Walking the book, what does a big market order really pay?

Question

The order book on a stock looks like this:

Side	Price	Size
Bid	$99.95$	$400$
Ask	$100.00$	$200$
Ask	$100.05$	$300$
Ask	$100.10$	$500$

You send a market order to buy $600$ shares.

What average price do you pay, and how does that compare to the quoted spread?

Accepted Answer

Walk the book. Your 600-share buy consumes offers in price order until filled: - 200 shares at 100.00 = \20{,}000 - 300 shares at 100.05 = \30{,}015 - 100 shares at 100.10 = \10{,}010 (only 100 of the 500 needed) Total cost = 20{,}000 + 30{,}015 + 10{,}010 = \60{,}025. Average price: \frac{60{,}025}{600} = \100.0417. Compare to the quotes. The best offer was 100.00 and the mid was (99.95 + 100.00)/2 = 99.975. - Slippage vs. the best offer: 100.0417 - 100.00 = 4.17 cents. - Effective half-spread paid vs. mid: 100.0417 - 99.975 = 6.7 cents, more than the entire quoted spread of 5 cents. The scr…

Walking the book, what does a big market order really pay?

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