5.2 Order system

STOCK MARKET ORDER SYSTEM

Let us start with understanding an order. When you want to buy something you need to order the same, right? So in the same way stocks also need to be ordered through an online trading system or through brokers. Thus, when you log on to any of the exchange terminals, you will see all the information pertaining to any company in the electronic book such as what is the previous day's close price and today's open, high, low and recent traded price of a company to be able to provide a fair idea about the price dynamics of any trade.

In addition to that, you will find the best buy price (bid) on the left hand side and best sell price (ask) on the right hand side. What do they indicate? There are many buyers and sellers who want to buy or sell at different prices which are shown at the bottom of bid and ask. All these orders may not be transformed as trades as the trade will happen only when the best bid (highest buy price) matches best ask (lowest sell price).

Remember that 'ask' will always be greater than 'bid'. Confused? It is simple. When you want to buy you look for a low price and when you want to sell you look for a higher price. It's the same as going to a vegetable market and deciding to buy a kg of onions. You quote (bid price) of Rs13 and the seller says Rs15 (ask price). At this juncture both the orders are pending and trade will happen either if you agree for Rs15 or he agrees for Rs13 or both of you agree for an equilibrium price arrived at Rs14.