9

Let's assume a very simplified situation. There is only one seller asking for 10$ and there is only one buyer bidding 20$. At what price would the transaction go?

Some answers say it won't, because the ask price has to match the bid price. (Does a market maker sell (buy) at a bid or ask price?) Other answers say, that the time ordering is important. (Bid-Ask at market open, which comes first?) Which answer is correct? What is the final price in the presented situation?

16

The earliest order is the price.

If the seller submits a Limit Order to Sell at $10 at 9:30 AM, it will enter the order book and $10 will be shown to the world as Best Ask.

Then if the buyer submits a Limit Order to Buy at $20 at 9:31 AM, it becomes a Marketable Limit Order because $20 is better than the Best Ask of $10.

The trade will be executed at $10, not somewhere between $10 and $20.

That limit order to buy at $20 will never be shown in the order book, nor will the $20 be shown as best bid.

A trade happens when:

  • Incoming Buy Order has limit price equal to or above National Best Offer; or
  • Incoming Sell Order has limit price equal to or below National Best Bid.

For examples of rules, please see http://nysearcarules.nyse.com/pcx/pcxe/pcxe-rules/chp_1_1/chp_1_1_8/chp_1_1_8_3/chp_1_1_8_3_11/default.asp

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