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newbie question: how the order is matched in stock market?
- Thread starter mizhael
- Start date
Quote from anjum55:
Sure the Best Bid & Best Ask are one level apart,
Buying Pressure makes all the differnce,
When lot of Buying orders come, they eat up the
Best ask right away. and the price moves higher...
How do they eat up the best ask right away?
The "best bid" by definition is the highest bid already, no matter how many buy orders come, the best bid is still away from the best ask. They just don't come to each other.
Any thoughts?
For matching, people either send market orders or marketable limit orders. Both of these orders specify to either buy from the first willing seller at the lowest ask price, or sell to the first willing buyer at their highest bid price, instantly.
Think of limit orders at the bid and ask as waiting patiently for an eager and impatient market order to come along eat them up, they don't beg for an immediate transaction in the market place, they're just the inventory on the shelves that someone(or a computer) will decide and choose from next, based on where they anticipate the price will go.
Two terms you need to know:
Adding liquidity: Using limit orders to sit on the bid or ask, or buying below the bid and waiting for a transaction, or selling above the ask and waiting for a transaction.
Taking liquidity: Using market orders or a limit order(marketable) that immediately causes a transaction at either the bid or ask.
Think of limit orders at the bid and ask as waiting patiently for an eager and impatient market order to come along eat them up, they don't beg for an immediate transaction in the market place, they're just the inventory on the shelves that someone(or a computer) will decide and choose from next, based on where they anticipate the price will go.
Two terms you need to know:
Adding liquidity: Using limit orders to sit on the bid or ask, or buying below the bid and waiting for a transaction, or selling above the ask and waiting for a transaction.
Taking liquidity: Using market orders or a limit order(marketable) that immediately causes a transaction at either the bid or ask.
Say someone wants to sell their car. They are asking $10,000. I want the car but only offer (i.e. bid) $9,000. How on earth will the car sell?
The answer is that at some point, someone is willing to buy at the ask or sell at the bid. It may be the person who had the previous high bid (or low ask) or it may be someone else who has been watching the action. But in a perfectly functioning market, the bid and ask will be different except for an instaneous moment where they are matched.
The answer is that at some point, someone is willing to buy at the ask or sell at the bid. It may be the person who had the previous high bid (or low ask) or it may be someone else who has been watching the action. But in a perfectly functioning market, the bid and ask will be different except for an instaneous moment where they are matched.
The market maker often sits on a large lot of shakes and can sell these at a price that may not be reflected on the bid/ask. most the times the markt maker can hold tens of thousands or millions of these shares.
Stock, can you explain what this post means in english? I was a mm for 4 years and I have absolutely no idea what you are trying to say! I am amazed at some of the threads that you answer, dude you are f'ing clueless!
Quote from mizhael:
Let's say you have the best bid,
and the best ask,
they are different,
how, all of a sudden, the orders are matched and the trade is made?
It's really simpler than what you seem to think. You bid at $100 and offer at $101. I submit an order to buy at $101. The trade occurs at $101. What's the mystery?