Order Book Flashcards
Open Interest
Exchange traded contract this is the total number of contracts outstanding
SHORT = LONG
Order Book
list of orders that exchange uses to record the interest of b&S in a financial instrument
INTEREST BUY –> BID
INTEREST SELL –> OFFER
Concept of Position
exposure to market at given moment of time
long P - Buy - benefit from market going up
short P - sell - benefit when market goes down
Bid Price
Maximum price buyer is willing to pay
Offer Price
minimum price seller is willing to receive
Bid - Ask Spread
two-way price quotation indication the price at which security can be sold/bought at spec. point in time
difference in prices (spread) is key indicator of liquidity of asset (the smaller the better L)
Quotation
10.50/10.55
bid/offer -> buy/sell
order to sell –> 10.50
order to buy –> 10.55
Parameters
Order = message sent to market
Side = long vs short
Level = price, yield
Instrument = share x, future y , Option z
Types of Order = market, limit, stop etc.
Valid for =
Types of Prices
last price = agreed
bid price = best price s.o is willing to buy it
offer price = best available price s.o is wiling to sell
Open Price = start of day
Market Order
request for a trade to be carried out immediately at the best price available in market
last traded price isn´t automatically the pice at which market order will be executed
doesn´t guarantee price but fill
M. Order Pros
you are always guaranteed to get the trade filled
best option if you are absolutely need to get in or out of trade
M. Order Cons
they don´t guarantee price or allow for any precision order entry
this can lead to costly slippage/ delay (this can be limited by using M.O only on instruments that are traded with good liquidity)
Order Book Picture
BID –> highest price
ASK –> lowest price first
Limit Order
Specifies a particular price
the order is executed only at this price or more favourable
–> lower (buy) or higher (sell)
need to be precise about price & side of market (otherwise you can get filled at M.P)
L.Order Pros
guarantee price
allows precise order entry
appropriate if getting specific price is more important than just filled
L.Orders Cons
dosn´t guarantee fill (only if fill price reaches the specific limit price)
miss out trading opportunity if P. moves away from limit P before your order can be filled
Market moves to L.P but oder still not get filled if not enough B&S at that part. level
Stop-Loss Order
executed a best available price once a bid/offer is made at that part. price or less favourable
Stop Loss becomes a Market Order as soon as specified price has been hit
purpose is to close out position if unfavourable price movement (limits loss incurred)
Stop-Loss Example
Stop Order at 30 but Market Price is 35
order will become an order to sell when and if the price falls down 30
Stop- Limit Order
combination of Stop Loss and Limit Order
Order becomes Limit Order as soon as bid/offer is made at a price equal/less favourable than stop price
TWO PRICES MUST BE SPECIFIED (stop & limit price)
Stop Limit Order Example
MP at 35 and SLO to SELL
Stop Price = 40 and Limit Price = 41
–> as soon as Market Price increases to 40 this offer becomes limit Order to sell for 41 (or above)
IF STOP = LIMIT P –> STOP AND LIMIT ORDER
closed position
decrease number of contracts or close all contracts
open position
go long/short on contract
when not having anything or increasing your contracts bought/sold
