What you will learn
- Limit order books
- OTC quoting
- Aggressors and passive orders
- Venue fragmentation
Limit order books
A market consists of trading arrangements, participants and rules, not only a price chart. Identify whether the observed book belongs to an exchange, dealer or provider. Its displayed liquidity is not automatically the liquidity of the entire gold market.
OTC quoting
An order book organizes eligible buying and selling interest under venue rules. Price priority is common, but time, allocation and special-order behavior can vary. Inspect the applicable mechanism before assuming how queue position translates into fills.
Aggressors and passive orders
Displayed quantity can change before an order reaches it. Some interest is not displayed, and cancellations can remove visible interest. Treat a book snapshot as an observation at a time, not a firm promise of future execution.
Venue fragmentation
A transaction has counterparties and an execution price, but the observer may not know their motives. Avoid assigning intention such as institutional accumulation solely from a large print; size and direction do not identify the underlying purpose.
Worked example
A snapshot shows ten units at a price, but those units are cancelled before a new order arrives. A model that fills against the old snapshot assumes liquidity that was no longer available.
Try it yourself
Specify the timestamps and event ordering needed to evaluate that order without using stale book state.
Show the worked solution
Track snapshot time, subsequent book changes, order submission and arrival assumptions. Apply events in the documented order and use the state available when the order could execute, not the most convenient earlier snapshot.
Apply this to your course project
Compare implementation shortfall under multiple order policies.
Keep the calculation inputs, assumptions and decisions with your work. Practical exercises are self-reviewed; the scored knowledge checks assess the questions shown, not an independent certification of practical competence.