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Best Bid and Offer Quotes for Limit Order Pricing

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Summary

Best bid and offer (BBO) describes the highest bid and lowest ask currently displayed in an order book. The document explains that the ask is the lowest price at which a seller is willing to sell, making it the most competitive displayed offer available to a buyer. Together, the two prices provide a quick reference to current market quotes.

The document describes using a BBO setting when placing a limit order: the system selects the best market quote for the order. This can help a trader price an order in line with the current top of book without repeatedly checking the order book. The explanation is introductory and does not distinguish whether the order joins or takes liquidity, discuss quote size, or guarantee a fill. BBO quotes can change as orders arrive or are canceled, so matching a displayed quote does not ensure execution at that price.

Key ideas

  • BBO is the best bid and best ask currently available in the order book.
  • The best ask is the lowest displayed price at which a seller is willing to sell.
  • A BBO order setting can automatically use a current best market quote to price a limit order.
  • Displayed quotes change, and choosing a BBO price does not guarantee that an order will fill.

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ExecutionMarket microstructure

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.