Market Microstructure: Understanding Order Flow
How orders are matched, why spreads exist, and what market makers actually do. Essential knowledge for serious traders.
QuantIDE TeamJanuary 3, 202611 min read
Understanding market microstructure separates sophisticated traders from the crowd. It's the physics underlying every price movement, yet most retail traders never learn it.
The Order Book: Foundation of Price Discovery
At any moment, the order book contains all resting limit orders waiting to be filled. The best bid and ask define the current spread—the cost of immediate execution.
Market Makers: The Unsung Heroes
Market makers provide liquidity by continuously posting bids and offers. They profit from the spread while taking on inventory risk. Without them, markets would be far less efficient.