A Buyer Appears Below the Ask
Event: At a buyer submits an order to buy 2 apples at $9 each.
The order is recorded in the bids ledger
What happens
Nothing trades.
When a new buy order is recorded, it is compared against previously recorded sell orders on the opposite side of the bookâthe asks
When a new order arrives, it is matched only against orders that were already recorded on the opposite side of the order book.
A match is allowed only if there exists at least one price at which both the incoming order and a previously recorded order agree to trade.
If more than one order satisfies this condition, price is considered first, and time is used to break ties.
Exhaustive examples
- Incoming buy @ $9 vs existing sell @ $10
-
NO MATCH
The buyer is willing to pay up to $9 but the seller asks $10 which is more than $9
- Incoming buy @ $10 vs existing sell @ $10
-
MATCH at $10
The buyer is willing to pay $10 and the seller asks $10 so a trade can occur at $10
- Incoming buy @ $10 vs existing sell @ $9
-
MATCH at $9
The buyer is willing to pay up to $10 and the seller asks $9 which is less than $10 so a trade can occur at the existing sell price, $9
- Incoming sell @ $15 vs existing buy @ $14
-
NO MATCH
The seller requires at least $15 but the buyer offers $14 which is less than $15
- Incoming sell @ $15 vs existing buy @ $15
-
MATCH at $15
The seller requires $15 and the buyer offers $15 so a trade can occur at the existing buy price, $15
- Incoming sell @ $15 vs existing buy @ $16
-
MATCH at $16
The seller requires at least $15 and the buyer offers $16 which is greater than $15 so a trade can occur at the existing buy price, $16
In this situation, the current book state corresponds to
Example 1
above.
The incoming buy order is willing to pay less than the existing sell order asks, so the matching condition is not satisfied.
With no acceptable match available, no exchange takes place.
Both orders remain recorded in the order book.
Conclusion
The order book now contains one sell order and one buy order at different prices.
Because the buy price is lower than the sell price, no execution occurs and the trade tape remains empty.