We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.

What is a Cross Trade?

Malcolm Tatum
Updated May 16, 2024
Our promise to you
SmartCapitalMind is dedicated to creating trustworthy, high-quality content that always prioritizes transparency, integrity, and inclusivity above all else. Our ensure that our content creation and review process includes rigorous fact-checking, evidence-based, and continual updates to ensure accuracy and reliability.

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

Editorial Standards

At SmartCapitalMind, we are committed to creating content that you can trust. Our editorial process is designed to ensure that every piece of content we publish is accurate, reliable, and informative.

Our team of experienced writers and editors follows a strict set of guidelines to ensure the highest quality content. We conduct thorough research, fact-check all information, and rely on credible sources to back up our claims. Our content is reviewed by subject-matter experts to ensure accuracy and clarity.

We believe in transparency and maintain editorial independence from our advertisers. Our team does not receive direct compensation from advertisers, allowing us to create unbiased content that prioritizes your interests.

A cross trade is an investment strategy where a single broker executes an order to buy and an order to sell the same security at the same time. This often involves a seller and a buyer who are both clients of the same broker, although the cross trade strategy can involve one investor who is not a regular client of the broker. Depending on the regulations that govern the stock exchange where the securities are traded, this type of trading may not be allowed. Even in settings where the cross trade is considered an acceptable practice, there are usually some limitations on its use.

One of the issues that many financial experts have with the cross trade is that the broker may choose to not make the trades on the exchange. Instead, the broker may use the order to buy to offset the order to sell, effectively creating an exchange between the two clients. This opens the door for one or both parties to not receive the best price for either portion of the dual transaction, a fact that causes many investors and brokerage houses to refrain from engaging in this type of activity.

Due to the potential pitfalls of this type of transaction, many regulatory agencies have established rules that apply to when and how the cross trade may be used. In the United States, a broker must be prepared to present evidence to the Securities and Exchange Commission on why this type of transaction took place, and what benefit both parties received from the deal. Unless both investors received some benefit from the transaction, there is a good chance that the activity does not comply with the regulations put in place by the SEC.

A similar practice to the cross trade is known as matching orders. This is a situation where a broker has received an order to buy shares of a certain stock at a specific price, while also receiving an order from a different customer to sell that same stock at the same price. In some nations, the broker can simply match the two, effectively creating a swap between the two customers that allows each investor to receive what he or she desired from the transaction. In other settings, the broker must actually appear on the exchange floor, declare the intention to purchase the shares at the desired price, and ask if there is any objection. If not, then the broker proceeds to buy the shares, then offers them for the same price to the client. The broker benefits by charging transaction fees, and the two investors benefit from the quick execution of their orders.

SmartCapitalMind is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Malcolm Tatum
By Malcolm Tatum
Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing to become a full-time freelance writer. He has contributed articles to a variety of print and online publications, including SmartCapitalMind, and his work has also been featured in poetry collections, devotional anthologies, and newspapers. When not writing, Malcolm enjoys collecting vinyl records, following minor league baseball, and cycling.
Discussion Comments
By Telsyst — On Feb 06, 2014

I agree with you, Certlerant.

As an investor, I would stay away from this sort of trade, especially if I am the buyer.

Unless the broker can give you a very good explanation of why you should buy this stock from another client instead of on the market, this should raise red flags.

Never be afraid to ask you broker questions and/or to refuse transactions that he or she suggests.

Never just assume that brokers know best because trading is their job - they are in it to make money. It is up the client to make sure the broker is acting in his or her best interest.

By Certlerant — On Feb 05, 2014

Most brokers would most likely want to stay away from this transaction for a number of reasons.

Trades that are not made as part of the official exchange are not subject to transaction and brokerage fees. Unless the broker is trying to manipulate the selling price by avoiding the market, there wouldn't be much benefit to them for an even client-to-client trade.

In addition, the potential legal ramifications, even if the trade is conducted with the best of intentions, would keep most brokers away from this sort of trade.

Malcolm Tatum
Malcolm Tatum
Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing...
Learn more
SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.

SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.