Table 5.1 presents summary statistics for the marketable limit and market orders examined (henceforth collectively known as marketable orders) and the market conditions at the time the orders were placed. There are 1,315,894 sell and 1,356,483 buy orders that resulted in the execution of trades. About half were placed by institutional traders and 18% by retail traders. Consistent with the previous discussion, orders placed by retail traders are smaller than those placed by institutional and other traders. This is independent of whether order size is measured by number of shares per order or dollar value per order. Using both PMEAN and DTOTAL, orders placed by retail traders are smaller than those by institutional and other traders.
Table 5.1 shows the difference between the order price and volume-weighted traded price. On average, marketable ask (bid) orders are traded at 0.341 (0.358) cents
26 The trade was not reversed perhaps due to the price it traded at. The trade was for 500 shares and
executed at the best ask price of $7.47. If the stock had been illiquid, the amount of losses would have been much larger.
higher (lower) than the offer (bid) price of the order. In comparison with institutional and other traders, retail traders are more aggressive with their order placement where 27.8% (30.4%) of ask (bid) orders placed by retail traders have prices that are lower (higher) than the best bid (ask) at the time the order is placed compared to 3.7% (3.6%) for institutional traders. As a result, ask orders placed by retail traders are traded at 1.49 cents above the offer price stated on the order while bid orders are traded at 1.66 cents lower than the bid price stated.
The reason why retail traders offer (bid) at a lower (higher) price than that which the market is currently willing to accept can be explained by the following. Retail traders may be averse to the use of market orders for fear of price uncertainty. Price uncertainty can arise because of the delay in routing the order through to SEATS. The delay could be due to reasons such as Internet traffic and brokers not offering straight through processing (Synnott, 2002, p. 6). As such, retail traders who are impatient to trade but at the same time want a certain price will place aggressive marketable limit orders. The strategy of placing more aggressive orders does not necessarily disadvantage retail traders as their orders are small in size and are not likely to “walk up or down” far on the schedule when there is inadequate depth at the best opposite price. The delay in routing orders from the online brokers to SEATS is less common as most of the larger online brokers have straight through processing.
Table 5.1 shows marketable orders are larger than the standing limit order on the schedule with the highest priority. On average, each marketable ask (bid) order results in 1.41 (1.37) trades being executed.27 The number of trades against a marketable order placed by a retail trader is smaller than for that placed by an institutional trader. On average 1.54 trades are executed when a marketable ask order is placed by an institutional trader compared to 1.21 when placed by a retail trader. This is consistent with the discussion in Chapter Four, that the orders of retail traders are generally smaller than institutional traders.28
27 The largest number of trades that resulted from a single order being placed is 450. This was for a
large block sale of Telstra (1,000,000) shares at $5.00.
28 The number of trades executed when a market order or marketable limit order arrives will
94 Table 5.1 Descriptive statistics for marketable limit and market orders examined
The table presents descriptive statistics for all marketable limit and market orders placed on the ASX during the year 2001. Panel A presents the statistics for ask orders and Panel B for buy orders. The second column shows the number of order placed by the different trader types. The third column expresses the number as a percentage of the total number of orders analysed. Average order size is expressed in terms of number of shares (#Order Size), dollar value ($Order Size), as a proportion of the average daily number of shares traded over the sample period for the company (PMEAN) and as a proportion of the total number of shares in that company that are traded on the day of the trade of interest (DTOTAL). Price Imp is the price improvement between order price and volume-weighted trade price; for bid orders it is calculated as the order price less the volume-weighted traded price and for ask orders it is calculated as the volume-weighted traded price less the order price (in cents). #Trades is the number of trades executed as a result of the market or marketable limit order. Depth on Opposite Side shows the standardised depth (#shares) on the opposing side of the order placed. The last column shows the percentage of ask (bid) orders that are placed with order price lower (greater) than the best order on the opposing side.
Trader Type
Number of Orders
Percentage of total orders placed
(%) #Order Size $Order Size PMEAN DTOTAL
Price Imp. (¢) #Trades Depth on Opposite Side Percentage of orders placed that are aggressively priced
(%)
Panel A: Ask Orders
Institutional 629,929 24 8,308 94,400 0.004 0.003 0.069 1.540 -0.003 3.7
Others 451,258 17 4,470 42,690 0.003 0.004 0.123 1.334 -0.005 5.0
Retail 234,713 9 2,455 16,613 0.002 0.002 1.491 1.206 0.018 27.8
All 1,315,900 49 5,948 62,793 0.003 0.003 0.341 1.409 0.000 8.5
Panel B: Bid Orders
Institutional 684,541 26 8,772 100,434 0.004 0.004 0.063 1.475 -0.057 3.6
Others 439,516 16 4,504 43,372 0.003 0.003 0.127 1.307 0.041 5.6
Retail 232,427 9 2,569 17,792 0.002 0.002 1.663 1.186 0.088 30.4