Daily Economics, Business and Finance Study

October 5, 2026 (KST) · Day 15
Today's topic: Why Does a Stock Trade at That Price? — Quotes, Market and Limit Orders, and the Order Book

1. Review of yesterday's key points

Day 14 explained that share prices respond to the gap between actual results and priced-in expectations, including consensus and guidance, more than to absolute earnings. Today we examine how execution prices and share prices emerge when those changed expectations become orders.

2. Today's core concept

A share price is not an absolute measure of company value. At a particular moment, it is the price where the most aggressive buyer's and seller's orders meet.

People often say prices rise because there are more buyers than sellers. Strictly, every trade has equal quantities bought and sold.

The direct reason prices rise is:

Buyers pay higher prices, repeatedly executing against asks, while sell orders at existing levels are insufficient.

Conversely, prices fall because sellers accept lower prices, repeatedly executing against bids and exhausting buy orders at existing levels.

Today's learning objectives are:

• Understand bids, asks and spreads.
• Distinguish market from limit orders.
• Understand price and time priority.
• Calculate slippage as execution prices change with order size.
• Understand the limits of using order books and volume in investment analysis.

3. Concept explained

3-1. The order book contains unexecuted orders

An **order book** lists pending, unexecuted buy and sell orders by price.

Assume the following hypothetical order book.

• Best bid: The highest price currently offered by a buyer
• Best ask: The lowest price currently offered by a seller

In this example:

\[\text{Best Bid}=9,990\text{ KRW}\]

\[\text{Best Ask}=10,000\text{ KRW}\]

Investor.gov defines the bid as the highest price a buyer will pay and the ask as the lowest price a seller will accept. (Bid Price/Ask Price)

No trade occurs while a buyer at KRW 9,990 and a seller at KRW 10,000 remain apart. One side must accept the other's price.

3-2. The spread is a cost of immediate trading

The difference between the best ask and best bid is called the Bid-Ask Spread, or bid–ask spread.

\[ Spread = Best\ Ask-Best\ Bid \]

In the example:

\[Spread=10,000-9,990=10\text{ KRW}\]

Express it as a percentage to compare stocks at different price levels.

First, the midpoint is:

\[ Mid\ Price = \frac{Best\ Ask+Best\ Bid}{2} \]

\[\text{Mid Price}=\frac{10,000+9,990}{2}=9,995\text{ KRW}\]

The percentage spread is:

\[ Spread\% = \frac{Best\ Ask-Best\ Bid}{Mid\ Price}\times100 \]

\[ Spread\% = \frac{10}{9,995}\times100 \approx0.10\% \]

A narrow spread generally suggests active price competition and abundant liquidity.

A wide spread may indicate:

• Few market participants
• Insufficient buy or sell orders
• High volatility
• Immediately before or after important disclosures
• After-hours trading
• Small-cap or illiquid shares
• Weak market-making activity
• A high premium for uncertainty

A narrow spread alone does not guarantee sufficient liquidity. Also check the quantity at the best quotes, or market depth.

3-3. Market orders prioritize execution over price

A **market order** seeks an immediate purchase or sale at the best available order-book price without specifying a price.

Investor.gov explains that market orders generally execute immediately but do not guarantee the execution price. Actual execution may differ from the last trade displayed. (Types of Orders)

Market buy

A market buy executes against the lowest asks first.

\[\text{Lower asks}\rightarrow\text{Higher asks}\]

Market sell

A market sell executes against the highest bids first.

\[\text{Higher bids}\rightarrow\text{Lower bids}\]

Market orders have a high likelihood of execution. However, if opposing liquidity is small relative to order size, they may consume multiple price levels at less favorable prices than expected.

The Korea Exchange likewise explains that unspecified prices favor quick execution, but execution prices may move sharply when opposing orders are scarce. (Global KRX |)

3-4. Limit orders prioritize price control over execution

A **limit order** sets a boundary on the price at which an investor will trade.

• Limit buy: executes only at or below the limit
• Limit sell: executes only at or above the limit

If the best ask is KRW 10,000, a limit buy at KRW 9,980 will wait at that bid rather than execute immediately.

