Reading the order book

There is no house quoting you a price. Every market is an order book: a stack of bids from traders who want to buy and a stack of asks from traders who want to sell. The price you see quoted is the best of each, and the gap between them is the spread.

Three numbers, and what each one is for

• The bid is the most anyone is currently willing to pay. It is what you get if you sell right now.
• The ask is the least anyone is currently willing to accept. It is what you pay if you buy right now.
• Depth is how many contracts are actually available at each of those prices — and it is the number most new traders never look at.

Depth is what makes the screen price a starting point rather than a promise. If the ask is 43¢ with 200 contracts behind it and you buy 500, the first 200 fill at 43¢ and the rest fill higher, at whatever the next rungs of the book are asking. Your average price is worse than the quote, and nothing went wrong — you simply bought more than the top of the book had.

Two practical consequences. A wide spread is a tax on changing your mind: buy at the ask and sell at the bid and you have paid the spread twice for the privilege of a round trip. And a thin book is a position you can enter faster than you can leave — which matters far more when you are wrong than when you are right.

Two boundaries are worth knowing before you start clicking. The smallest order the ticket will submit is $1, and we list markets priced between 5¢ and 95¢ — outside that band a book exists on the exchange but we do not take orders in it.