There are two basic types of financial orders. And one of them has established a complete new market opportunity; (day) trading. A market order is an order that has no price condition. This means that if you want to buy a stock on the exchange, you are indifferent about the price you are going to pay. In fact this is only relatively true, because for most stocks the market is liquid. This means that there is a high turnover for this stock and that there is a constant quote for which you are able to trade. There are not too many price differences unless the market for the stock becomes volatile. A limit order is an order for which you do set a price limit. For instance you are willing to buy a stock unless the quote is less than a certain amount, or in the other way, sell above a given price. Most stocks will fluctuate, and the more a stock will fluctuate, the better it would be to communicate a limit to your broker. And because most people act this way, a lot of orders are stacked until execution. This part of the investment process resulted in the origin of the order book. An order book is a virtual book where all those (limit) orders are waiting to be executed. Interesting about this function is that it is open to the public. Not all brokers offer this information as a free service, but with the evolution of the online broker market, the individual and amateur investors are offered similar features as the professional dealers. In the visual representation of the order book you will see two columns; at the left side there are the buy orders summarized per limit and at the right side you will see the sell orders per limit (price). This will give the investor (which is more of a day trader in this perspective) a new trading opportunity. Because of this information, a trader will see at what price there is a large amount of orders "above the market." Knowing this you are able to quote just under this level. You do not need to know much more, just follow the stream and make your trade. For those who have the time, who are agile and who will have ... the nerves. 2006 Hans Bool |
