Trading The Order Book

Trading the Order Book

The Order Book has become one of the most valuable tools in financial trading in recent years, particularly since the advancement of online trading.

The way in which the Order Book works is that traders can place a trade in the Order Book to be executed when and how they desire. As opposed to having to execute their trade right away, traders are able to tailor trades to their specifications and have them executing at a time or price they desire.  For example, you can create a trade to buy BP, but set it so that the trade is only executed when the stock reaches a price 10 points above its current level. This means that as opposed to having to enter the market at a price you are not happy with, and not wanting to “market watch” to see when the price reaches your desired level, you are able to effectively order your trade so that when, or if, it reaches a price you are happy with, you are able to have it executed.

Your order will only get filled however, if someone sells at a similar price. For example, if you place a trade for BP opening at 142.5p a share, the trade will only be executed if someone sells their stake in BP at the same price.

The most significant downfall to trading using the Order Book is that you are subject to partial fills, this means that if you place a trade for 1,000 shares and another trader sells only 10 shares at the price you desire, your order will be filled with those 10 shares, and if the entire order is not filled by the end of the day you could potentially end the trading day only being able to fill 1% of your total order.

Risk warning: Spreadbetting, CFD trading and Forex are leveraged. This means they can result in losses exceeding your original deposit. Ensure you understand the risks, seek independent financial advice if necessary. The value of shares and the income from them may go down as well as up. Nothing on this website constitutes a solicitation or recommendation to enter into any security or investment.

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