What is Stock Ahead?
Stock ahead refers to a situation in which an order is placed, but not executed, because of a previously sent order involving the same price. Depending on the exchange's priority rules, this can also happen when two bids or offers are made with identical prices. The orders are placed in a queue, and are filled according to the exchange's priority rules when liquidity at that price is available.
- Each exchange has rules for which order takes priority when two (or more) orders come in at the same time for the same price.
- Stock ahead refers to shares that are ahead of other orders in terms of getting filled.
Understanding Stock Ahead
Stock ahead refers to the queue of orders waiting to be executed. Five traders may place a limit order at the same price. Their orders form a lineup. The person who placed their order first is the front of the line, and will be filled first when liquidity is available at that price. The second order received will be filled second, and the third order, third, and so on. Anyone who isn't first in line has "stock ahead" of them that needs to filled before their order is filled.
Different exchanges have different priority rules. Some are based on the time in which orders are received, such as Nasdaq, as mentioned above. This is fairly straightforward: the first person at that price gets filled first when shares are available.
Other markets may use a hybrid system. For example, on the New York Stock Exchange (NYSE), the first person in line gets most of the shares, but other orders at that level also get some shares. For example, there may be five sellers on the offer. If a market buy order comes in, the first in line gets the most, but the other four sell orders also get a small piece of the buy order (filling or partially filling their sell order).
Stock ahead typically refers to limit orders where a specific price is requested. Market orders will fill at any price available, usually instantly, and therefore don't have any stock ahead of them. There are priority rules for that as well, which will vary by exchange, if two market orders are received at the exact same time. NYSE executes the bigger order first.
Example of Stock Ahead on Nasdaq
Bert places a limit order to sell 100 shares of Apple (AAPL) stock for $250 per share. While his order is waiting, Ernie sends a limit order to sell 1,000 shares of Apple stock for the same price. When the price rises to near $250, assume that someone places a buy order for 100 shares at $250.
Since the buy order is for 100 shares, and Bert was selling at $250 first, his 100 shares will be filled. Ernie is left selling his 1,000 shares at $250, but he is now first in line. Apple is listed on the Nasdaq stock exchange, which fills orders based on the time they are received.
If Jill places an order to sell 500 shares at $250, she will need to wait until Ernie is able to sell his 1,000 shares. Once someone has bought the 1,000 shares from Ernie, then Jill will get filled with subsequent buy orders (to fill her sell order). Until this happens, Jill has stock ahead of her.