Exercise: Limit Order Book Bid-ask spread. What is the posted bid-ask spread in cents and basis points of the mid price? If you buy 100 shares with a market order and immediately (i.e., before any new orders arrive or any existing orders are cancelled) sell them with a market order, then what is your P&L? Top of the limit order book Shares Price 1900 34.56 Asks --------> 1700 34.54 1200 34.53 400 34.52 300 34.51 Bids --------> 1000 34.49 1100 34.48 1400 34.47 1500 34.46 2200 34.45 - What about 400 shares? Limit order. A limit order to buy 150 shares at $34.50 arrives in the market. - Is this a bid or ask price? - Which transactions occur and what is the resulting bid-ask spread in cents? Walking the book. A limit buy order for 2000 shares at $34.53 arrives. - Document all transactions Compute the volume-weighted average execution price of the transaction - Determine the bid-ask spread after the transaction(s) What happens if there were 3000 shares with an ask price of $34.51? 16