How Exchanges Handle Market Orders When the Book Is Empty
Summary
The document compares possible exchange responses when a market order reaches an order book with too little or no opposing liquidity. It distinguishes whether an unfilled remainder stays active, is canceled, or is handled through another venue-specific rule, and notes that order type and time in force are generally separate concepts.
The examples show that behavior varies by exchange. The cited Toronto rule books an unfilled remainder at the last sale price, while the BATS example rejects an order when no liquidity is available. The text also notes that some US markets use priced orders rather than offering a market order type. These examples are not a universal specification: traders must check the relevant exchange’s rules and protections, including price limits, before assuming how an order will be handled.
Key ideas
- An empty or shallow book can lead to different outcomes for a market order’s unfilled quantity.
- One cited Toronto rule converts the remainder into an order priced at the last sale.
- The cited BATS behavior is to reject a market order when there is no liquidity.
- Order type and time in force are generally distinct settings.
- Exchange-specific rules and price protections determine the actual outcome.
Tags
Full text
# What is the correct / expected behavior for a market order sent to an empty book? # What is the correct / expected behavior for a market order sent to an empty book? Should it stick around until liquidity shows up? (GTC) Should it cancel any size for which there is no liquidity? (IOC) Is there such a thing as Market GTC or Market Orders must always be IOC? ## Answer by chollida (score 4, accepted) https://quant.stackexchange.com/a/11585 This differs from exchange to exchange but in Toronto (TSX) the rule is that the unfilled amount becomes a limit order at the last sale price. ``` A market priced order is an instruction to trade the order at prices currently established by the opposite side of the market. Such orders have no trader defined limit on the potential trade price but these orders are subject to TMX bid/ask price limits and TMX freeze price limits to prevent unintentional trade-to-trade price gaps which may otherwise occur if the opposite side of the market is thinner than the trader submitting the market order had expected. If there is not enough volume in the book to fill the order, the unfilled quantity of the Market order is booked at the Last Sale Price. ``` From here Having said that, If you have a use case where you are - sending out market orders and - clearing out the order book Let me know so I can either trade against you or get the heck out of your way:) ## Answer by sevzas (score 2) https://quant.stackexchange.com/a/16116 On BATS, your market order would be rejected back to you with an error "No Liquidity". ## Answer by user2191822 (score 1) https://quant.stackexchange.com/a/12663 As mentioned above, the action depends upon the market. Many exchanges in the USA do not provide the market order type; all orders are priced. The time in force (TIF) is independent of the order type, generally.
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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.