Bid + Ask

[matinthehat 10]

Please answer these questions:

 

How do bid and asks rise and fall?

 

Who's limit orders drive the market?

 

If i enter a limit order to buy at the ask and it is not filled since the market gets away from me on the upside, and i keep it at that price, and then the market comes down, do i get filled at the bid or at the ask? (this is really confusing me)

 

I can't believe the lack of information pertaining to this question. It's like people trade professionally without knowing every single detail of the markets...

[matinthehat 10]

Can someone give me a explanation of how market and limit orders change the bid and ask prices? Also can you possibly supply some scenarios to? Thanks.

[diablo272 10]

Please answer these questions:

 

How do bid and asks rise and fall?

 

Who's limit orders drive the market?

 

If i enter a limit order to buy at the ask and it is not filled since the market gets away from me on the upside, and i keep it at that price, and then the market comes down, do i get filled at the bid or at the ask? (this is really confusing me)

 

I can't believe the lack of information pertaining to this question. It's like people trade professionally without knowing every single detail of the markets...

 

The bid represents the highest price at which participants are willing to buy at a given time. The ask represents the lowest price at which participants will sell at a given time. One way to visualize this would be by looking at a level 2 or DOM screen.

 

If you're looking at a DOM and you see that the bid is 700 @ $1050.00, this means that there are currently orders to buy 700 contracts at the price of $1050.00. If someone has a big position of 700 contracts they want to unload and they are willing to sell at $1050.00, then they would be able to do so right away (this is called "selling at the bid"), and the bid at $1050.00 would probably drop down by one tick to $1049.75. However, the entire size of the bid doesn't need to be taken out in order for the bid to move down. If all of the participants who have orders in at the bid pull their orders, the bid will drop. This is all true for the ask, but in the opposite direction.

 

Regarding your question about your limit order not being filled: when the market comes back down to your price, you would be buying at the ask, because all buying is done at the ask, and all selling is done at the bid.

 

Can someone give me a explanation of how market and limit orders change the bid and ask prices? Also can you possibly supply some scenarios to? Thanks.

 

A market buy order is an order to buy right away at the best possible price, which means buying at the ask, and a market sell order means selling at the bid. To answer your question, markets orders can have a more immediate effect on price, because they will always be filled (unless it's a very illiquid market). A limit order, on the other hand, can be entered at any price. Say the current BxA is 1049.75x1050.00, and you enter a limit buy order at 1049.00. If enough people do this, this could have an effect on price, because short sellers (this is just one scenario) watching market depth might see the big size (lots of orders) at 1049.00, and decide that 1049 will be impossible to get past at the moment, and they will begin to cover, driving price up.

Edited January 4, 2009 by diablo272

[matinthehat 10]

Thanks diablo, i figured it out this morning after analyzing the DOM. Your explanation reinforced my findings. Thanks for the effort.

[BlowFish 10]

Can someone give me a explanation of how market and limit orders change the bid and ask prices? Also can you possibly supply some scenarios to? Thanks.

 

The Basics Of The Bid-Ask Spread

[Tams 20]

Please answer these questions:

 

How do bid and asks rise and fall?

 

Who's limit orders drive the market?

 

If i enter a limit order to buy at the ask and it is not filled since the market gets away from me on the upside, and i keep it at that price, and then the market comes down, do i get filled at the bid or at the ask? (this is really confusing me)

 

I can't believe the lack of information pertaining to this question. It's like people trade professionally without knowing every single detail of the markets...

 

 

 

definition is not enough...

 

you need to learn the mechanics of auction.