3

If a sell limit order for a very small volume was entered mistakenly at a very low price, would it get executed and would it affect the market price ?

eg:

The current market price for FOO is $500 USD, I mistakenly enter a sell limit order for $5 for a very small quantity, will it be executed or will it be cancelled by the exchange (in general, not exchange specific)?

If it is executed, will the market price reflect $5?

8

There is no effect.

Given that the last price is $500, there should be existing bid/ask orders creating a reasonable spread. For example, bid is $499 and ask is $501.

Any limit order to sell entered at price below $499 will be executed at $499.

In other words, even if you entered $5, it will be sold at $499. That is unless you are selling huge amount of outstanding shares.

This is called first-mover disadvantage.

  • 1
    Indeed, the exchange is required to execute sales against higher bids first. – Matthew Mar 30 '15 at 17:25
  • Thanks for the answer, can you point me to a resource that backs it up for further reading? – AfterWorkGuinness Mar 30 '15 at 17:27
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    The order may even be cancelled as some exchange have a range from the current price where orders can be entered. – user9822 Mar 30 '15 at 19:31
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    @AfterWorkGuinnes: The SEC has articles about these rules. See for example Best Execution Requirement. – Jean-Paul Jun 12 '15 at 12:13
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    To be honest this issue is both exchange specific and broker specific. An example is www1.nyse.com/pdfs/CEE_Policies_Email_Submission_Guidelines.pdf – base64 Jun 12 '15 at 12:16

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