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# How Execution Works

Discussion in 'Order Execution' started by cscott, Jul 5, 2006.

1. ### cscott

I'm confused about the price that trades are closed at. I thought that if I was long and had a sell limit order to close the trade that it would execute at the Bid price, but it appears to execute at the Last Price instead.

Is the above how it is supposed to work? IOW, closing orders with limit orders executes on Last Price and not on Ask/Bid Prices. Or does a closing order execute on Average Price?

2. ### MTE

Last price is the price at which the last trade took place. Last price, assuming the market doesn't move, will be equal to bid if the last trade was at the bid, and will be equal to ask if the last trade was at the ask.

If you have a limit sell order then it will be on the ask side and will be executed when someone lifts it. So, in the absence of other trades and market moves, last price will be equal to your trade price, which was also the ask at the time of the trade.

Bids and Offers change according to who is bidding or offering. I think you are assuming that you're the only person hitting bids or paying offers. There's a strong probability that you are simply getting filled slowly and aren't accounting for slippage.

4. ### cscott

Could be, but I don't think this is the problem. Sounds like MTE has the answer, but I don't quite understand it.

5. ### MTE

Last price is what the last execution was at. Bids and asks are quotes.

6. ### cscott

That makes it a little clearer. Thanks.

Is your question why you are getting filled at a price other than what is being displayed as the current bid/offer?

If so, it's because you got filled at a price and then the bid/offer changed.

8. ### loufah

You can also try to buy below the ask price or try to sell above the bid price.

As an example, suppose QM is \$74.00 x\$74.10. If you place a buy order for \$74.10, you'll probably get filled instantly, and the last price will be \$74.10. Similarly for trying to sell at \$74.00. The last price could change a fraction of a second later as someone else gets filled, of course.

You can also try to buy at some other price, such as \$74.025, \$74.05, or \$74.075 (or \$69 or \$70, if you're willing to wait possibly a couple weeks for the price to come down). If your bid is higher than the best bid (\$74.00 in the above example), you'll see the best bid increase to your price. You might get filled at that price, you might not.

9. ### cscott

Yes.

That doesn't appear to be the case because I do not see the bid/offer change after the fill. I.E., the bid is .6025 and the ask is .6031, and the last price is .6035. I have a sell limit order for .6035 and it gets filled when the last price hits .6035.

Another thing I don't understand is how the last price can be outside of the bid/ask? I.E., the bid is .6025 and the ask is .6031, yet the last price is .6035. I thought the last price had to be in between the bid and the ask price.

10. ### loufah

The bid and ask change as people modify their orders. The last price only changes when there's an execution. People change their orders as conditions change, as frequently as several times a second, but an execution only occurs when two parties agree on a price, and there can be minutes or even hours between executions; during this time the bids and asks are still changing. On a future with frequent executions, such as ES, the last price rarely lies outside the bid-ask spread. On a future like YG, the last price can be several dollars away from the bid-ask because the last execution may have been several hours ago.

#10     Jul 9, 2006
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