What is a sweep order in the stock market?
A sweep order is a large order that is split into a number of different smaller orders that can then be filled more quickly, often on multiple exchanges. We will explain how sweeps work, some tools you can use for sweeps and also look at what is a put option sweep, call option sweep, golden sweep and also calls sweep near the ask.
What a sweep order is not
It is important to remember it is not a type of option, such as call or put, and it also is not an option strategy such as a spread, or strangle. It is a type of order, that is how the buy or sell order is executed.
Effectively it is a market order or a limit order.
A sweep order instructs your broker to identify the best prices on the market, regardless of offer size, and fill your order piece-by-piece until the entire order has been filled.
A sweep order is not generally available to retail traders, and is becoming increasingly obsolete.
History and theory of sweep orders
A sweep order was more relevant when the various exchanges were not as interconnected as they are now. So in the past the broker searched the various exchanges for the best price and filled as many orders at that price that they could, even if it was a tiny fraction of a very large order.
Then when that price was exhausted at all exchanges they then started filling orders at the next best price available on the different exchanges and then continuing on until the entire order was filled.
Nowadays all exchanges are more interconnected and so the entire availability across all exchanges is listed in one place, so as a retail trader you can just use a limit order and achieve the same effect as a sweep order in the past.
A limit order specifies the maximum price you are willing to pay for something or the minimum price that you are willing to sell. The logic and hope is that your order will eventually get filled at these prices, making it the same as a sweep.
A sweep to fill order means you take all available prices untilt he order is filed. That means it may not be a good idea on low volume stocks. For example, if you have an order to buy 50,000 shares on a stock that typically has 200,000 shares volume per day, then by using a sweep buy order you will be filling your order at higher and higher prices until the entire order is filled.
This can have quite an effect on the share price, causing it to rise suddenly and you will spend a lot more than if you had used a limit order.
You should note that not all brokers offer sweep to fill orders, but they will offer market fill orders, which are effectively the same thing.
Likewise if you are using a sweep sell order the opposite will be true, where the price will go lower and lower as you sell at all the available prices and orders until the order is completed.
You can customize your sweep to fill order, for example search all exchanges and buy all shares available at a certain price, but not buying anything available at a higher price.
Information is power and when sweep orders were used more in the past by large institutions, they could reveal information to other institutions.
Sweeps are generally large orders so that means institutions, funds etc and not for retail traders.
However sweep orders can be of interest to retail traders. As I say information is power, so some traders believe that following sweep order information gives you an edge in your trading.
The logic being that if large institutions are placing an order like this then you might be able to react quickly and so you will catch a profitable move early.
This video from Controlled Trades explains sweep orders in more detail.
What is a put option sweep, call option sweep, and calls sweep near the ask?
A put option sweep is a large order of put options broken into smaller orders. It may indicate strong bearish sentiment if the buyer, who is probably a large institution, is buying a lot of put contracts available at a certain price or an even stronger bearish sentiment if they are buying the put contracts at whatever price is available until they get their order filled, which as we have said is a sweep to fill order.
Likewise, a call option sweep is a large order of call options broken into smaller orders. It may indicate strong bullish sentiment if the buyer, who is probably a large institution, is buying a lot of call contracts available at a certain price, as this indicates they expect the price to rise.
And again it is an even stronger bullish sentiment if they are buying the call contracts as a sweep to fill order at whatever price is available until they get their order filled.
A calls sweep near the ask means that the buyer is more concerned with getting their order filled than the price. They will take whatever price available. So you can interpret this a strong bullish signal.
There are many tools out there that follow sweep orders, such as Flowalgo, Sweepcast, and Cheddarflow.
What is a golden sweep in the stock market?
Flowalgo coined the term golden sweep, it means a very large opening sweep order. Flowalgo provides real time option order flow. It can alert you to unusual activity that might give you an edge in your trading, for example, the aforementioned Golden Sweep.
Their claim is that they follow “smart money” that is money from large institutions that retail investors might consider to have information quicker than the general public.
Sweepcast is marketed as unusual options activity for retail traders. They also claim to follow the mart money.
Cheddarflow has real time options flow tracking and also claims to follow the smart money.
You might be also interested in What is the Triple Threat Trade Strategy? and What is a Forward Volatility Agreement?
