Better price first, then earliest arrival
Price-time priority is the matching rule on every major US equity exchange. Better-priced orders execute first. Among orders at the same price, the one that arrived earliest executes first. There is no other tiebreaker -- not the size, not the broker, not the customer. The book is impersonal and strictly ordered.
Bids, asks, and market depth
| Book side | What you see | What it means |
|---|---|---|
| Bids | List of buy orders, highest price at top | How many shares people will pay UP TO each price |
| Asks (offers) | List of sell orders, lowest price at top | How many shares people will sell DOWN TO each price |
| Top of book | The best bid + best ask on this book | Across every venue, the best of these is the National Best Bid and Offer (NBBO) -- the headline quote on a ticker page |
| Depth | Sizes available at the next several price levels | How far the price moves if a large order eats through layers |
The spread as a liquidity gauge
The spread is a liquidity gauge, not a fee. A penny-wide spread on a mega-cap means dozens of market makers are competing to sit at the top of the book. A 40-cent spread on a thinly traded micro-cap means almost nobody is willing to quote tightly -- if you need to trade now, you pay that gap. Spreads widen during stress, before earnings, and in the first and last few minutes of the session for predictable mechanical reasons.
Displayed vs hidden liquidity
Displayed vs hidden liquidity. Not every resting order shows up on the public book. An iceberg order displays a small slice (say 500 shares) while the rest sits hidden; as the visible slice fills, the engine refreshes it. Other order types are fully hidden until they execute. The practical takeaway: the visible book under-states real liquidity. A stock can absorb more size than the displayed depth suggests, especially in the largest names where institutional flow routinely uses hidden order types.
Compare spreads on a mega-cap and a thin stock
Which order fills first?
The book as a picture of supply and demand
Sit with the ideas.
Vantage Asset Management is trying to buy 200,000 shares of a mid-cap stock that shows a top-of-book ask of 800 shares at $42.10. The next price level on the book has 1,200 shares at $42.15, then 2,000 shares at $42.20. The trader sends a single market order for all 200,000 shares. What happens, and what does it teach about displayed vs real liquidity?