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The Limit Order Book

The Limit Order Book

The limit order book is the list of orders (prices at which you can transact) for a given security.

• Depending on the security, these orders may be on one exchange, or aggregated across many exchanges.

• This presentation will give a basic description of the order book, and how your transactions will be handled by (and how they will affect) the book.

• You will transact in an order book if you trade stock, futures, options, and/or other securities. However, in this presentation we’ll use stock examples.

Order Book Description

In the next slide, the plot on the right shows the full order booksell orders from $11.38 to about$12.50, and buy orders from $11.36 down to about$10.20.

• We generally only show the book 5 or 10 levels deep, as in the graphic on the left, which shows the book 5 levels deep.

Example: reading the first 2 levels of the book:

• There are 400 shares being offered for sale at 11.38, and 1600 shares offered at 11.39. This means, if we wish, we can buy shares at these prices.

• Similarly there are 2700 shares being being bid for at 11.36, and 1100 shares being bid for at 11.35. This means, if we wish, we can sell shares at these prices.

Inside Quotes

The inside quotes, which are also known as the Best Bid and Offer or BBO, are the highest bid, and lowest ask, in the order book.

• They are the prices at which the next market buy (with the best offer) or market sell (with the best bid) will transact.

• In the above book the inside quotes are 11.36/11.38.

Credits and Collaboration

Click the following links to see the codeline-by-line contributions to this presentation, and all the collaborators who have contributed to 5-Minute Finance via GitHub.