CandleFocus Glossary Editor
An order-driven market is a type of securities exchange where buyers and sellers can trade securities without the need for a market maker to facilitate the transactions. In an order-driven market, the traders post details about the security they wish to sell or buy, the price, and the number of shares. The order then goes into a limit order book (LOB), where it is executed when a similar order is entered into the market by another trader that matches it.
Order-driven markets provide more transparency than quote-driven markets where market makers take a more peripheral role in connecting buyers and sellers. By comparing the ‘bid’ and ‘ask’ prices of a security from multiple market participants, an investor can view the available supply and demand for a particular security. The investor can then choose between placing market or limit orders.
Market orders allow for two or more buyers and sellers to trade at the best available price. Whereas, limit orders are used to make a trade at a specific predetermined price or better. While market orders tend to be filled quickly and without fail, limit orders take longer to execute and there is no guarantee that they will be filled.
Order-driven markets rely solely on orders given by buyers and sellers, and they do require high levels of liquidity. This is because the system depends on trades being completed within a certain time frame in order to guarantee that both Parties have their interests taken care of.
The main advantages of this system are that it allows for efficient trading, provides more price transparency and offers a higher degree of price discovery. The downside, however, is that it can be more expensive due to higher trading fees and lower liquidity, and it is more vulnerable to manipulation.
Overall, order-driven markets offer an efficient and transparent way of trading securities. This type of market can be beneficial to both buyers and sellers depending on the liquidity of the securities being traded and their willingness to pay trading fees for greater transparency and price discovery.
Order-driven markets provide more transparency than quote-driven markets where market makers take a more peripheral role in connecting buyers and sellers. By comparing the ‘bid’ and ‘ask’ prices of a security from multiple market participants, an investor can view the available supply and demand for a particular security. The investor can then choose between placing market or limit orders.
Market orders allow for two or more buyers and sellers to trade at the best available price. Whereas, limit orders are used to make a trade at a specific predetermined price or better. While market orders tend to be filled quickly and without fail, limit orders take longer to execute and there is no guarantee that they will be filled.
Order-driven markets rely solely on orders given by buyers and sellers, and they do require high levels of liquidity. This is because the system depends on trades being completed within a certain time frame in order to guarantee that both Parties have their interests taken care of.
The main advantages of this system are that it allows for efficient trading, provides more price transparency and offers a higher degree of price discovery. The downside, however, is that it can be more expensive due to higher trading fees and lower liquidity, and it is more vulnerable to manipulation.
Overall, order-driven markets offer an efficient and transparent way of trading securities. This type of market can be beneficial to both buyers and sellers depending on the liquidity of the securities being traded and their willingness to pay trading fees for greater transparency and price discovery.