 2022 at 15:25
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Which stock exchange does the stock trade on?– FluxApr 25, 2022 at 15:39
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@Flux The order was for a Put Option of IVV. So, the NYSE? The order says it was routed through MIAX.– AxiomaticNexusApr 25, 2022 at 15:46
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How far above the ask price did it fill? IVV options have poor liquidity, so that coupled with a market order is a recipe for garbage.– Hart COApr 25, 2022 at 15:51
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2 Answers
A market buy order means "buy at whatever the market is currently asking for" which is the ask.
It's possible you got front-run (someone else took the ask before you could) or the ask that you saw was filled before your market order was placed, but market orders are meant to guarantee execution, not to and lock in a price - that's what limit orders are for.
In other words, if the current ask was $6.50 and you wanted to try and get it for $6.45, you'd put in a limit order for $6.45 and hope that some buyer is willing to take it. Or, if you are willing to pay the ask but don't want to pay any more than that, then place a limit at the ask.
If the stock (or whatever) is illiquid, some High Frequency Trader may have seen your $6.50 order, realized that the next ask was $7.50, filled the $6.50 offer and sold to you for $7.50. That's a horrible deal for you but is plausible in an illiquid market.
answered Apr 25, 2022 at 16:01
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2So in other words... Never EVER submit a market order on illiquid securities. That right? Apr 25, 2022 at 16:44
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1@AxiomaticNexus Of course. That is quite literally the bread and butter for HFTs. Apr 25, 2022 at 17:07
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Can you elaborate on the scenario in the last paragraph? No matter how fast HFTs are, they can't go backward in time. Orders are matched in the order received by the exchange. Market orders are matched immediately (only limit orders appear in the order book). So how could an HFT have "seen" OP's order and then front-run it (unless you're talking about arbitrage between two different exchanges)? Likewise, with an existing ask at $7.50, the HFT can't sell to OP for $7.50 because the HFT is second in line behind that offer (price/time matching). The HFT would have to sell at $7.49 to beat it.– nanomanApr 25, 2022 at 17:59
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investopedia.com/articles/active-trading/042414/…. Essentially, companies with faster connections to the exchange can detect an order and put another order in front of it (meaning that the exchange sees the "second" order first). Apr 25, 2022 at 19:44
In addition to Stanley’s answer, the amount at the shown ask price could be not deep enough for your order, ending in you buying through the order book upwards.
For example, someone offers 2 at 54$, and you want to buy 10 ‘at market’ - you will get those two plus the next eight at whatever price they are offered, maybe 55, 58, 67, whatever; giving you an average price anywhere above 54.
