Problem 5: Executing orders (4 points) Say the limit order book for a stock curr
ID: 2816232 • Letter: P
Question
Problem 5: Executing orders (4 points) Say the limit order book for a stock currently looks like this Offers Bids Price Quantity Price Quantity $5.45 200$5.42 300 $5.47 250$5.40 450 $5.521,500 $5.37 3,250 (a) If you submitted a market sell order for 1,200 shares, what is the average price you'd get? (Average price equals total sale divided by shares sold) Average price: 1 point (b) What would the imi order book look like after submitting this market sel order, as- suming no other orders were submitted? Offers Bids Price Quantity Price QuantityExplanation / Answer
Offers
Bids
Price
Quantity
Price
Quantity
$5.45
200
$5.42
300
$5.47
250
$5.40
450
$5.52
1500
$5.37
3,250
If you are selling, you will get the bid price.
If you are buying , you will get the offer price.
Offer prices are arranged in descending order , so that you get the best price while buying.
Bid prices are arranged in ascending order , so that you get the best price while selling.
(a).If you submit a market sell order for 1,200shares:
The order will be matched with the bids in descending order.
Order will be matched as shown below:
A
B
C
D=A*B
Price
Quantity
Cumulative
Total
Quantity
Amount
$5.42
300
300
$1,626.00
$5.40
450
750
$2,430.00
$5.37
450
1200
$2,416.50
SUM
$6,472.50
Average Price=6472,50/1200=$5.39
Average Price
$5.39
(b). After matching of trades, limit order book will look like:
Offers
Bids
Price
Quantity
Price
Quantity
$5.45
200
$5.37
2800
$5.47
250
$5.52
1500
.(c) If you submit the sale order to a dark pool:
The settlement price will be following( if transacted a midpoint of the bid ask spread)
A
B
C
D=A*B
Mid point
Quantity
Cumulative
Total
Calculation of
Bid/ask spread
Sold
Quantity
Amount
Mid Point
$5.47
300
300
$1,641.00
(5.42+5.52)/2
$ 5.435
450
750
$2,445.75
(5.40+5.47)/2
$ 5.41
450
1200
$2,434.50
(5.37+5.45)/2
SUM
$6,521.25
The total amount received will be $6,521.25
Extra Profit=6521.25-6472.50=$48.75
Extra Profit
$48.75
Offers
Bids
Price
Quantity
Price
Quantity
$5.45
200
$5.42
300
$5.47
250
$5.40
450
$5.52
1500
$5.37
3,250