How price and execution are formed
An order book displays limited intentions; an observed price is an execution, not an objective valuation or a guarantee for the next order.
What you will learn
- Read bid, ask and spread.
- Distinguish market and limit orders.
- Calculate a multi-level order-book fill.
- Recognise partial fills, slippage and limited liquidity.
Concept
Two sides of the book
Bid is the best displayed buyer price and Ask the best seller price. Their difference is the Spread. The Order book contains prices and quantities, not permanent promises: orders may execute, change or disappear.
Process
Price control versus priority
• Market order: prioritises execution and may cross several levels; the final price is not guaranteed. • Limit order: sets the worst acceptable price, but may remain partly or wholly unfilled.
Calculation
Marginal and average price
A large order consumes the best quote first and then worse levels. The last fill price and weighted average answer different questions. Available Liquidity determines how much can trade near the best quote.
Worked example
Fictional example: Boreal's book
Example facts
- Thirty shares are offered at €10.00, 40 at €10.10 and 50 at €10.25.
- Uma sends a market buy for 80 shares.
Walkthrough
1: She buys 30 at €10.00, 40 at €10.10 and 10 at €10.25.
2: Gross consideration is €806.50 and average price €10.08125.
3: The last fill is €10.25; this does not mean every share cost €10.25.
Conclusion
A large market order pays several prices: the average price and the last fill answer different questions, and displayed liquidity limits how much trades near the best quote.
Lesson scope
- Jurisdiction
- General concepts with identified ES/EU and US examples.
- Temporal scope
- Sources checked 2026-08-27; check for updates.
Official sources
- Ask Price (opens in a new window)
U.S. Securities and Exchange Commission — Investor.gov · US
- Checked:
- Types of Orders (opens in a new window)
U.S. Securities and Exchange Commission — Investor.gov · US
- Checked:
- Modelo de mercado de acciones y derechos (opens in a new window)
BME · ES
- Checked:
- Cómo invertir en bolsa