What is a sweepstakes order?
A sweep and short order is a market order in which the broker divides the order into multiple parts to take advantage of the order size at the best price currently available in the market. Sweep orders are executed instantly based on the best possible price and allow investors to enter trades as quickly as possible. Sweep orders can be attached with limits (limit orders) that control the maximum buy price or minimum sell price paid.
- A sweep and short order is a market order that takes all liquidity at the best price, then all liquidity at the next best price, and so on, until the order is filled.
- It does this by dividing the order for each price and quantity into multiple parts.
- Because U.S. exchanges and ECNs are so interconnected and both are used to create the best bid and ask quotes on the order book, traditional limit orders are often just as effective for executing quick trades on behalf of retail traders.
Learn about Sweep-and-Go orders
Orders first look at the price and then look at the available liquidity at each price. If a trader needs to sell 100,000 shares and wants to use a sweep-to-short order, the order will look for the highest available price (usually the best bid price) on all available exchanges, and the number of shares available at that price . If there are not 100,000 available for sale, it will look at the next highest price and available stock there, and repeat the process until the full order size can be filled.
In some heavily traded stocks, such an order will not change the price significantly upon execution. However, in thinly traded stocks, ie stocks with an average daily volume of less than 100,000 shares, such an order could result in a sharp drop in share price. Therefore, brokers and traders are very cautious about using such orders.
It does this until the entire order is filled, then sends a separate order for each price and number of shares.
While this is similar to a market order in that the order attempts to capture all liquidity until the order is executed, a sweep order can have a limit attached that controls how much the order searches for liquidity. For example, if a trader has a large position they want to buy, they may want to buy as much as they can, but only at a specific price. They can do this using a swept order.
Larger orders are more commonly swept away order processing. If retail investors wish to trade in this way, they need to specify the use of sweeping orders, and not all brokers offer this order type.
Scan order processing
Broker-dealers employ technology that provides access to a wide range of exchanges and trading venues known as electronic communication networks (ECNs) to facilitate sweep-and-fill orders. In liquidation fill orders, broker-dealers will fill orders at different market prices, providing investors with an average buying price.
Most broker-dealers have technical systems associated with all major exchanges, electronic communication networks (ECNs), and some may also have access to dark pools. Once an order is placed, it is sent to all exchanges in the broker’s network for all available liquidity, starting at the best price and then at worse prices until the order is executed. Alternatively, the order will do the above until the limit price set on the order is reached.
no longer a necessary command
Retail traders rarely use this order type. The exchanges are so interconnected that any exchange or ECN that posts a visible order in the US will show up on the order book for that stock. Orders cannot be filled beyond the best bid or ask price. While a bid or bid can change, another one will be shown, and then trading can’t take place outside of these levels until all those stocks are gone and a new bid/ask is shown.
This way, any limit or market order will be swept away as it will take all shares at the best available price, then all shares at the next best price, and so on, until the order is filled.
That said, some brokers still offer this order type. While most retail investors will find it provides little benefit beyond using traditional limit or market orders, some institutional investors may find it gradually increases their strike prices, but that’s by no means guaranteed. Institutional investors typically test order types to see which one provides better execution rates across many trades, and then gravitate toward the more efficient type.
Sweep and Short Order Example
Suppose a trader is interested in buying Alibaba (BABA) and wants to enter the trade immediately. They want to buy 10,000 shares. The price fluctuates around $160.60, but there are usually only about 500 shares on the order book at each price level. However, greater or lesser liquidity may come at different prices. A liquidation order will look at all available liquidity and then place an order to capture all available liquidity at different price levels until the order is executed.
Suppose the trader adds an additional rule that they want to limit purchases to $160.70.
There are 500 shares at $160.61, 1,200 shares at $160.62, 900 shares at $160.63, 200 shares at $160.64, 5,000 shares at $160.65, 500 shares at $160.66, 1,000 shares at $160.67, 2,000 shares are priced at $161.68.
Scan the order to see all these prices and quantities, then send an order for each price and quantity. It will take all the shares at all prices until it is filled, so it only needs $700 at $161.68 instead of the full 2,000 shares available. That’s because if it gets all the other shares first, it will reach the required 10,000 shares and only get 700 shares at $161.68.
Another simple example reveals why this order type is not often used in modern markets. Sweep is breaking down the order, but cannot fill the order outside of the best bid/offer. Suppose someone only indicated that they were selling 500 shares at $161.61, but in reality they used an iceberg order and offered 50,000 shares there.
Sweeping hits a snag because all these orders at different prices are useless until the price of those orders is reached. Therefore, most brokerage software will realize that $160.61 is liquid and continue to execute orders at the best price available (currently $160.61) until it is executed. This is also how limit orders work. Traders can set a buy limit price up to $160.70, and the order will take all liquidity at the best price available until 10,000 shares are filled.