The Limit Order Book (LOB) & Price-Time Priority

Every modern electronic exchange—including NSE, BSE, CME, and NASDAQ—operates a Central Limit Order Book (CLOB). Rather than relying on human floor brokers, the matching engine maintains two sorted queues: the Bid book (buyers sorted highest price first) and the Ask book (sellers sorted lowest price first).

Price never moves simply because 'more people want to buy'; it moves only when aggressive market orders consume 100% of the passive limit orders resting at a given price rung.

Hover over key terms below for instant definitions: Passive Liquidity (Maker), Aggressive Flow (Taker), and Price-Time Priority (FIFO). For the complete mathematical derivation and edge-case analysis, open multi-rung sweep math & queue priority rules.

• Passive Liquidity (Maker) — Provides market depth and earns queue timestamp priority without crossing the spread.
• Aggressive Flow (Taker) — Demands immediate execution certainty at the cost of paying the bid-ask spread and sweep slippage.
• Price-Time Priority (FIFO) — Modifying order price or increasing quantity resets your timestamp to the back of the queue.

1. 1
   Gateway Pre-Trade Risk Validation

   The exchange gateway checks tick size, fat-finger execution bands, and broker margin limits in microseconds.
2. 2
   Crossability Evaluation

   If a Buy order's limit price is >= Best Ask, it is flagged as marketable and enters the matching loop.
3. 3
   Multi-Rung Sweep Execution

   The engine fills against the oldest resting sell order at Best Ask, sweeping upward until quantity is filled.
4. 4
   Resting Unfilled Remainder

   Any remaining quantity on a standard DAY Limit order rests on the book, establishing a new Best Bid.

Implementation & Quantitative Model

1export function calcBookImbalance(bids: { price: number; qty: number }[], asks: { price: number; qty: number }[], depth = 5) {2  const bidVol = bids.slice(0, depth).reduce((s, r) => s + r.qty, 0);3  const askVol = asks.slice(0, depth).reduce((s, r) => s + r.qty, 0);4  const mid = ((bids[0]?.price ?? 0) + (asks[0]?.price ?? 0)) / 2;5  return { mid, imbalance: (bidVol - askVol) / Math.max(1, bidVol + askVol) };6}

Cross-reference standard risk definitions such as drawdown, slippage, and Sharpe ratio when auditing your logs.