What is a Sweep-to-Fill Order?

A sweep-to-fill order is an order to buy shares placed by an investor, in which a broker breaks the order into several smaller parts to find shares at the best prices. A sweep-to-fill order is to be executed immediately, therefore broker must quickly search for the prices of shares across markets and execute the sweep-to-fill order. A sweep-to-fill order is to be executed as soon as possible because it is placed by investors or traders who want to enter trade quickly.

The prices of shares differ in each market or stock exchange where it is traded. For instance, XYZ stock might be selling at $10.12 in market A and $10.89 in market B. The sweep-to-fill order helps the investor get the best possible price or an average buying price on an immediate purchase.

Some sweep-to-fill orders can also be limit orders meaning that they also have limits that restrict the maximum price paid to buy shares and the lowest price taken to sell shares. For instance, an investor can place a limit on sweep-to-fill order that the maximum price for buying 1000 shares of Company X will be limited to $50.55.

How do Brokers Fulfil Sweep-to-Fill Orders?

Brokers use electronic communication networks (ECNs) to find the prices offered for shares on a variety of exchanges. Such electronic systems help brokers find the best average price to fulfill the order.

When an investor places an order for a given number of shares, the order is sent to all the exchanges in a broker’s network to initially take advantage of the best prices and then move on to the next better price.

Here is an example that will help you understand sweep-to-fill order:

Let’s assume that an investor Zack wants to buy 1000 shares of Greene Corporation and places a sweep-to-fill order for it.

The broker uses ECN to check the price of shares and the availability of shares. Here is what the broker finds on different exchanges:

Exchange A: 300 shares selling at $50.89

Exchange B: 500 shares selling at $51.33

Exchange C: 500 shares selling at $50.08

Because exchange C is selling the shares at $50.08 (the lowest price), the broker uses it to fill the order first, buying shares as follows:

500 shares x $50.08

              +

300 shares x $50.89

              +

200 shares x $51.33

Understanding the Sweep-To-Fill Order

Sweep-to-fill order is beneficial for investors who quickly want to purchase a large number of shares. It is also important to note that not all brokers offer sweep-to-fill orders.

Heavily traded stocks have constant prices across all platforms because a lot of investors are speculating the stock prices. So, the sweep-to-fill order will not be very helpful as the difference in prices across a variety of exchanges may not be massive.

But sweep-to-fill orders for thinly traded stocks, which are not traded in large quantities each day, can be more advantageous as they can help investors buy stocks at a low average price or sell them at a high average price.