A limit buy at KRW 10,010 accepts prices above the current KRW 10,000 ask, so it first executes against sell orders at KRW 10,000.

Limit orders can therefore be divided into two types.

Nonmarketable limit order

An order that waits in the book rather than immediately matching the best opposing quote.

• Supplies liquidity.
• Controls the desired price.
• May remain unexecuted.

Marketable limit order

An aggressive limit order able to execute immediately against the best opposing quote.

• Consumes existing orders like a market order.
• But does not execute at prices worse than the limit.
• Somewhat limits abrupt price-change risk.

A limit order guarantees a price boundary, not execution. Official investor guidance states that limit buys execute only at or below the limit and limit sells only at or above it. (Types of Orders)

3-5. Price and time priority

Typical electronic order books determine execution order using these principles.

① Price priority

Orders offering better prices execute first.

Higher-priced buy orders take priority.

\[10,000\text{ KRW buy}>9,990\text{ KRW buy}\]

Lower-priced sell orders take priority.

\[10,000\text{ KRW sell}>10,010\text{ KRW sell}\]

② Time priority

At equal prices, orders received earlier execute first.

Assume buy orders at KRW 10,000 are queued as follows.

An incoming sell order for 600 shares at KRW 10,000 generally executes as follows.

• Investor 1: 500 shares filled
• Investor 2: 100 shares filled
• Investor 2: remaining 200 shares wait
• Investor 3: unfilled so far

Even at the same limit price, an earlier order may have an execution advantage.

3-6. Execution prices reveal the aggressive side

Assume this hypothetical current order book:

• Best bid: KRW 9,990
• Best ask: KRW 10,000

Buyer executes at KRW 10,000

The buyer accepts the seller's KRW 10,000 ask, aggressively executing against an existing sell quote.

This is often described as:

• The buyer lifted the ask.
• The ask was executed.
• This is a buyer-initiated trade.

Seller executes at KRW 9,990

The seller accepts the buyer's KRW 9,990 bid, aggressively executing against an existing buy quote.

• The seller hit the bid.
• The bid was executed.
• This is a seller-initiated trade.

Crucially, every trade has both a buyer and a seller.

\[\text{Executed buy quantity}=\text{Executed sell quantity}\]

Price direction depends not on the number of buyers and sellers, but on which side accepts the other's prices more aggressively.

3-7. Slippage: larger orders change the average execution price

**Slippage** is the difference between the expected price and the actual average execution price.

For a market buy, calculate it as:

\[\text{Buy slippage}=\text{Average execution price}-\text{Best ask immediately before ordering}\]

As a percentage:

\[\text{Buy slippage rate}=\frac{\text{Average execution price}-\text{Best Ask}}{\text{Best Ask}}\times100\]

Slippage tends to increase when:

• Orders are large
• Quantities at each quote are small
• Spreads are wide
• Volatility expands sharply
• Trading is near the open or close
• Earnings, disclosures or news have just arrived
• Trading occurs after hours
• Small-cap or illiquid shares
• A market shock concentrates orders on one side

3-8. Liquidity and market depth differ

Liquidity is the ability to trade when desired without materially moving the price.

Typical factors include:

Even high reported volume may accompany substantial slippage if opposing quotes are thin at a particular moment.

Conversely, stable orders across several price levels may absorb surprisingly large orders even when average daily volume is modest.

3-9. Single-price auctions and continuous trading

Stock-market execution broadly follows two methods.

Continuous trading

Incoming orders continually match against executable opposing orders.

• Mainly used during normal intraday trading
• Execution prices change as orders arrive
• Price and time priority matter

Single-price auction

Orders accumulate for a period and then execute at one price.

• Used to determine opening and closing prices
• Collects orders to find an equilibrium rather than executing immediately
• Seeks a price maximizing executable buy and sell quantities

In an auction, indicative price and volume can change as orders change. A large pre-open queue at one price does not guarantee that final opening price.

3-10. The order book cannot definitively reveal future demand

The book shows only currently displayed pending orders.

