Limit Order Book

Limit Order Book

What is a limit order book?

A limit order book is a record of unexecuted limit orders kept by the security specialist who works on the stock exchange. When a limit order for a security is entered, it is retained by the security specialist. As the buy and sell limit orders for the security are given, the specialist keeps a record of all these orders in the order book and executes them at the given limit price or better when prices and stocks are available to do so. The specialist benefits from the difference between the price difference between buy and demand orders on his book when they execute the orders. As technology has allowed, this process has moved from a manual process to a largely automated process.

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How do limit orders work?

Explanation of the limit order book

The specialist who manages the limit order book is responsible for ensuring that the priority order is executed before the other orders in the book, and before the other orders at an equal or worse price held or submitted by other traders on the parquet (parquet brokers, manufacturers market, etc.). In 2000, the Securities and Exchange Commission (SEC) began to create a centralized limit order book that tracks limit orders on exchanges electronically. This electronic order tracking system automatically corresponds to the execution of the best possible pair of orders in the system. The best pair consists of the highest bid and the lowest sell orders. The offer is the price that the specialist / stock market will sell a security or the price at which an investor can buy the security. Demand / supply is the price at which the specialist / stock exchange will buy a security or the price at which the investor can sell the security.

When a limit order is entered into a trading system and sent by a specialist working on a book or electronic order database, it will remain in the book until it can be associated with a trade. appropriate and executed. Limit purchase orders are placed with a higher price threshold. The investor says “I don’t want to pay more than $ X for this share”. Limit sell orders are placed with a lower price threshold. The investor says “I don’t want to sell this stock for less than $ X”.

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