So I have recently understood the meaning of a bid-ask spread and how market makers are involved in this process.

However if I am not one of the lucky few 'members' of for instance the Amsterdam Euronext that can place orders directly on the actual stock exchance, I would have to go through some bank or broker that is willing to place my limit order on the exchange.

I am interested in the 'physical' process of placing a (limit) order through an intermediate like a broker.

Consider the following situation where stock xyz has a bid of €10.10 and an ask of €10.20, if I ask my broker to put forth a limit buy order at €10.15 which of the following two scenarios occurs?

a) My limit order just sits there hanging because its limit €10.15 is below the current ask of €10.20 and I have to wait for market makers to feel compelled to make a move towards €10.15, i.e. I am just waiting until the ask moves down to or lower then €10.15. I am not even sure what hanging means in this situation. Is my order hanging with my broker who is somehow checking the market maker spreads and the exchange 'just' offers the infrastructure to do this. This is what is called Request for Quote? If this is the case I am always a slave of the spread and I just have to pray that the spread is tight, right?

b) Is my limit order physically placed (albeit on name of my broker) on the exchange admits all other outstanding orders of direct market participants like market makers and authorized trading firms. Which means that I can actually place my limit order in the middle of a spread which hopefully gives me a better deal then a straight market order. In this case if trading volumes are high, I can beat the spread. Because I can pose a better deal then the market makers for other market participants right? Is this what they call Central Limit Order Book?

Do I understand RfQ and CLOB correctly and if so, which of these two models is applicable to the Amsterdam Stock Exchange and other large exchanges like NASDAQ.


1 Answer 1


I don't know how foreign exchanges work but I would assume that they're no different there than we have here in the US where we use NBBO (National Best Bid and Best Offer).

The market maker posts his bid and ask price.

For example, the quote is $10.10 x $10.20.

If you place an order to buy at $10.11 then you become the market on that side of the current quote which then becomes:

$10.11 x $10.20.

There's nothing to stop you from making a market on both sides (you also place an order to sell at $10.19). The quote hten becomes:

$10.11 x $10.19

In this example, being on both sides of the spread makes no sense. However, in a situation where I own an illiquid stock with a very wide spread, sometimes I'm willing to sell my position at the high price and/or buy more at the lower price. But that's another story.

  • could you expand on how your last paragraph works. Specifically, I'm looking at the spread on HIBS today. Would this apply?
    – psaxton
    Commented Mar 19, 2020 at 2:33
  • In volatile markets like now, I trade some pairs in highly correlated issues that are joined at the hip. This is a more complex trade where I'm long one issue and short another. Normally, I'd work the side with the wider B/A spread and then establish the complete position with a market order but because of the alternate uptick rule, I'm forced to add incrementally. I'm trading the spread b/t the two issues rather than a wide single B/A spread that you see in HIBS. So no, this would not apply to HIBS. Commented Mar 19, 2020 at 2:59
  • @BobBaerker So what you are describing in your answer implies that US exchanges operate on a CLOB model? And as an indirect investor (e.g. investing via brokerage firm) I can still place my orders indrectly on the order book of the exchange? So I can directly - assuming a lightning fast broker - affect the bid-ask spread?
    – Yunus King
    Commented Mar 19, 2020 at 9:54
  • 1
    Yes, US exchanges operate on a CLOB model rather than the RFQ method where the investor can only hit the bid or the ask and cannot trade inside the B/A spread. Today, online brokers are lightning fast and as fast as you click send and place your order, price and size changes. Commented Mar 19, 2020 at 12:06

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