Central Limit Order Book (CLOB)

A Central Limit Order Book (CLOB) is a transparent electronic system used in financial markets to aggregate and display buy and sell orders for securities. It shows the prices and quantities of pending orders and matches orders based on price and time priority. CLOB provides transparency by allowing market participants to see all available orders, ensuring that trades are executed at the best possible price.

Example

In a stock market, the CLOB displays all buy and sell orders for a particular stock, matching them based on price, with the highest bid (buy) and lowest ask (sell) orders being executed first.

Key points

• CLOB is an electronic system that aggregates and displays buy and sell orders for securities.

• It ensures transparency and matches orders based on price and time priority.

• Commonly used in stock exchanges to facilitate fair and efficient trading.

Quick Answers to Curious Questions

How does a Central Limit Order Book work?

It collects buy and sell orders, displaying prices and quantities, and matches orders based on the highest bid and lowest ask, ensuring the best price for trades.

Why is transparency important in a CLOB?

Transparency allows market participants to see all available orders, promoting fairness and ensuring that trades are executed at the best possible price.