Any questions on that? Hopefully this is pretty transparent to most people. There’re some cancel/replaces, which are a combination of those two. That’s probably about, I’d say add orders are probably half the messages in the market. And so, the system is going to just deterministically apply its rules, and generate executions going back to the individual participants.Īnd of course, you’d like to be able to cancel if you had an order outstanding, and you’d no longer want to buy or sell at that price, you need to be able to pull it back. And so atomically this is going to create a trade, and they’re actually going to exchange shares of Apple right there. So in this case he’s selling, and he’s selling at a price that we would say is marketable. And this one is special in the sense that, as we noticed before these prices, the bids were strictly lower than the offers. So in this case, this participant decides they want to sell at 33.29. Somebody would like to place an order to buy or sell. And you can see that the book is sorted in… It’s going to be probably sorted in price and time. And so, what are the key messages? Somebody can place a new order, saying that they’d like to buy this particular instrument, in this case, Apple at 33.29 for 500 shares. And these are just fictional market participants, for those of you from Goldman and BAML.Īnd so this is essentially the representation, and we could talk about the data structures you might choose for keeping this, once you understood the heuristics. In this book, we’ve got some different market participants. I don’t use that because somebody has a patent on it, and they went around suing people based on that representation. You’ll sometimes see what’s known as a ladder view, where the sales are on top, and then the buys and then the inside, or the touch is where they meet.
And sales or offers are sorted in increasing order, because when you buy something, you’d like to buy it as cheaply as possible. And you’ll see that buys are sorted in decreasing order, because when you sell something you’d like to get the highest price for it. And this is a NASDAQ workstation style book, where it’s got the best prices to buy on this side, and the best prices to sell on this side. And so the first data structure we’re going to talk about is really just the limit order book. What is an exchange? We’re going to talk about it from the perspective of the data structures, and the messages that get passed around to do what an exchange does.
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