We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.
Finance

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

What is a Limit Order Book?

H. Bliss
By
Updated: May 17, 2024
Views: 11,729
Share

The limit order book is a term used in stock market trading to refer to the list of pending limit orders that is compiled by the specialist. Usually, a limit order book is used by stock brokers to keep track of orders to buy or sell stock within a specific price threshold, called limit orders. Limit orders differ from market orders because they require that the stock is only purchased at a certain price, while market orders are agreements to purchase the stock at the current market price.

Limit orders can benefit buyers by placing a limit on how much they pay for a stock. Stocks can often rise quickly, developing to several times their original prices by the time a standard market order is executed by a brokerage. Placing a limit order can help protect a buyer from paying the market price if a stock skyrockets, which can keep the buyer from experiencing losses if the stock immediately falls.

An order book is most often used in day trading. Also called "Level 2 Market Data," the order book contains information about bids and bidder information included in stock orders from brokerages. Data in an order book can include high and low bid prices, available shares and the current lowest asking prices from sellers. A limit order book contains the same information, except the limit order book only has market data for limit orders.

One drawback to limit order stocks is the possibility that the stock purchase will never be made. In a way, limit orders are predictions that the stock will eventually rise or fall to a set price. If a stock never falls to the buying threshold on a limit order, the purchase will never be made. Likewise, if a stock never rises to the sell threshold indicated by the stockholder, the stock will never be sold. Another problem with limit stocks is the increased expense, because stock brokerage firms tend to charge more money for limit order services than ordinary market orders.

A market specialist is the person at the stock exchange responsible for negotiating sales between buyers and sellers. To maintain market stability, the specialist is expected to execute the limit orders as they meet their price thresholds, but prioritized by which is the best bid for the stock using the information in the limit order book. The specialist is also responsible for keeping updated information on prices and bids of buyers and sellers in the stock exchange.

Share
WiseGeek is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
H. Bliss
By H. Bliss
Heather Bliss, a passionate writer with a background in communication, brings her love for connecting with others to her work. With a relevant degree, she crafts compelling content that informs and inspires, showcasing her unique perspective and her commitment to making a difference.

Editors' Picks

Discussion Comments
H. Bliss
H. Bliss
Heather Bliss, a passionate writer with a background in communication, brings her love for connecting with others to her...
Learn more
Share
https://www.wisegeek.net/what-is-a-limit-order-book.htm
Copy this link
WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.

WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.