Relay-Version: version B 2.10 5/3/83; site utzoo.UUCP Posting-Version: version B 2.10.2 9/18/84; site ucla-cs.ARPA Path: utzoo!watmath!clyde!bonnie!akgua!mcnc!decvax!ittvax!dcdwest!sdcsvax!sdcrdcf!trwrb!cepu!ucla-cs!brett From: brett@ucla-cs.UUCP Newsgroups: net.invest Subject: Re: Limit Orders Message-ID: <3767@ucla-cs.ARPA> Date: Wed, 6-Feb-85 09:51:16 EST Article-I.D.: ucla-cs.3767 Posted: Wed Feb 6 09:51:16 1985 Date-Received: Mon, 11-Feb-85 07:58:53 EST References: <3754@ucla-cs.ARPA> Organization: UCLA Computer Science Department Lines: 83 > > Can anyone out there enlighten me as to how brokers actually > execute limit orders. Is there some joker that occationally > checks what I want? Is it done automatically? Or, is an > interrupt generated when my stock hits a certain price. > > Douglas > > ARPA: trainor@ucla-locus.arpa > UUCP: ...!{cepu,ihnp4,randvax,sdcrdcf,trwspp,ucbvax}!ucla-cs!trainor The answer to this question is more compilicated than you may originally have imagined. I will explain from what I remember - I cant seem to find my stock info book. First, it depends whether you are talking about a stock traded on an "exchange" ie the New York or American exchange being common examples. If the stock is traded there, your limit order arrives from your brokerage firm and your bid to sell or buy is entered with the specialist for the stock you are trading. The specialist paid an enormous amount of money to obtain a "seat" on the exchange. His purpose is to maintain orderly markets in a small set of stocks. Typically a specialist handles a number of different issues. He is bound by the extensive scrutiny of the exchange. The specialist can make or lose money quickly. If everyone is selling XYZ today, the specialist for the stock will probably have to buy the stock to maintain orderlyness of his market. He would take a drubbing in that case. Other times a rash of buy orders increase the value of his inventory. The specialist, as far as I know, does not make any per/transaction fee. The specialist is carefully scrutinized too. If he had hundreds of buy limit orders for 100.00 (or 1 of hundreds of thousands of shares), the exchange tries to monitor that he does not "push" the price up precipitously so that those limit orders to buy are triggered. Assume an execution can be made (there are ticks to worry about - yet another story). If it can, he buys or sells the stock from his "inventory". (Again, his goal is to maintain an orderly market.) Otherwise the specialist records your bid to buy/sell in his "log". When recorded the specialist knows if this is a day order or a GTC order. As prices change, your bid is in his log and will be executed FCFS at the price you have "limited" too. Say a stock is at 99 5/8, and several buys came in. These depleted the supply of stock and the price went to 100. Assume your buy was for 99 7/8. Well in that case you could be passed up. You will see the price range go 99 5/8 - 100, but yet your order may not be executed because there were "at market" or "limit" bids that depleted supply and drove price up. Your broker will call this "stock ahead". So, because an order is placed - it traded in your range - it doesnt mean you got the stock. Be careful of this if you are a same day trader. NASDAQ, the National Assoc. of Securities Dealers Advanced Quotation system (or some such), is a computerized version of this. Becuase there is no exchange you buy your OTC stock from the inventories of brokers. (How the brokers got the stocks is another issue!!) These "n specialists" (if you want to think of it this way) are brokers: Bache, Merill Lynch, etc. Your order goes in and the prices all the brokers are willing to part with the stock or buy the stock is displayed. This is called the stocks spread. That's why you see two prices with OTC stocks. Your execution is made if there is a match. For the most part there is a very thin margin between what Bache is willing to buy/sell XYZ for and Merill is willing to buy/sell XYZ for. The spread becomes larger as brokers "diverge". Since this is a computerized marketplace entirely, your bid remains in the system and is executed if a broker and "you" match. Thats an off the top of my head recounting and rambling. I will probably get hundreds of corections now......... -- Brett Fleisch University of California Los Angeles 3804 Boelter Hall Los Angeles, CA 90024 Phone: (213) 825-2756, (213) 474-5317 brett@ucla-cs.ARPA or ...!{cepu, ihnp4, trwspp, ucbvax}!ucla-cs!brett -------------------------------------------------------------------------