Question

1. For Tesla stock, you have the following limit order book:

bid		ask
Price	Size	Price	Size
400.78	1000	400.85	400
400.77	200	400.86	1000
400.76	5000	400.87	900
400.75	300	400.88	5000

1. If you place a market buy order of 500 shares, what is your purchase price?
2. If you place a limit buy order of 500 shares at $400.84, given the limit order book, how many shares can you purchase?
3. What is the bid-ask spread if you place a market buy order of 100 shares and then place a market sell order of 100 orders?
4. If you place a market sell order of 1000 shares, what is your average selling price?

Answer 1

a]

The first 400 shares will be purchased at the best ask price of 400.85. The remaining 100 shares will be purchased at the next best ask price of 400.86.

Average purchase price = ((400 * 400.85) + (100 * 400.86)) / 500

Average purchase price = 400.8520

b]

You cannot purchase any shares because the limit buy price is lower than the best ask price

c]

The best bid quantity is 1000 and the best ask quantity is 400.

If a market buy order for 100 shares is placed, the best bid quantity is reduced to 900 and best ask quantity is reduced to 300.

Therefore there will be no change in the bid-ask spread

d]

The best bid quantity is 1000. The entire market order will be executed at the best bid price of 400.78.

Therefore the average selling price is 400.78