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Trading at Börse Frankfurt

Particial Order Execution: No extra mileage fee when taking small steps
Teilausführung: Bei kleinen Schritten kein Sohlengeld extra

Has it happened to you? You place an order with your bank or online broker to buy or sell a security. But, unexpectedly, you don’t get just one bill, rather two or three or even four? This can be annoying – especially when the volumes of the individual partial executions are so small that the bank charges the flat-rate fee for each. Investors naturally wonder why their orders are divided up in such a manner and why it costs more.

Basically, orders are broken into individual transactions when one order does not have a matching counter-order on the market. That often occurs with smaller titles that have low market capitalization or with titles that have limited free-float percentages. What happens next becomes clear by looking at the way the order is carried out in trading. In the following example, the execution of an order placed in the electronic-trading platform Xetra will be tracked. More than 93 percent of all domestic transactions are executed on Xetra.
An investor’s order is placed by the appropriate trader in the Xetra order book. Orders from online brokers are normally sent electronically to Xetra directly. The system then automatically checks whether there is a corresponding offer on the books and, thus, whether the order can be fulfilled. If there is no corresponding bid/ask, the order remains in Xetra’s list until a matching counter-offer is placed.

Small bites up to the limit

If, for example, a buy order of 1,000 shares at a maximum price of €10 per share meets with a sell order of 200 shares at €8 each, then this transaction will be executed. The remainder of 800 shares stays in the order book based on its validity: For a day, up to a pre-specified date or for an unlimited period of time. If another sell order comes in, say for 300 shares at €9 each, then this portion will be executed. There are now 500 shares remaining from the original order – this can thus lead to even more partial executions. These individual transactions can of course happen in parallel. Insiders call this phenomenon a “chewed-up limit.“

Riders do not prevent partial executions

The idea that riders on orders, issued when the order is placed, can prevent partial executions is a widespread misconception among investors. Fill-or-Kill orders, for example, are orders that either have to be completely filled or not transacted at all. If they are entered into an order book, they can meet with acceptable counteroffers that have different prices, all of which, however, are within the limit. These transactions would be executed immediately, but in different parts.

Partial executions are not necessarialy a disadvantage 

As an investor, however, one must realize that partial executions normally do not entail extra transaction costs for banks and online brokers from the exchange. Deutsche Börse AG charges its participants one fee per order. Additional costs for partial executions come only from the clearing related to the number of partial executions. Inasmuch, it cannot be said that banks pass on their clearing costs to private investors. Currently, the minimum trading commission – up to an order size of €12,500 – is €0.70. What the banks and brokers charge their customers varies from house to house.

The differences among the individual houses are large: Some calculate their fees based on total order volumes, others charge a flat rate for each individual execution. Only in this latter case do private investors face disadvantages from partial executions. So, as usual: Compare offers and make informed decisions (for more details
© Juli 2008/Edda Vogt

Trading at Frankfurt Stock Exchange