The order book is a queue of orders
The top of the order book is a queue of orders to sell (asks) and the bottom a queue of orders to buy (bids), stacked by price. The lowest ask is thebest ask, the highest bid is the best bid, and the gap between them is the spread.
A trade can happen in only two ways. You either fill immediately against an order that is already waiting (taking the price), or you put your own order in the queue and wait for someone to come (making the price). Every order type is a rule for which of the two you are and how long you will wait.
Sell orders (asks)
Buy orders (bids)
Every Korean order type
| Type | How it works | When to use it and risks |
|---|---|---|
| Limit | Fills only at your price or better. Any remainder waits | The basic order. Protects the price but may not fill |
| Market | No price set; takes the opposite orders one by one and fills immediately | Fill is certain, but if the book is thin it fills several levels higher (lower) |
| Limit-to-close | Waits as a limit order during the day; if not filled by the closing auction it turns into a market order | When you must fill today. Fills at the close |
| Best-opposite limit | A limit order at the other side’s best price at the moment you order | Fills right away without sweeping several levels. The remainder waits at that price |
| Best-own-side limit | A limit order at your side’s best price at the moment you order | Joins the queue at the front price. May not fill right away |
Prices at which the 300-share market order filled
IOC and FOK conditions
Limit, market and best-opposite limit orders can carry a condition on “what to do with the remaining quantity”.
- IOC (Immediate or Cancel): fill only what can be filled now and cancel the rest at once.
- FOK (Fill or Kill): fill only if the whole order can be filled at once; otherwise cancel all of it.
They are used when you don’t want an order sitting in the queue revealing your intent, or when you want a set quantity only in one go.
Tick sizes and the price “staircase”
Stock prices are not continuous; they move only on a staircase of tick sizes. Since 2023 KOSPI and KOSDAQ have used the same tick sizes.
| Share price | Tick size | One tick as a % (start → end of band) |
|---|---|---|
| Under ₩2,000 | ₩1 | About 0.05% or more |
| ₩2,000 – under ₩5,000 | ₩5 | 0.25% → 0.1% |
| ₩5,000 – under ₩20,000 | ₩10 | 0.2% → 0.05% |
| ₩20,000 – under ₩50,000 | ₩50 | 0.25% → 0.1% |
| ₩50,000 – under ₩200,000 | ₩100 | 0.2% → 0.05% |
| ₩200,000 – under ₩500,000 | ₩500 | 0.25% → 0.1% |
| ₩500,000 and up | ₩1,000 | 0.2% or less |
One tick as a share of the price
Hidden costs: spread, slippage and market impact
Trading costs are not only commissions and taxes. The costs that arise during execution are often larger.
- Spread: if you sell right after buying, you buy at the best ask and sell at the best bid, so you start out down by the spread. A round trip costs roughly one tick of spread.
- Slippage: the gap between the price you expected when you ordered and the price you actually got. It grows with market orders, fast markets and stop orders.
- Market impact: if your order is big enough to eat several levels, your order itself moves the price. Taking a large position in a stock with low turnover puts you at a disadvantage both when you buy and when you sell.
Costs over a year at about 0.33% per round trip
Traps when reading the order book and trade strength
- Resting size can vanish at any time: a big stack of bids in the book may be orders with no real intent to trade, since they can simply be cancelled just before they fill. Repeatedly placing orders you don’t intend to fill in order to mislead others is market manipulation and is punishable.
- What trade strength means: every trade has a buyer and a seller for the same quantity. Trade strength only compares “the quantity bought by hitting the ask (where the buyer moved first)” with the reverse; it does not mean more people want to buy.
- The expected opening price: the expected price shown during a call auction can change a lot when orders are cancelled or amended at the last moment.
Practical ordering habits
- Use limit orders by default for thinly traded stocks, right after the open or close, and after hours.
- Check that your order size is small compared with the stock’s daily turnover and the size in the book. If your order would eat several levels, split it.
- When you set a stop-loss level, decide in advance whether to send it as a market or a limit order. In a plunge a limit order may not fill, and a market order may fill lower than you expect.
- After a fill, check the details (price, quantity, market) and record them with your reasons in your trading journal.
Ordering in call auctions and after hours
During the opening call auction (08:30–09:00) orders only pile up and do not fill, so you can place and pull orders while watching the expected price on screen. If you buy at market in this window, you fill at whatever the open turns out to be. If there was big news the night before the open can gap a long way, so setting a cap with a limit order is safer.
- Closing call auction: from 15:20 orders fill all at once at 15:30. Use it when you must trade at today’s close, but on days when big orders pile in, such as index rebalancing days, the close itself can move a lot.
- After-hours at the close: fills only at the day’s close, first come first served. Useful when you liked today’s close but could not buy during the session.
- After-hours single price: fills every 10 minutes from 16:00 to 18:00 and is the first time post-close disclosures are reflected. The book is thin, so even a small order can move the price to the ±10% limit.
Splitting large orders: VWAP and TWAP
Institutions don’t send large orders all at once. To reduce market impact they fill in small pieces over the day, benchmarked against VWAP(volume-weighted average price) or TWAP (time-weighted average price).
VWAP = Σ(fill price × fill quantity) ÷ Σ fill quantity
- VWAP method: trade more when market volume is high and less when it is low, to get close to the day’s average fill price. Volume usually concentrates at the open and close, so those times get a bigger share.
- TWAP method: trade the same amount at regular time intervals. Simple, but it sends the same amount even when trading is thin, which can cause impact.
Individuals can use the same principle when placing a large order in a stock with low turnover. Work out what percentage of daily turnover it is, then split the quantity into limit orders at several times to cut execution costs.