In continuous trading, when a limit enters the order book and there is another limit present, where does the new limit trade?

In continuous trading, when a limit enters the order book and there is another limit present, where does the new limit trade?

• A. At limit already in order book
• B. At quote (Quote domination rule)
• C. At reference price
• D. At best bid

Answer: (B)

In continuous trading, prices come from the current top-of-book quotes—the best bid and the best offer. The quote domination rule teaches that when a new limit order arrives and there is existing liquidity, any trade will occur at the prevailing quote price, not at the incoming order’s limit price or the price of the resting limit. If your incoming limit would cross the market, you’re executed against the current best price, i.e., the quote. For example, if the best bid is 99.60 and the best offer is 99.80, a buy limit arriving at 99.85 would trade at 99.80 (the quote). Conversely, a sell limit at 99.75 would trade at 99.60 (the quote). If there’s no crossing, the new limit simply rests in the book.

In continuous trading, prices come from the current top-of-book quotes—the best bid and the best offer. The quote domination rule teaches that when a new limit order arrives and there is existing liquidity, any trade will occur at the prevailing quote price, not at the incoming order’s limit price or the price of the resting limit. If your incoming limit would cross the market, you’re executed against the current best price, i.e., the quote. For example, if the best bid is 99.60 and the best offer is 99.80, a buy limit arriving at 99.85 would trade at 99.80 (the quote). Conversely, a sell limit at 99.75 would trade at 99.60 (the quote). If there’s no crossing, the new limit simply rests in the book.