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The limit order book is a list of pending limit orders compiled by a specialist in the stock market. It contains information about bids and bidder information for limit orders, which can benefit buyers by setting a limit on how much they pay for a share. However, there is a possibility that the stock purchase may never take place, and brokerage firms tend to charge more for limit order services than regular market orders. The market specialist is responsible for negotiating sales between buyers and sellers and maintaining up-to-date information on prices and offers from buyers and sellers on the stock exchange.
The limit order book is a term used in the stock market to refer to the list of pending limit orders that is compiled by the specialist. Stockbrokers typically use a limit order book to keep track of orders to buy or sell shares within a specific price threshold, called limit orders. Limit orders differ from market orders in that they require shares to be purchased only at a certain price, while market orders are agreements to purchase shares at the current market price.
Limit orders can benefit buyers by setting a limit on how much they pay for a share. Stocks can often rise rapidly, developing many times their original prices by the time a brokerage executes a standard market order. Placing a limit order can help protect a buyer from paying the market price if a stock soars, which can prevent the buyer from experiencing losses if the stock immediately falls.
An order book is most often used in day trading. Also called “Level 2 Market Data,” the order book contains information about the bids and bidder information included in brokerage firm stock orders. The data in an order book can include high and low bid prices, available stocks, and the current lowest prices from sellers. A limit order book contains the same information, except that the limit order book only has market data for limit orders.
One drawback to limiting order stock is the possibility that the stock purchase may never take place. In a way, limit orders are predictions that a stock will eventually go up or down at a set price. If a stock never falls to the buy threshold in a limit order, the buy will never take place. Similarly, if a share never reaches the shareholder-indicated sale threshold, the share will never be sold. Another problem with limit stocks is increased expenses, because brokerage firms tend to charge more money for limit order services than regular market orders.
A market specialist is the person at the exchange responsible for negotiating sales between buyers and sellers. To maintain market stability, the specialist is expected to fill limit orders as they reach their price thresholds, but is prioritized for the best offer for the stock using information in the limit order book. The specialist is also responsible for maintaining up-to-date information on prices and offers from buyers and sellers on the stock exchange.
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