Say the bid ask in one scenario is 100/101 and in another scenario it is 90/98 ( hypothetical, for the same stock ). I want to hit a market buy order. In the second case ask is lower ( 98 ) but the bid ask spread is quite wide. In the first case ask is higher but bid ask spread is lower. Why would I take bid ask spread into consideration while hitting market order ? Why not only the absolute ask ? What am I missing ?


Because in the case for 100/101, if you wanted to placed a limit buy order at top of the bid list you would place it at 101 and get filled straight away. If placing a limit buy order at the top of 91 (for 90/98) you would not get filled but just be placed at the top of the list. You might get filled at a lower price if an ask comes in matching your bid, however you might never get filled.

In regards to market orders, with the 100/101 being more liquid, if your market order is larger than the orders at 101, then the remainder of your order should still get filled at only a slightly higher price.

In regards to market orders with the 90/98, being less liquid, it is likely that only part of your order gets filled, and any remained either doesn't get filled or gets filled at a much higher price.

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.