Papale on Stock Order Executions

Candy-CornBy Steve Papale

Last Friday was Halloween.  These days Halloween is as much for the adults as the kids – maybe more.   But for the kids it comes down to one thing – the candy.  Like most kids I had my favorites.   Leading the candy rankings were the individually wrapped chocolates, stuff like Hershey Bars, Kisses and Nestle Crunch.  Next best were things like gum and small packages like Smarties.  Ok but not as awesome as chocolate.  Finally, at the bottom of the candy hierarchy was the weird candies that only turned up at Halloween.  Little individually wrapped hard candy in clear wrapping with no writing or labels and the worst of all – candy corn.  It never failed that somehow going through my bag at the end of the night I always found some unwrapped at the bottom of the bag.  Candy corn – never for eating.  Always for throwing at my brother.

Going a little off the normal discussion today and want to review some ins and outs of stock execution.  Stocks have a primary exchange on which they are listed.  On every trading day the stock is not officially open until the first print goes up on that exchange.  Even if it after the opening bell and the stock is trading, it is technically trading outside of normal business hours until it opens on the primary exchange.

Normally the exchange opens close to the opening bell and orders get executed near that time and at the opening print.  However, in extreme cases such as a large gap in price, a delay can occur at the primary exchange even while the stock is trading at secondary exchanges and ECN’s (Electronic Communication Networks) like Instinet and NYSE Arca.

Why does this matter?  If you have an order that is tagged to trade only during normal trading hours it cannot be executed anywhere until the stock opens on the primary exchange.  For example, you may offer a stock at a bid or even at the market but it will not get executed until the primary opens.   If this happens you have two choices.  First, you can simply wait until the primary opens and trade then.  Second, you can cancel the normal trade hours tagged order and re-enter as “trade outside regular hours”.  This will allow the order to be executed before the primary opens at a secondary exchange or ECN.  This is not a common occurrence but can happen occasionally and if you trade stock is something that is handy to know.


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