Example of Using the Limit Order Book
Suppose a trader on the New York Stock Exchange was a specialist responsible for Circuit City stock. The limit order book might look like the following:
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Unfilled Circuit City Limit Orders |
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Buy Orders |
Sell Orders |
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37 |
100 |
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37.12 |
300 |
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37.25 |
100 |
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37.37 |
200 |
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37.50 |
500 |
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37.62 |
100 |
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Listed under Buy Orders are the highest prices investors are willing to pay to buy the stock. Listed under Sell Orders are the lowest prices investors holding Circuit City are willing to accept to sell. Currently, no transactions occur because there are no cross over or common prices. In other words, there is currently no one willing to sell Circuit City at a price anyone is willing to pay. Now suppose the specialist receives a new 200 share market order to buy, an order to be filled at the best market price currently available. The specialist will consult the Sell Orders column and fill the order at 37.37. Next, the specialist receives a 300 share limit order to sell at 37.12. Again, the specialist will consult the book, but this time will look under the Buy Orders column. The limit order will be filled with 100 shares at 37.25 and 200 shares at 37.12. Next, suppose that a limit order to buy 500 shares at 36.88 is received. Since there is no sell order for this amount, the order is added to the book, which looks as follows at this point:
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Unfilled Circuit City Limit Orders |
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Buy Orders |
Sell Orders |
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36.88 |
500 |
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37 |
100 |
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37.12 |
100 |
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37.50 |
500 |
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37.62 |
100 |
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