What is Out Trade

An out trade is a trade that cannot be placed because it was received by an exchange with conflicting information. The associated clearing house cannot settle the trade because the data submitted by parties on both sides of the transaction is inconsistent or contradictory.

Breaking Down Out Trade

When a clearing house encounters an out trade, it first gives the counter parties a chance to reconcile the discrepancy on their own. If the parties can resolve the matter, then they resubmit the trade to the clearing house. But, if they cannot agree on the terms of the trade, then the matter is sent to the appropriate exchange committee for arbitration.

Do Not Confuse with Trading Strategies

The term, “out trade” should not be confused with other terms for actual trading strategies, such as “in and out,” in which a single security is bought and sold multiple times during a short period. This is a speculative strategy that is used to take advantage of short-term pricing.

Neither should out trade be confused with “step-out trade,” a situation where several brokerage firms take part in executing a large order. When this happens, one brokerage firm generally assigns portions of the trade to the other brokers, along with a commission for their specified piece of the trade. Step-out trading may help to facilitate best execution, and can be a good way to compensate various brokerages for their research and analysis activities.