Who Uses Which Order Type and Why?

47 Pages Posted:

See all articles by Sida Li

Sida Li

University of Illinois at Urbana-Champaign

Mao Ye

University of Illinois at Urbana-Champaign

Miles Zheng

University of Illinois at Urbana-Champaign - Department of Finance

Date Written: December 27, 2020

Abstract

Clientele effects explain the proliferation of order types on U.S. stock exchanges. Market and plain limit orders lose money, indicating that informed traders use more complex orders. The most complex order types refuse to trade with the national best bid and offer (NBBO) if the NBBO appears on another exchange. Fees provide one explanation for non-routable orders because Reg NMS might route orders to worse prices after adjusting for routing fees. Non-routable orders also win speed races to capture quick profits and contain short-term information. However, all order types containing long-term information are routable and often tailored to corporate events.

Keywords: Order Types, Regulation NMS, Information, Make/take fees, Speed Competition

JEL Classification: G10, G20

Suggested Citation

Li, Sida and Ye, Mao and Zheng, Miles, Who Uses Which Order Type and Why? (December 27, 2020). Available at SSRN: https://ssrn.com/abstract=

Sida Li

University of Illinois at Urbana-Champaign ( email )

601 E John St
Champaign, IL 61820
United States

Mao Ye (Contact Author)

University of Illinois at Urbana-Champaign ( email )

Miles Zheng

University of Illinois at Urbana-Champaign - Department of Finance ( email )

1206 South Sixth Street
Champaign, IL 61820
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
2
Abstract Views
30
PlumX Metrics