question about exchange standard practice

[Topazan]

If there's a bid for, say $100, and an ask for $60, who gets the $40 margin?

What's the reasoning behind that answer?

[1715070618]

1715070618

[1715070618]

1715070618

[1715070618]

1715070618

[Vod]

If there's a bid for, say $100, and an ask for $60, who gets the $40 margin?

What's the reasoning behind that answer?

There is no exchange.  The bid and ask have to meet.

[DeathAndTaxes]

If there's a bid for, say $100, and an ask for $60, who gets the $40 margin?

What's the reasoning behind that answer?

If the best orders on the book are a $60 bid and a $100 ask then simply put there is no trade.

Now the next person to come along can either
a) place an order at market and if they are buying pay $100 or if selling pay $60

OR

b) place limit order potentially better.  Say $70 bid (at which point the spread becomes ($70 - $100).

[Topazan]

Sorry, I may have gotten the terms "bid" and "ask" confused.  I mean one person is selling for $60 and one person is buying for $100.

[DeathAndTaxes]

Sorry, I may have gotten the terms "bid" and "ask" confused.  I mean one person is selling for $60 and one person is buying for $100.

That would never happen but it would depend on the order.

If the $60 order is already on the books then generally speaking exchanges give you the best possible price.  So if someone has a sell order @ $60 and you try to buy @ $100 the order will occur at $60.

Remember limit orders are essentially give me X BTC at a price no WORSE than $y.  Thus a buy limit order of $110 says I want to buy but don't pay more than $100.  If there is someone willing to sell no less than $60 already on the books then you would execute at that price.  Nobody gets the "difference".  The trade would occur at $60 and the rest of the cash would still be in your account because a limit order means NO WORSE THAN.

If $100 order was already on the books and someone placed the $60 sell then the reverse would happen.

[Topazan]

If $100 order was already on the books and someone placed the $60 sell then the reverse would happen.

Meaning, the order executes at $100?

So basically the order is executed at the price the first person specified?  Or, in other words, the margin goes to the person who placed the order second?

If so, that makes sense.  Thanks.

[DeathAndTaxes]

If $100 order was already on the books and someone placed the $60 sell then the reverse would happen.

Meaning, the order executes at $100?

So basically the order is executed at the price the first person specified?  Or, in other words, the margin goes to the person who placed the order second?

If so, that makes sense.  Thanks.

Well there is no "margin" using that term is confusing as "margin" has another meaning in trading however yes in that example the trade would occur @ $100.

When you place a market order you simply get the best available price (i.e. highest bid or lowest ask).  That is easy.

When you place a limit order the engine will try to match it against existing orders.  If it can be executed it will. For example you would right now put a sell order on MtGox at a $1 limit.  You will get the best price.  NOTE if you want to do this as an experiment do it with a small amount of BTC in case MtGox trade engine has a glitch.  Not responsible for any poor price execution.

IF your order CAN'T be executed then it joins the order book.  For example if you place an order right now to sell @ $100 and the best bid is $99 then your order will simply join the order books and no trade occurs until someone (either through a market order or a limit order of $100 or more) place a buy which matches your order.  If your order is better than any other ask (say prior to your order the best ask was $101) then you will see the ask be reduced to $100.   The listed bid & ask is simply the best price offered by buyers/seller as orders on the order book right now.

[Topazan]

When you place a limit order the engine will try to match it against existing orders.  If it can be executed it will.

Specifically, it will be executed at the price of those existing orders, right?

Just to clarify, is a bid a buy or sell offer?

[DeathAndTaxes]

When you place a limit order the engine will try to match it against existing orders.  If it can be executed it will.

Specifically, it will be executed at the price of those existing orders, right?

Just to clarify, is a bid a buy or sell offer?

Yes it will be executed against the BEST POSSIBLE existing order.   If it can't then your order joins the order book and the next order placed may execute against it.

A bid = price willing to pay (someone is looking to BUY BTC at that price).
An ask = price wanted to receive ( someone is looking to SELL BTC at that price).

When MtGox shows a bid/ask of $99/$101 it means:
of all the buy orders ALREADY on the books the best (highest) price is $99.
of all the sell orders ALREADY on the books the best (lowest) price is $101.

So if you wanted to SELL it would match against the BIDS.
If you place a market order you would get a price of $99 (assuming the depth at $99 was larger than your order)
If you placed a limit order to sell @ $102 there would be no match, no execution however your order would be added to the order book.  There are other "cheaper" asks ahead of yours.
If you placed a limit order to sell @ $100 there would be no match, no execution however your order would be added to the order book.  Your order becomes the new "best" ASK and the spread becomes $99/$100
If you placed a limit order to sell @ $1 then it would match against the BID of $99.  Execution price would be $99 (assuming the depth at $99 was larger than your order)*

* Remember a limit order simply means give me a price no WORSE than $x.  That is why the limit of $1 executes at a price much higher.

[Topazan]

So, I did use the terms correctly in the OP?

Anyways, thanks for the info.

[DeathAndTaxes]

So, I did use the terms correctly in the OP?

Anyways, thanks for the info.

Yes I just assumed you had them backwards since it is an unlikely scenario.