Bid and Ask

[uniman]

Hello,

I'd like to ask what you folks consider reasonable and/or customary behavior in dealing with limit orders on an exchange.

Suppose there is a an ASK order for 1 Bitcoin at $15.

Then somebody submits a BID order for 1 Bitcoin at $16.

1. Do you think that the bidder who's willing to pay $16 should get a sugar deal and only pay $15?

2. Should the asker who's happy with $15 get a windfall of $16 instead?

3. Should the exchange software prevent the submission of the $16 Bid on the grounds that the best Ask is only $15 ?

Thanks in advance for your thoughts on this matter.

[NetTecture]

Hello,

I'd like to ask what you folks consider reasonable and/or customary behavior in dealing with limit orders on an exchange.

Suppose there is a an ASK order for 1 Bitcoin at $15.

Then somebody submits a BID order for 1 Bitcoin at $16.

1. Do you think that the bidder who's willing to pay $16 should get a sugar deal and only pay $15?

2. Should the asker who's happy with $15 get a windfall of $16 instead?

3. Should the exchange software prevent the submission of the $16 Bid on the grounds that the best Ask is only $15 ?

Thanks in advance for your thoughts on this matter.

You assume you can enter a bid order at 16, which is illegal per definition of limit orders. Limit orders ONLY can be entered outside the execution price range. A limit 16 would be a market order.

[uniman]

Thanks for the insight.  Can you elaborate upon what you mean by "execution price range?" 

If I set an order to buy 100 coins at the market price, for example, the exchange should find the lowest ask use it first to fill my order.   If my order is completely filled, then I can say that my order was executed _at_ the single ask price.  However, if my order is bigger than the ask, then the ask order will be consumed and the exchange should then find the next lowest ask, and so on, until my order is filled.  In this case my order has indeed executed over a price range.  Is this what you're talking about?

Suppose the highest bid is at $15 and the lowest ask is at $16.  I assume it is reasonable to expect to be able to set a new bid at $15.1 and a new ask at $15.9 ?  The spread between the bid and the ask is _not_ the "execution price range?"

[NetTecture]

Both right. The point is that you can not set a LIMIT that would IMMEDIATELY result in an execution. Many exchanges (not joke ones, I mean real ones) do not allow limit orders on such prices. Also, limit orders are passive, they need a market order no the other side to trigger execution.