Limit Order Book
Candlefocus EditorWhen a buyer or seller enters a limit order in the market, their order becomes part of the order book, and the security specialist will show it to other investors for them to consider. If the new order does not match up with any existing order in the book, the security specialist will place it as a new order and it will remain in the book until it is either executed or canceled by the investor.
At any given time, the limit order book can show us the deepest available bids and offers at each price level, allowing analysts to gauge the current market sentiment and predict future trends. A deep order book with strong bid/ask spreads also indicate good liquidity between buyers and sellers. This can further help investors better judge the security’s underlying value, which is important for all fundamental analysis.
If there are no limit orders available for a particular security, it could be an indication that the security is not in high demand. It could also mean there is no liquidity in the market for the security, in which case investors might be more hesitant to trade the security.
It is important to note that limit orders may only be part of the picture when trading securities. A limit order book also doesn’t guarantee that the order will be executed. If the current market price is higher/lower than the limit price, the order won’t be executed until the securities reach the limit price. Overall, the limit order book is an important tool which provides useful information to traders, investors and analysts alike. By showing the depths of different orders in the market, it can help investors identify the potential demand and supply of the securities they are interested in. It can also help them better gauge the security’s underlying value and liquidity in the market.