How exactly do Buy Limit orders become Bids?

Discussion in 'Order Execution' started by braincell, Aug 31, 2011.

  1. This a question I cannot find a clear answer to.

    When I place a buy lmt order at a certain price, I'm not sure I see it in market depth. Maybe that's because of slow updates with IB but this leaves me with a question about how markets operate.

    When I place a buy limit, if it's at the current Bid, does it immediately become a bid there directly associated with my account?

    Or, do the market makers only make bids, and then once those are filled they find my buy limit order and send me the fill?

    Any insight would be appreciated, thanks.
  2. jb514


    All limit orders are either bids or asks. It will only show up on the level 1 quote if it is the best bid or ask.
  3. So its not as straight forward as you might think. Depending on where your order goes, your bid might not show up. If you send it to an ECN, then it should show up per NMS regulations.

    However, if you send it to a market maker, depending on the exchange, market makers have to abide by varying rules for what must be displayed and how a customer order needs to filled. For example, if your bid is <10% of the quotation bid size, the MM may not add your bid to current displayed bid.

    Also note that MM's have 30 seconds to post your bid if its the new NBBO.

    Does that help?
  4. Thanks jb514 and Mike805.

    Yes, that does help.

    My primary concern was that if I place a buy limit above the bid, and it's the only one at that price, anyone selling at MKT would sell to me immediately, ie without delay. I now understand that this should always be the case without exception. So order fills should be a little different from order postings depending if a MM is used. Correct me if I misunderstood. Thanks.
  5. True but it's also possible that while your bid is displayed the market will shift down to the point where your bid is equal to the current ask. This will result in you getting an execution the same as if you had placed a market order at that time.