How order routing changes market and limit fills

The path decides the fill

The order-routing path carries an instruction from the trader to a matcher, specialist, or dealer. The path sets delay, who can see the ticket, whether a quote must stand, and who is allowed to complete the trade.

A market order takes liquidity at the standing quote. A limit order rests at a chosen price. Those labels do not yet say whether the ticket will auto-complete, rest in public, or wait for a person to finish the trade.

Conventional hops and direct access

A conventional order path sent the instruction through a broker to an exchange and then to a specialist or market-maker, a sequence that could delay the fill and worsen the realized price.

Direct access let an individual place the order onto an exchange or matching network without that extra broker hop, seeking a faster fill and a chance to trade inside the displayed dealer quote. Direct access means sending the order onto the venue from the trader's terminal instead of leaving routing, execution, and confirmation to an intervening brokerage desk.

Inside-spread limits on a matching network

The inside market is the best bid and best offer on the public two-sided montage. Deeper levels show additional size and prices from other quoting parties.

Independent matching networks accepted incoming retail limit orders and paired them with compatible resting orders, so a trader could bid or offer inside the dealers' best bid and ask. A matching network can print a new retail limit between the dealers' best bid and offer.

In the supplied quote, a 15 bid against a 15 3/16 offer could be improved by posting 15 1/8 on a matching network. That price is better for the buyer than lifting the offer and better for the seller than hitting the bid. On a public matcher, a limit order can print inside the dealer spread.

Automatic quotes versus hidden dealer books

Nasdaq's automatic small-order path executed up to 1,000 shares against a displayed quote at a known price, and the quoting dealer could not withdraw after being hit. On that automatic small-order path a market order can complete at a known displayed price that the quoting dealer must honor.

A dealer-only negotiation route hid its book from the public montage, withheld limit-order protection, and blocked automatic small-order hits, so it functioned as a routing and bargaining channel rather than a protected public limit book. On some dealer-only routes a limit order is neither published nor protected.

Listed turnaround still needs the specialist

The listed-stock electronic turnaround path could match compatible orders, yet a specialist still had to complete the trade, so the system routed rather than auto-executed. On that listed electronic turnaround path a market order can still wait for a human completion.

Individual direct-access size on that listed routing path topped out at 2,100 shares, while the venue itself accepted up to 99,999 shares on one order.

Read the route before the order type

The same market order can complete at a known displayed price on an automatic small-order path or wait for a human completion on a specialist-routed path. The same limit order can print inside the dealer spread on a public matcher or sit unpublished and unprotected on a dealer-only route. Order routing is what makes those outcomes different.