Protected Trade

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This is a fairly common type of trade. It occurs when the liquidity of the market is not sufficient to cover an order. Let me give you an example.

A client gives an order to his broker to buy 200,000 XYZ Plc shares at 50p

The broker checks the market to see the availability and discovers that, after enquiring with in the market he has an offer from one market maker to sell him 100000 shares at 50p and that the market maker ‘has people to try’.

If the broker is agreeable to this arrangement, and the client is happy to trade this way rather than ‘all or nothing’ then 100000 shares will be ‘protected’. That is, whatever happens during the day the 100000 shares will be booked at 50p.

During the rest of the day the market maker may come back to the broker and complete the rest of the bargain or say that he can only do the 100,000.

There are other outcomes: the market maker could offer more shares at the price, but not the whole 200,000 (say 150,000) or may offer to do the whole 200,000 at a slightly lower price, say 49p. The decision would be up to the broker (or his client).

Whatever the outcome the trade will be ‘marked’ with a ‘bargain condition’ showing that it is/was a protected trade.