lecture24 - Lecture 24: Market Microstructure Steven Skiena...

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Lecture 24: Market Microstructure Steven Skiena Department of Computer Science State University of New York Stony Brook, NY 11794–4400 http://www.cs.sunysb.edu/ skiena
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Types of Buy/Sell Orders Brokers can typically perform the following buy/sell orders for exchange traded assets: Market orders request the trade happen immediately at the best current price. Limit orders demand a given or better price at which to buy or sell the asset. Nothing happens unless a matching buyer or seller is found. Stop or stop-loss order becomes a market order when a given price is reached by the market on the downside. This enables an investor to minimize losses in a market reversal, but does not guarantee the given price.
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Market-if-Touched order (MIT) becomes a market order when a given price is reached by the market on the upside. This enables an investor to take profits when they are available, but does not guarantee them the given price. The volume and distribution of stop and limit orders in principle contains information about future price movements. Theory argues against making such orders as giving away an option for no payoff, however, such orders are useful particularly for modest-sized investments. The computational and financial details of trading are called market microstructure .
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Market Order Book The priority queues of open limit orders form the order book . http://www.tradingday.com/cgi-bin/stock quotes charts.cgi?s=MSFT
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Properties of the Order Book Orders with the same price are prioritorized by arrival time. The difference between bid and ask is called the spread . The last executed price is the ticker price. Market orders are matched with the most competitive limit orders in the opposing book. Orders can be cancelled up until the moment they are
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lecture24 - Lecture 24: Market Microstructure Steven Skiena...

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