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Order Book (Trading)

The order book records the interest of buyers and sellers in a financial instrument through a list of orders. It contains bid and offer prices and quantities. A matching engine uses this information to determine which trades can be executed. The book depth refers to the number of price levels shown, with orders beyond this depth sometimes ignored. While most books track a single security, some systems allow orders across multiple related securities.

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Order Book (Trading)

Uploaded by

Siti Rachmah

Available Formats

Download as PDF, TXT or read online on Scribd

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Order book (trading)

1.4 Book depth

An order book is the list of orders (manual or electronic)

that a trading venue (in particular stock exchanges) uses
to record the interest of buyers and sellers in a particular
nancial instrument. A matching engine uses the book to
determine which orders can be fullled i.e. what trades
can be made.

The book depth refers simply to the number of price levels available at a particular time in the book. Sometimes
the book is represented to a xed depth, and orders beyond that depth are ignored or rejected, and in other cases
the book can contain unlimited levels

Order book in securities trading 1.5 Multi-specialist book

In most practical application an order book contains
bid and oer for one security, contract or good, with
a specialist matching orders for the specic item. In
his work,[1] Jean-Franois Mertens extends this and constructs an order matching mechanism that works across
specialists, where he can cross orders that are not only in
terms of bid and oer for a given traded item, but bids
and oer can be expressed linearly in function of other
traded items.

In securities trading an order book contains the list of interested buyers and the list of interested sellers. For each
entry it must keep among others, some form of identifying the party (even if this identication is obscured, as
in a dark pool), the number of shares and the price that
the buyer or seller are bidding/asking for the particular
security.

1.1

Price levels

2 References

When several orders contain the same price, they are referred as a price level, meaning that if say, a bid comes
at that price level, all the orders on that price level could
potentially fulll that.

1.2

[1] The limit-price mechanism

Crossed book

When the order book is part of a matching engine, orders are matched as the interest of buyers and sellers can
be satised. When there are orders where the bid price
is equal or higher than the lowest ask, those orders can
be immediately fullled and will not be part of the open
orders book. If this situation remains, due to an error or
a condition of the market, the order book is said to be
crossed.

1.3

Top of the book

The highest bid and the lowest ask are referred as the top
of the book. They are interesting because they signal the
prevalent market and the bid and ask price that would be
needed to get an order fullled. The dierence between
the highest bid and the lowest ask is called the bid-oer
spread.
1

3 TEXT AND IMAGE SOURCES, CONTRIBUTORS, AND LICENSES

Text and image sources, contributors, and licenses

3.1

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