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. I've given you a limit order book to the right. Limit buys are the bids - people are willing to buy X shares at
I've given you a limit order book to the right. Limit buys are the bids people are willing to buy X shares at that price. Limit sell orders are the asks. People are willing to sell X shares at that price. Note that, accordingly, bids are less than asks.
So how do trades ever happen if bids are less than asks? Don't people need to agree to a price? Let's walk through some trading and see what happens.
a Suppose that a market order to buy shares comes in What happens?
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b What would the price of the next buy order be How about if the market order was for shares?
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c If you were a dealer, making a market in this stock, how would you respond to a sudden stream of buy orders coming in Remember, the dealer is putting what they call "resting" limit orders in prices they are willing to buy or sell at They can change these, if they want to just like any firm can change their prices.
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