It may not show or fully reflect:

• Orders not yet submitted
• Conditional orders
• Large orders to be split by algorithms
• Hidden or partially displayed orders
• Orders on other venues
• Orders that may be immediately canceled
• Off-exchange block-trade interest
• Orders linked to derivatives hedges

In particular, a large displayed quantity does not necessarily establish strong support or resistance.

• It may be canceled before execution.
• It may move to another price as the market approaches.
• It may simply be a market-making order.
• It may be an illegal order intended to mislead others.
• A much larger market order may consume it at once.

The order book is therefore a partial view of current liquidity, not a tool that predicts future share prices.

4. A simple numerical example

The following are all hypothetical order books for learning.

① Current order book

The best bid is KRW 9,990 and the best ask is KRW 10,000.

\[Spread=10,000-9,990=10\text{ KRW}\]

② Buying 1,200 shares at market

Orders execute from the lowest ask upward.

• 500 shares × KRW 10,000
• 700 shares × KRW 10,010

Total purchase value is:

\[5,000,000\text{ KRW}+7,007,000\text{ KRW}=12,007,000\text{ KRW}\]

The average execution price is:

\[\text{Average execution price}=12,007,000\div1,200\approx10,005.83\text{ KRW}\]

Slippage versus the pre-order best ask of KRW 10,000 is:

\[\text{Slippage}=10,005.83-10,000=5.83\text{ KRW}\]

\[\text{Slippage rate}=\frac{5.83}{10,000}\times100\approx0.058\%\]

Although KRW 10,000 was displayed as the best ask, only 500 shares were available there. The remaining 700 executed at KRW 10,010.

③ Buying 3,000 shares at market

• 500 shares × KRW 10,000 = KRW 5,000,000
• 1,000 shares × KRW 10,010 = KRW 10,010,000
• 1,500 shares × KRW 10,020 = KRW 15,030,000

Total purchase value is:

\[5,000,000+10,010,000+15,030,000=30,040,000\text{ KRW}\]

The average execution price is:

\[\text{Average execution price}=30,040,000\div3,000\approx10,013.33\text{ KRW}\]

The slippage rate is:

\[\text{Slippage rate}=\frac{10,013.33-10,000}{10,000}\times100\approx0.133\%\]

Increasing the order from 1,200 to 3,000 shares consumed higher asks and increased slippage.

④ Buying 1,200 shares with a KRW 10,000 limit

The order buys only at KRW 10,000 or below.

Only 500 shares are currently offered at KRW 10,000, so:

• 500 shares execute immediately at KRW 10,000
• The remaining 700 wait at the KRW 10,000 bid
• Sell orders at KRW 10,010 or higher are not executed

The limit controlled the average execution price but did not ensure immediate execution of the entire order.

⑤ Equal market caps can have different order impacts

Assume hypothetical companies D and E each have a KRW 1 trillion market cap.

Despite equal market caps, a KRW 5 hundred million market buy may affect them very differently.

• D: relatively likely to absorb it at existing quotes
• E: may consume several ask levels and sharply raise the price

A large market cap therefore does not always imply abundant liquidity.

5. Practical use in equity and company analysis

① Interpret “more buyers push prices up” precisely

Each execution has equal quantities bought and sold.

\[\text{Executed buy volume}=\text{Executed sell volume}\]

A price rise does not simply mean more buyers exist.

A precise interpretation is:

• Buyers aggressively execute against asks
• Sell orders at current levels are insufficient
• Sellers move their quotes higher
• New buyers accept higher prices

A price rise thus reflects aggressive buying combined with limited sell-side liquidity.

② Interpret post-earnings gaps upward

As Day 14 explained, a large earnings and guidance beat may sharply increase buying interest after hours or before the next open.

Suppose the previous close was KRW 50,000, but the next day's orders are:

• Sellers near KRW 50,000 cancel their orders
• New sellers accept only KRW 54,000 or more
• Buyers are willing to pay KRW 53,000–54,000

The open may form near KRW 54,000 without consecutive trades occurring between KRW 50,000 and KRW 54,000.

This is called a price gap.

A gap need not involve huge volume. It can arise when counterparties disappear at the old price and trading shifts to a new equilibrium.

