Cross Trade
Contents
Unraveling the Mystery of Cross Trades
Understanding Cross Trades
A cross trade involves matching buy and sell orders for the same asset without recording the trade on the exchange. While this practice is generally not permitted on major exchanges, there are legitimate instances where brokers execute such trades across different client accounts.
How Cross Trades Operate
Cross trades bypass exchange recording, which can pose challenges for investors in obtaining the best market price. However, under certain circumstances, such as when both parties are clients of the same asset manager, cross trades can be allowed. These trades must still adhere to regulatory standards and demonstrate fairness to both parties involved.
Exploring Concerns About Cross Trades
While cross trades can streamline asset transfers and eliminate trading spreads, they also raise concerns about market transparency and potential manipulation. By executing trades off the exchange, market participants may miss out on interacting with those orders, leading to questions about fairness and market integrity.