Cross Trade

What is 'Cross Trade'

Cross trade is a practice where buy and sell orders for the same stock are offset without recording the trade on the exchange, which is outlawed on most major stock exchanges. This also occurs when a broker executes both a buy and a sell for the same security from one client account to another where both accounts are managed by the same portfolio manager.

BREAKING DOWN 'Cross Trade'

Typically, this is yet another way for a broker to rip you off. When the trade doesn't get recorded through the exchange, there is a good chance that one client didn't get the best price.

However, cross trades are permitted in very selective situations such as when both the buyer and the seller are clients of the same asset manager. The portfolio manager can effectively "swap out" a bond or other fixed income product from one client to another and eliminate the spreads on both the bid and ask side of the trade. The broker and manager must prove a fair market price for the transaction and record the trade as a cross for proper regulatory classification.

The key point is that the asset manager must be able to prove to the SEC that the trade was beneficial to both parties before executing a cross trade.

RELATED TERMS
  1. Discretionary Account

    An account that allows a broker to buy and sell securities without ...
  2. Give Up

    A procedure in securities or commodities trading where the executing ...
  3. Cross

    When a broker receives a buy and sell order for the same stock ...
  4. Agency Broker

    A broker that acts as an agent to its clients. When acting as ...
  5. Executing Broker

    The broker or dealer that finalizes and processes an order on ...
  6. Firm Order

    1. A market order to buy or sell a security for a brokerage's ...
Related Articles
  1. Managing Wealth

    Asset Manager Ethics: Placing and Managing Trades

    Five guidelines have been created to assist asset managers on the best practices for placing and managing trades in client accounts.
  2. Managing Wealth

    Broker Or Trader: Which Career Is Right For You?

    Both brokers and traders buy and sell securities, but there are some subtle differences between the two careers.
  3. Managing Wealth

    Asset Manager Ethics: Acting In the Benefit of Clients

    Investment managers should always act to benefit the client. Learn what actions managers should take on a client's behalf.
  4. Financial Advisor

    Deal Effectively With Difficult Clients

    Learn how to tame the most shrewish clients with these simple methods.
  5. Markets

    Understanding Order Execution

    Find out the various ways in which a broker can fill an order, which can affect costs.
  6. Managing Wealth

    Portfolio Manager: Job Description & Average Salary

    Discover the duties and responsibilities of a portfolio manager, along with education, training and skills requirements, and salary expectations.
  7. Investing

    Research Report Red Flags For Brokers

    Discover how to look past analysts' ratings to find winning stocks for your clients.
  8. Professionals

    Financial Careers: Portfolio Management Jobs

    By Brian Perry This chapter will look at portfolio management jobs. These are some of the prestigious roles in the finance industry and involve directly managing institutional and retail client ...
  9. Financial Advisor

    Broker Or Trader: Which Career Is Right For You?

    A day in the life of a broker or trader is an exciting and varied one. Find out how to decide between these two financial professions.
  10. Financial Advisor

    What is Portfolio Management?

    Portfolio management is the act of maximizing the return on a portfolio. This is done with trading decisions made for the marketable securities in that portfolio. A portfolio manager, or a team ...
RELATED FAQS
  1. Do I always need to use a stock broker?

    Do I need a stock broker to buy stocks for myself, even if I get a stock brokers license? Or is there a rule that makes it ... Read Answer >>
  2. I want to start buying stocks. Where do I start?

  3. Does a broker always have to buy a stock if I want to sell it?

    There are certain times when a broker must purchase the stock that you are selling. For example, if the broker is a market ... Read Answer >>
  4. What is the difference between a broker and a market maker?

    A broker is an intermediary who has a license to buy and sell securities on a client's behalf. Stockbrokers coordinate contracts ... Read Answer >>
  5. Why do brokers ask for personal information before they make any trades?

    According to the Securities and Exchange Commission (SEC), there are three main reasons why a broker will ask for personal ... Read Answer >>
  6. My broker just sold securities out of my account without my permission. Is this legal?

    Your broker's actions are not legal unless he or she sold the securities under certain conditions. Let's look at the two ... Read Answer >>
Hot Definitions
  1. Glass-Steagall Act

    An act the U.S. Congress passed in 1933 as the Banking Act, which prohibited commercial banks from participating in the investment ...
  2. Quantitative Trading

    Trading strategies based on quantitative analysis which rely on mathematical computations and number crunching to identify ...
  3. Bond Ladder

    A portfolio of fixed-income securities in which each security has a significantly different maturity date. The purpose of ...
  4. Duration

    A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. ...
  5. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  6. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
Trading Center