③ Read volume alongside price changes

Price and volume together help assess participation intensity.

Higher volume is not always positive. Volume results from matching buyers and sellers; heavy volume at a high may reflect profit-taking or a change in holders.

④ Judge breakouts by order absorption, not just the close

Suppose a price breaks above known resistance.

Clues supporting a healthy breakout include:

• Sell orders at resistance actually execute
• Volume and trading value rise
• Bids form above former resistance after the breakout
• Multiple trades follow rather than one small execution
• Peers and the index are also strong
• Fundamental support from earnings, orders or guidance

Conversely, watch for:

• A momentary breakout on small volume
• A spike when ask liquidity is thin
• Large sell orders immediately after the breakout
• A return below resistance without volume
• A price formed by only a few trades just before the close

⑤ Large orders may need splitting

If an order is large relative to normal volume or displayed liquidity, consider splitting execution rather than placing one market order.

A simple participation rate is:

\[\text{Participation rate}=\frac{\text{Your order quantity}}{\text{Market volume during the period}}\times100\]

If total market volume over 30 minutes is 100,000 shares and you buy 20,000:

\[\text{Participation rate}=20,000\div100,000=20\%\]

Your order is more likely to move the price when it accounts for a substantial portion of market volume.

Before executing a large order, check:

• Average daily trading value
• Recent volatility
• Quantity at each price level
• Spread
• Proximity to the open or close
• News or earnings releases
• Order urgency
• Feasibility of splitting purchases or sales

⑥ Do not treat displayed quantities as guaranteed support or resistance

A large buy queue does not guarantee price support.

• Pending orders may be canceled.
• A larger sell order may arrive.
• Better prices may exist on other venues.
• Quotes may move immediately before execution.
• You cannot know the order's true purpose.

A more accurate formulation is:

• Incorrect: “There is a large buy queue at KRW 10,000, so it can never fall below that.”
• Appropriate: “The displayed book currently has relatively large pending buys near KRW 10,000, but we do not know whether they will remain or how much additional selling will arrive.”

⑦ Do not confuse the last trade with fair value

A 10% rise in the last trade price does not mean every share traded at that price.

Even if only 100 shares trade higher in a company with 100 million floating shares, the last-price market cap applies that price to all 100 million shares.

\[\text{Market cap}=\text{Last share price}\times\text{Shares outstanding}\]

Market cap is therefore not cash actually received by the company, but the value of all equity at the latest market price.

For very thinly traded shares, market cap may differ substantially from the value realizable in a large sale.

⑧ Consider limit orders first after hours or in illiquid trading

After hours, fewer participants may widen spreads and raise volatility. Investor.gov cites low liquidity, wide spreads, uncertain prices and high volatility, noting that many brokers accept only limit orders to reduce unexpected execution prices. (Extended-Hours Trading: Investor Bulletin)

Be particularly cautious with market orders:

• Trading occurs after hours
• Immediately after the open
• Immediately after the earnings release
• Immediately after a trading halt ends
• After issues involving offerings, capital increases or convertible bonds
• In recently listed shares
• In shares with low average daily trading value
• During sharp rises or falls

Strictly, a market order means something closer to **“Execute even if the available price moves substantially”** than “Trade at the price currently displayed.”

6. What to look for in filings

Today's real-time quotes, executions and volume are not found in corporate financial filings.

Distinguishing disclosures from market data

Korean companies: check potential supply and demand through DART and KIND

Financial Supervisory Service DART and Korea Exchange KIND for the following items.

These filings do not show real-time quotes, but help assess potential share supply that may reach the market.

Check official exchange rules and guidance for Korean order types and trading arrangements. The Korea Exchange separately describes market and limit orders and conditions such as IOC and FOK. (Global KRX | Regulation | Derivatives, Global KRX |)

U.S. companies: check potential supply through SEC filings

SEC EDGAR for the following documents.

