Market orders and Price Steps?

[larrylocal]

I'm rather new to buying shares on the ASX. My broker is CMC markets.
I noticed that when you go to execute a buy or sell order at 'market' then for buy orders you're charged 3 Price steps above the highest bid, and for
selling you're filled at at least 3 Price Steps below the highest offer. Is this 3 price step rule a way of gleaning a higher spread from the buyer or seller?
Do all brokers do this?

 

[frugal.rock]

It depends on the actual stock.

If you are buying, and the lowest sell offer is 3 steps above the highest bid/buy offer, that's what you get.
It could be 10 steps...

Unless you are sure about what offers are on the table in market depth when your order goes through, it's hard to know.
Some stocks have biggish spreads, others not. Some are jumping around being heavily traded, others not.

3 price steps on spec stocks could be in the range of 30~40%. I wouldn't think they have a standard glean like that.

If you are buying, you want to be looking at the lowest seller price and volume available, the inverse if selling.
Hope that helps.

 

[larrylocal]

It depends on the actual stock.

If you are buying, and the lowest sell offer is 3 steps above the highest bid/buy offer, that's what you get.
It could be 10 steps...

Unless you are sure about what offers are on the table in market depth when your order goes through, it's hard to know.
Some stocks have biggish spreads, others not. Some are jumping around being heavily traded, others not.

3 price steps on spec stocks could be in the range of 30~40%. I wouldn't think they have a standard glean like that.

If you are buying, you want to be looking at the lowest seller price and volume available, the inverse if selling.
Hope that helps.

Thanks for reply.
I do notice though that on CMC markets for all market trades it says this. The 3 step rule.

I thought it might have been away for them to guarantee a spread. I understand the market and depending on the stock the spread can be wider or narrower given the amount of available liquidity. But this one seems to be imposed.

 

[frugal.rock]

So no, not all brokers do that then.

Most brokers have a "best execution policy" which also means that sometimes you get a better price than is visible on market depth through ASX Centrepoint.

Good luck with CMC.

 

[larrylocal]

I thought CMC markets did, but when it comes to selling at market that doesn't seem to be the case, unless I'm interpreting it wrong.
Here's a screenshot of the section which comes up when I'm about to sell stocks at market.

It looks very sneaky to me.

 

[Austwide]

A quick look at their site says they don't charge any brokerage.

Maybe it's their fee in disguise

 

[larrylocal]

A quick look at their site says they don't charge any brokerage.

Maybe it's their fee in disguise

Under $1000 they don't when you buy only.

 

[peter2]

Never use market orders unless you need it immediately and there's plenty of volume.

That being said, brokers like CMC need to ensure that your "market" orders get filled. There's no guarantee that the price will stay the same when you place a buy order so in order to get that fill on your behalf they place the buy order at three tics above the current price. There's still no guarantee in a fast market and instead of chasing it higher they'll report the order traded above their limit. If there's enough volume your order should be filled at a lower price, not three tics above. If your market orders ARE getting filled at +3 tics every time then I'd be very wary of broker.

May I repeat, don't use market orders.

 

[larrylocal]

Never use market orders unless you need it immediately and there's plenty of volume.

That being said, brokers like CMC need to ensure that your "market" orders get filled. There's no guarantee that the price will stay the same when you place a buy order so in order to get that fill on your behalf they place the buy order at three tics above the current price. There's still no guarantee in a fast market and instead of chasing it higher they'll report the order traded above their limit. If there's enough volume your order should be filled at a lower price, not three tics above. If your market orders ARE getting filled at +3 tics every time then I'd be very wary of broker.

May I repeat, don't use market orders.

Yes, but it's not what my orders are getting filled at.. This, as you can see from the screenshot above, is a company policy.
Why not just fill the orders at the current available market price. If I'm buying or selling at market then there's a que. What I've shown you above is policy.

When I execute a market order I don't have an expectation, I have a guess where the trade might land. But it's not hard-wired.
With CMC Markets it appears to be hard-wired from a certain value 3 steps below the highest bid (for sell orders).

 

[peter2]

It's CMC's policy to place your market orders three ticks higher in the market depth in an attempt to fill your market order. If you're getting filled at +3 ticks EVERY time then I'd switch brokers fast. If you're still using market orders then you're making the decision to pay more than you need to. You can't complain about it as it's company policy. Don't use market orders. Pay less.

