Retail market orders and the displayed queue they never join

Two choices before a fill

A market order is an instruction to buy or sell immediately at whatever price is available, with no resting limit that would take a place in the public book. That instruction is only the first choice.

Order routing is the path the order takes among a broker, an off-exchange dealer, and public venues before it is filled or displayed. In the archive workflow, the route decides whether the marketable order ever meets the displayed size that defines the inside quote.

The displayed book is a queue

The national best bid and offer is the best protected bid and offer shown on public markets at a moment in time. Order book imbalance is the gap between displayed size waiting to buy and size waiting to sell at that inside quote, and that gap sets how long a later same-price order must wait.

Queue-priority is the first-come standing of size already shown at a price. Later orders at that price wait until earlier size trades or cancels. A later resting order at the same price as a 100,000-share displayed bid or offer must wait behind that size before it can trade.

When a market order never meets that size

Internalization is an off-exchange fill in which a dealer trades against a customer order instead of sending it to interact with displayed exchange interest.

A retail market sell can be filled by an off-exchange dealer at the displayed bid, leaving the public bidder at that price unfilled. A retail market buy can be filled by the same dealer at the displayed offer, leaving the public seller at that price unfilled. Buying internalized market sells at the bid and selling internalized market buys at the offer lets the dealer keep the one-cent quoted spread.

The archive worked example applies a 17.5 percent internalization share to 264 million shares of daily volume and produces 46.2 million internalized shares. Those shares are filled away from displayed exchange interest.

Prints inside the penny

Price improvement is a fill a fraction of a cent inside the public quote, often used when a dealer executes a marketable retail order away from the book. The illustrated improved print is 5.2501 instead of 5.25, a 0.001 concession on a 525 notional order.

A last-sale tape set to four decimals can show hundreds or thousands of prints occurring between whole-penny prices.

Reinsertion at the front of the queue

Even when size does rest on the public book, queue-priority is not fixed after a trade. Faster participants can reinsert at the front of the displayed queue after each fill, so a later resting order remains at the back.