Order Books 101

Understanding order book structure and market-order execution

This is an easy foundational question that tests whether you can read an order book and reason through how a market order fills. It is a staple of introductory interviews at trading desks and investment firms, as it confirms you understand the mechanics of price discovery and liquidity.

To solve problems like this, you need to identify the relevant side of the book (asks when buying, bids when selling), understand that market orders execute at the best available prices in priority order, and calculate the weighted average price across multiple price levels if necessary. The key insight is that larger orders may be partially filled at progressively worse prices as they consume liquidity up the book.

• Bid-ask spread and market microstructure
• Price-time priority and order matching
• Liquidity costs and slippage