# Triggering a conditional sell order on the bid price

I recently set up a trailing stop sell order for an illiquid security that was triggered by the bid price going above a certain threshold. My rationale to trigger on the bid price was an attempt to minimize the effects of the magnitude of the bid-ask spread. When later on I saw that the security price had briefly gone above the limit I had set, the only question in my mind was at which price my sell order was executed. However, to my suprise I saw that my order not only had not been filled, but, even more puzzlingly, had not even been triggered.

I believe this unexpected outcome underlines an essential misunderstanding that I have of the concept of bid and ask prices, but all the further reading I have done on the subject has not helped me to fully understand exactly what happened . In my mind, I have always assumed that for a transaction to happen, the bid must equal the ask. More precisely, my assumption has always been that when a transaction happens at time t, at that precise instant of time necessarily
bid price(t)=ask price(t)=mark price (t)=last price(t).
However short the time interval during which this equality holds (possibly just fractions of a millisecond), the fact that these four prices become instantaneously equal when a transaction takes place should trigger a conditional order with a limit below the transaction price, no matter on which of the four prices the trigger is set.

I would really appreciate any help in understanding where the flaw in my assumptions is.

• Bid and Ask don't need to match for a transaction to occur; they could also overlap (Bid 20, Ask 10 -> sold for 15). But that doesn't explain your question. May 27, 2022 at 2:01
• Thanks for the reply. I guess the central point of my question is: if a transaction happened at a certain value, can we say that the bid reached that value? May 27, 2022 at 10:52
• Does this answer your question? Is the current stock price the last bid price or the last ask price, or what? Jun 26, 2022 at 6:16

Let me clarify this concept using the example that originated my question.
I had set a trigger: if bid price of XYZ > \$0.316, sell XYZ at \$0.32. One day XYZ opened at \$0.352 and after that first trade it went below \$0.3. My question was: why was my order not even triggered? My broker told me it was not triggered because at opening the bid was only \$0.266, while the ask was \$0.352.
For the longest time, this made no sense to me because of the belief mentioned above: if a transaction had happened at \$0.352, someone at a certain point in time must have necessarily been willing to pay that price.

Morale: Never submit a market order for an illiquid security, especially at opening, when treacherous buyers and sellers cast their nets wide hoping to catch inexperienced preys.

• Doesn't really have to be a "poor misguided soul". There's plenty of reasons why someone might find themselves needing to buy or sell a stock immediately: perhaps they got assigned on an option (possibly the stock was perfectly liquid not long ago so writing an option made great sense back then), or perhaps their broker or risk management made them close a position (or if we were talking about a market sell, perhaps they just really needed cash right now for any reason). Oct 21, 2022 at 19:26
• Of course, you are correct. I was just trying to be funny, and obviously failed. I know there can be many situations in which one is forced to buy or sell at a worse price than the current bid/ask, option assignment being the obvious one. However in this case it was indeed a very illiquid stock (TLRS, traded OTC), so I just thought it might be useful for potential readers to be reminded that market orders for illiquid securities, especially at market opening, when the bid/ask spread is generally at its worst, are a bad idea. Jan 31 at 8:57

In my mind, I have always assumed that for a transaction to happen, the bid must equal the ask.

A locked market is when the bid and ask are the same. This is due to timing differences for quotes coming from different exchanges. It's an infrequent occurrence.

In order for a transaction to occur, someone must cross the spread. IOW, A buyer must agree to pay the ask or a sell must agree to sell at the bid.

I saw that the security price had briefly gone above the limit I had set, the only question in my mind was at which price my sell order was executed. However, to my surprise I saw that my order not only had not been filled, but, even more puzzlingly, had not even been triggered.

If you set a limit order to sell and you're the highest bid then you're part of the NBBO quote. A buyer who crosses the spread pays the ask and that price could be above your sell price and you'd get no fill on your order ("the security price had briefly gone above the limit I had set").

• I don't see how the point you make can explain why my order was not even activated. If, as you said, a buyer crossed the spread to buy at the ask price, by definition he matched the ask with his bid. Since the transaction happened above the activation threshold I had chosen, as a consequence my order should have been sent to the market as a trailing stop order. May 27, 2022 at 10:50
• Perhaps you should call your broker so that they can explain to you how their orders work? May 27, 2022 at 17:07
• I asked this question just because I could not understand the explanation from the broker and I wanted to see whether other people's understanding of the matter differed from mine. Apparently it seems to be a subject of which not many have a clear understanding Jul 10, 2022 at 6:11