• 10-K·10-Q
  • Shares outstanding
  • Share repurchases
  • Stock compensation
  • Diluted EPS
  • Convertible securities
  • Capital raising
• 8-K
  • Material financing, acquisitions and new issuance
• Form 4
  • Insider trades by officers and directors
• Schedule 13D·13G
  • Major-shareholder holdings and changes
• S-3·424B
  • Stock and bond registration and actual offering terms
• DEF 14A
  • Executive compensation and equity compensation plans

Limitations of 13F

Institutional 13F filings are not real-time holdings. Reporting lags and incomplete coverage of shorts, derivatives and some positions mean they should not be mistaken for current trading flows.

Market data absent from filings

To analyze quotes and executions, separately obtain:

• Best bids and asks
• Quantity at each price level
• Execution prices and quantities
• Trading value
• Trading volume
• Intraday highs and lows
• Volume by time interval
• Buyer- and seller-initiated executions
• Volatility
• Large and block trades
• Prices and quantities by venue
• Program-trading and ETF flows
• Net trading by foreign, institutional and individual investors

Real-time books change instantly. Review execution, volume and spread changes over a period rather than relying on one screenshot.

7. Key takeaways

• An order book groups unexecuted buy and sell orders by price.
• The best bid is the highest price offered by buyers; the best ask is the lowest offered by sellers.
• Their difference is the spread, an important market cost of immediate trading.
• Market orders prioritize execution but do not guarantee execution prices.
• Limit orders control price but do not guarantee full execution.
• Orders generally execute by favorable price first, then arrival time at equal prices.
• Prices rise not merely because more buyers exist, but because aggressive buying consumes existing asks and exhausts supply at those levels.
• Orders larger than displayed quantities execute across multiple prices, creating slippage.
• Assess liquidity through spreads, depth, impact and execution speed as well as volume.
• Displayed orders may be canceled or moved and are not guaranteed support or resistance.
• The last trade is a marginal transaction price, not evidence that all shares traded there.
• Quotes and executions come from exchange or broker market data, not DART or 10-K filings.
• Use filings to identify future share-supply and trading-flow factors such as offerings, convertibles, treasury shares and insider transactions.

8. Three review questions

Question 1

A stock's best bid is KRW 19,980 and best ask is KRW 20,000.

1. What is the spread?
2. What is the midpoint?
3. Approximately what is the percentage spread?

Question 2

The following sell orders are pending.

If an investor buys 700 shares at market, how many execute at each price, and what is the average execution price?

Question 3

A stock shows 100,000 shares bid at KRW 50,000. An investor concludes, “It can never fall below KRW 50,000.” Explain the problem with this judgment.

Answers and explanations

Answer 1

The spread is:

\[Spread=20,000-19,980=20\text{ KRW}\]

The midpoint is:

\[\text{Mid Price}=\frac{20,000+19,980}{2}=19,990\text{ KRW}\]

The percentage spread is:

\[ Spread\% = \frac{20}{19,990}\times100 \approx 0.10\% \]

Answer 2

Orders execute in sequence from the lowest ask.

• 200 shares × KRW 30,000
• 300 shares × KRW 30,050
• 200 shares × KRW 30,100

Total purchase value is:

\[ 200\times30,000 + 300\times30,050 + 200\times30,100 \]

\[=6,000,000+9,015,000+6,020,000=21,035,000\text{ KRW}\]

The average execution price is:

\[\text{Average execution price}=21,035,000\div700\approx30,050\text{ KRW}\]

Compared with the pre-order best ask of KRW 30,000, average slippage was KRW 50 per share.

\[\text{Slippage rate}=\frac{30,050-30,000}{30,000}\times100\approx0.167\%\]

Answer 3

Displayed quantities are merely pending orders, not orders guaranteed to remain or execute.

• The submitter may cancel before execution.
• The order may move to another price.
• A market sell larger than 100,000 shares may arrive.
• Sell orders on other venues may affect the price.
• Algorithms may keep submitting additional sells.
• Disclosures or news changing expected company value may eliminate existing bids.
• The screen alone cannot establish the true purpose of displayed orders.

You may say “There is currently substantial displayed buying interest at KRW 50,000,” but should not treat it as absolute support.

Next lesson — Day 16 · Charts and trading flows:
“Identical Price Gains Can Mean Different Things — Assessing Rally Quality with Volume, Trading Value and Turnover”