Yes, you're guessing on the execution price when using market orders. Use a limit order. Then you'll know the highest price you'll pay.

 

[InsvestoBoy]

With CMC Markets it appears to be hard-wired from a certain value 3 steps below the highest bid (for sell orders).

No.

You wanted to place a market order.

CMC told you it's gonna be 3 price steps away.

You placed the order.

High Frequency Traders saw your market order coming and removed their limits from the book to make sure they can harvest your inefficiency.

It's not hard wired, it's not even CMC making the buck off you. Market participants faster than you can see your market order coming from a mile away, they probably know it's coming from CMC and there's a few free ticks in it for them.

Sorry dude, but this is the meme for you

 

[larrylocal]

It's CMC's policy to place your market orders three ticks higher in the market depth in an attempt to fill your market order. If you're getting filled at +3 ticks EVERY time then I'd switch brokers fast. If you're still using market orders then you're making the decision to pay more than you need to. You can't complain about it as it's company policy. Don't use market orders. Pay less.

Yes, you're guessing on the execution price when using market orders. Use a limit order. Then you'll know the highest price you'll pay.

Yes agreed. Getting filled at 3 steps minimum every time is exactly what it says.. See the screenshot above. It's not just for that trade, it's all market trades. Yes I agree using a Limit order is better in some cases but you can miss out.

The point is, I think it's dodgy.
I sold some woolies shares the other day. I set a conditional order to trigger a market sell at or above 35.24 . The whole order filled at 35.11 .

The loss to me was negligible because I was only trading a small amount, but had it been 5 figure range I'd be furious.
It's not just for that trade, it's a hard-wired policy which means that it will execute market orders like that every time. I've pasted the screenshot again below.

 

[larrylocal]

No.

You wanted to place a market order.

CMC told you it's gonna be 3 price steps away.

You placed the order.

High Frequency Traders saw your market order coming and removed their limits from the book to make sure they can harvest your inefficiency.

It's not hard wired, it's not even CMC making the buck off you. Market participants faster than you can see your market order coming from a mile away, they probably know it's coming from CMC and there's a few free ticks in it for them.

Sorry dude, but this is the meme for you

View attachment 149952

Well maybe you haven't read the screenshot I posted.

 

[larrylocal]

'We use a market order to open or close trades at the current market price. It’s important to remember that you can only place a market order when the market is open. By definition a market order will be placed three price steps above the best trade at the time the order is processed.'

Market Price Order | Share Trading Platform | CMC Invest

This step-by-step video teaches CMC Invest traders how to use the market price order to open or close trades at the current market price.

www.cmcmarkets.com

 

[InsvestoBoy]

'We use a market order to open or close trades at the current market price. It’s important to remember that you can only place a market order when the market is open. By definition a market order will be placed three price steps above the best trade at the time the order is processed.'

Market Price Order | Share Trading Platform | CMC Invest

This step-by-step video teaches CMC Invest traders how to use the market price order to open or close trades at the current market price.

www.cmcmarkets.com

They place the order 3 price steps. It doesn't guarantee the order will be executed 3 price steps.

But they are getting executed 3 price steps away, because HFT are picking your inefficient orders off. Because that's how markets work.

 

[Gringotts Bank]

No.

You wanted to place a market order.

CMC told you it's gonna be 3 price steps away.

You placed the order.

High Frequency Traders saw your market order coming and removed their limits from the book to make sure they can harvest your inefficiency.

It's not hard wired, it's not even CMC making the buck off you. Market participants faster than you can see your market order coming from a mile away, they probably know it's coming from CMC and there's a few free ticks in it for them.

Sorry dude, but this is the meme for you

View attachment 149952

Front running. Completely illegal, but happens all the time.

 

[InsvestoBoy]

Front running. Completely illegal, but happens all the time.

That is not what front running means. What I am describing is not illegal. Don't be silly.

 

[Gringotts Bank]

That is not what front running means. What I am describing is not illegal. Don't be silly.

Seeing an order come in and jumping infront of it. Isn't that what you said? That's front running in my book. What do you call it?

 

[InsvestoBoy]

Seeing an order come in and jumping infront of it. Isn't that what you said? That's front running in my book. What do you call it?

Google "front running".