What is a Sweep-To-Fill Order?

A sweep-to-fill order is a type of market order in which a broker splits the order into numerous parts to take advantage of the order sizes at the best prices currently offered on the market. A sweep-to-fill order is executed immediately based on the best possible price and allows the investor to enter a trade as soon as possible. Sweep-to-fill orders can have limits (limit order) attached to them, which controls the highest price paid to buy, or the lowest price sold at.

Key Takeaways

  • A sweep-to-fill order is a type of market order that fills by taking all liquidity at the best price, then all liquidity at the next best price, and so on, until the order is filled.
  • It does this by breaking the order up into multiple pieces for each price and volume amount.
  • Because exchanges and ECNs in the U.S. are so interconnected and are all used to create the best bid and offer available on the order book, traditional limit orders are typically just as effective for executing quick trades on behalf of the retail trader.

Understanding the Sweep-To-Fill Order

The order looks first at price and then at the available liquidity at each price. If a trader needs to sell 100,000 shares and wants to use a sweep-to-fill order, the order will look for the highest available price (usually the best bid price) across all available exchanges, and the amount shares available at that price. If 100,000 are not available for sale, it will then look to the next highest price and the shares available there, and repeat this process until the full order size is able to be filled.

In some heavily traded stocks such an order would not significantly change the price by its execution. However in thinly traded stocks, those that trade less than 100,000 shares per day on average, such an order could create a substantial move down in the stock's price. Consequently brokers and traders are careful about the use of such an order.

It does this until the whole order should be filled, and then sends out individual orders for each price and share amount.

While this is similar to a market order in that the order is trying to take all liquidity until the order is filled, a sweep-to-fill order can have a limit attached to it, controlling how far the order searches for liquidity. For example, if a trader has a large position they want to buy, they may want to buy as much as they can but only up to a certain price. They could use a sweep-to-fill order to do this.

Sweep-to-fill order processing is more common with large orders. Retail investors need to specify the use of a sweep-to-fill order if they wish to transact in this way, and not all brokers offer this order type.

Sweep-To-Fill Order Processing

Sweep-to-fill orders are facilitated by broker-dealers with technology for accessing a broad range of exchanges and trading venues called electronic communication networks (ECNs). In a sweep-to-fill order, a broker-dealer will fill the order at various market prices providing the investor with an average buying price.

Most broker-dealers have technology systems linked to all the major exchanges, electronic communication networks (ECNs), and some may access dark pools as well. When an order is placed, it is sent to all of the exchanges in the broker’s network to grab all the available liquidity, starting at the best price, and taking liquidity at successively worse prices until the order is filled. Alternatively, the order will do the above until the limit price set on the order is reached.

No Longer a Necessary Order

This order type isn't used much by retail traders. The exchanges are so interlinked, and any exchange or ECN in the U.S. posting a visible order will show up on the order book for that stock. An order cannot be filled at a price outside the best bid or offer. While the bid or offer can change, another one will be shown, and then transactions can't occur outside those levels until all those shares are gone and then a new bid/ask price is revealed.

In this way, any limit or market order will sweep the book, because it takes all shares at the best available price, and then moves to take all the shares at the next best price, and so on, until the order is filled.

That said, some brokers still offer this order type. While most retail investors will find little benefit to it over and above using traditional limit or market orders, some institutional investors may find it incrementally improves their execution price but that is by no means guaranteed. Institutional investors will typically test out order types to see which provides the better execution rate over many trades, and then will gravitate toward the more efficient types.

Example of a Sweep-to-Fill Order

Assume a trader is interested in buying Ali Baba Inc. (BABA), and wants to get into the trade right now. They want to buy 10,000 shares. The price is oscillating around $160.60, but there is only about 500 shares usually showing on the order book at each price level. Bigger, or smaller, liquidity may pop up at different prices though. A sweep-to-fill order will look at all available liquidity and then send out orders to grab all the available liquidity at the different price levels until the order is filled.

Assume the trader adds in the additional stipulation that they want to limit their buying to $160.70.

There are 500 shares posted at $160.61, 1,200 shares at $160.62, 900 at $160.63, 200 at $160.64, 5,000 at $160.65, 500 at $160.66, 1,000 at $160.67, and 2,000 at $161.68.

The sweep-to-fill order looks at all these prices and volumes and then sends out an order for each price and volume amount. It will take all the shares at all the prices until it fills, so it will only take 700 at $161.68 instead of the full 2,000 available. This is because if it gets all the other shares prior, it will reach the 10,000 required shares with only taking 700 at $161.68.

Another simple example reveals why this order type is not used frequently in modern markets. The sweep-to-fill is breaking an order up, but orders can't be filled outside the best bid/offer. Assume that someone is only showing they are offering 500 shares at $161.61, but they are in fact using an iceberg order and have 50,000 shares offered there.

The sweep-to-fill hits a roadblock in that all those orders at different prices are useless until the prices of those orders are reached. Therefore, most brokerage software will realize there is liquidity at the $160.61 and continue to fill the order at the best price available ($160.61 currently) until it is filled. This is also how a limit order works. The trader could have set a buy limit up to $160.70 and the order would have taken all liquidity at the best price available until the 10,000 shares were filled.