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Why are sell limit orders executed at the bid?

  • Post #1
  • Quote
  • First Post: Apr 21, 2015 12:41am Apr 21, 2015 12:41am
If I place a sell limit order shouldn't it be executed at the ask price when a market order is placed while the ask price is the same level as my sell limit order?
I have been searching around trying to figure out why limit orders are executed at the bid price and haven't been able to find an answer. According to my understanding of how an order driven market works sell limit orders are executed by buy market orders at the ask.
In any case, SELL are triggered at BID while BUY are trigerred at ASK.

Below is from the MT4 platform "help" documentation:

Quote

  1. Sell Limit sell provided the future "BID" price is equal to the pre-defined value. The current price level is lower than the value of the placed order. Orders of this type are usually placed in anticipation of that the security price, having increased to a certain level, will fall

MT4/MT5 EAs/Indicators/Alerts coder
I understand this "In any case, SELL are triggered at BID while BUY are trigerred at ASK.", my question is why? I can't understand why this happens considering the structure of an order driven market.
Quoting Cree
I understand this "In any case, SELL are triggered at BID while BUY are trigerred at ASK.", my question is why? I can't understand why this happens considering the structure of an order driven market.
Well it depends on the platform you execute on.

MT4 relies on liquidity providers who show bids and offers and expect them to be hit on their price.

Some other platforms permit you to become the bid or the offer and therefore you can be dealt on your price.

MT4 although widely used as a FX education providers choice is the wrong platform.
Ok, so it depends on how your broker executes your orders and also which platform you are using?
sell limit means you are willing to short at higher price than current price. Short means sell and sell is executed by bid price
That is the spread. That is what the broker is making on your trade, is what I always thought. Correct me if I'm wrong...
d
hi, it would only make commercial sense for your broker if he/she buys from you at a lower price (BID) and sells to you at a higher price (ASK)

Eventually for example, when you SELL at the BID and BUY at the ASK they pocket the ASK-BID = SPREAD!

hope that helps, correct me if im wrong
Quoting limzy
hi, it would only make commercial sense for your broker if he/she buys from you at a lower price (BID) and sells to you at a higher price (ASK) Eventually for example, when you SELL at the BID and BUY at the ASK they pocket the ASK-BID = SPREAD! hope that helps, correct me if im wrong

I believe this example you provided is only applicable to brokers of the Market Maker type.

When I ask this question, "If I place a sell limit order shouldn't it be executed at the ask price when a market order is placed while the ask price is the same level as my sell limit order?", I am referring to market structure. Every trade is two orders being executed, 1 buy and 1 sell. When a buy order is executed at the ask someone's sell order is also executed at the ask, my question is why not mine?

After reading the post by lastly I think I may have an answer. My limit order is really a market limit order being called a limit order. I don't know if this is correct or not. Hopefully someone with more knowledge will stop by and confirm or deny this.
  • Post #11
  • Quote
  • Edited 4:35am Apr 22, 2015 1:35am | Edited 4:35am
Quoting Cree
{quote} I believe this example you provided is only applicable to brokers of the Market Maker type. When I ask this question, "If I place a sell limit order shouldn't it be executed at the ask price when a market order is placed while the ask price is the same level as my sell limit order?", I am referring to market structure. Every trade is two orders being executed, 1 buy and 1 sell. When a buy order is executed at the ask someone's sell order is also executed at the ask, my question is why not mine? After reading the post by lastly I think I...
If you think about it...

Ask quote does not mean that there are any takers at the price or sufficient amount of takers. Your ask (aka limit order) competes with millions of similar asks.

When bid moves to your price level this means presence of sufficient liquidity to fill all outstanding at that level asks.

Technically, you could be filled at any time once their ask gets above your ask (limit order), but I would assume that broker does not bother to post your micro sized ask in the market as the best ask. They just wait until general market bid gets there.
  • Post #12
  • Quote
  • Last Post: Apr 23, 2015 12:16am Apr 23, 2015 12:16am
Bottomline:

Only market makers can "offer out" or sell by showing a market ask.
Only market makers can "pay" or buy by showing a market bid.

Retail traders will ALWAYS be market takers i.e. buy at the market offer and sell at the market bid.
I'm not trying to convince anyone. I'm not in the "convincing" business.
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