What is BBO?
BBO (Best Bid Offer) is a type of limit order that allows traders to quickly align their order price with the current top levels of the order book, such as Queue 1, Queue 5, Counterparty 1, or Counterparty 5. By doing so, traders may achieve faster execution and better price matching. When a BBO order is placed, its limit price automatically adjusts to the specified level in the order book at that moment.
How do BBO orders work?
When placing a BBO order, the limit price depends on the option selected:
Counterparty 1: For buy orders, this is the lowest current ask; for sell orders, it is the highest current bid.
Queue 1: For buy orders, this is the highest current bid; for sell orders, it is the lowest current ask.
Counterparty 5: For buy orders, this is the 5th lowest ask; for sell orders, it is the 5th highest bid.
Queue 5: For buy orders, this is the 5th highest bid; for sell orders, it is the 5th lowest ask.
How are BBO orders different from other order types?
BBO Orders
Dynamic pricing: At the time of order placement, the limit price automatically matches the chosen order book level (e.g., Queue 1, Queue 5, Counterparty 1, Counterparty 5).
Partial fills: If the order is only partially filled due to limited liquidity at that level, the unfilled portion remains in the order book at the same price. Unlike market orders, it does not continue to the next available price level.
Standard Limit Orders (Non-BBO)
Fixed price input: The order price is set manually by the trader and does not automatically adjust to the current order book levels when submitted.
Market Orders
Immediate execution: The order executes instantly at the best available market price.
Slippage risk: Execution may occur at progressively worse prices until the full order is filled, depending on market depth.