Bid / ask spread execution dynamics

Discussion in 'Order Execution' started by faust, Jul 17, 2011.

  1. faust


    Market taker (customer) aggressively initiates buys/sells at market by lifting the offer/hitting the bid, paying bid/ask spread in case of instantaneous trade reversal.
    Market maker (dealer) buys customer supply order flow by having his bids hit and sells customer demand order flow by having his offers lifted, thereby collecting bid/ask spread in case of instantaneous trade reversal as compensation for liquidity / immediacy provision to impatient customers.

    Limit order placing customers, however, passively respond accumulating longs/distributing shorts on the bid and accumulating shorts/distributing longs at the offer, effectively playing market maker and adding liquidity.

    Non-Marketable orders ADD liquidity.
    Non-marketable orders are buy/sell limit orders in which the limit price is below/above the current market.

    1. For a non-marketable buy limit order, the limit price is below the Ask.
    2. For a non-marketable sell limit order, the limit price is above the Bid.

    In the two screenshots below, BTO LMT order was filled at 1306.75 and STC LMT order is waiting to be filled at 1307.00. Why must the bid trade at or through the 1307.00 trigger price to get filled and not just enough that current offer and last traded price is at 1307.00?
  2. jb514


    Your question needs to be rephrased. Are you asking why wasn't your order of 1307 immediately filled once the ask hit 1307? Basically, everyone who sent a 1307.00 limit order has to wait in line to be filled. The sooner you send your order, the close to the front of the line you are, the sooner you order will be filled.