Order Books

As we have already seen, placing market orders is the easiest way to enter/exit the desired markets but this convenience comes at a price. You buy/sell at the price offered by the market, which might not be suitable to you. If you believe, there is 80% chance of success in an event, you would not want to buy Yes shares at more than 80c per share. That's where Limit orders come in, which give you the flexibility to specify the price at which you want to buy/sell.

Order book is aggregation of these limit orders at each price level, which looks like the one shown below.

It shows that the best price someone is willing to pay for buying Yes shares is 49.4c (best bid) and the best price someone is willing to sell at is 50.3c (best ask), which has a gap of 90c. This difference between best bid and best ask is known as spread. As more and more people trade in a market, spread tends to reduce and vice versa.