Walking the book on the sell side

Question

The order book on a stock looks like this:

Side	Price	Size
Ask	$50.10$	$500$
Bid	$50.00$	$300$
Bid	$49.95$	$400$
Bid	$49.90$	$600$

You send a market order to sell $700$ shares.

What average price do you receive, and how does it compare to the quoted market?

Accepted Answer

Walk the book downward. Your 700-share sell consumes bids in price order until filled: - 300 shares at 50.00 = \15{,}000 - 400 shares at 49.95 = \19{,}980 Total proceeds = 15{,}000 + 19{,}980 = \34{,}980. Average price: \frac{34{,}980}{700} = \49.9714. Compare to the quotes. The best bid was 50.00 and the mid was (50.00 + 50.10)/2 = 50.05. - Slippage versus the best bid: 50.00 - 49.9714 = 2.86 cents. - Effective half-spread received versus mid: 50.05 - 49.9714 = 7.86 cents, more than the entire quoted spread of 10 cents on a half-spread basis of 5 cents. The screen's 10-cent spread describes …

Walking the book on the sell side

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