Hi Investor2; (*OT*) Order imbalance means that a bunch of people put in market orders to buy (sell). Such a large amount of orders, that it was greater than the total amount of limit orders to sell (buy) that the specialist had on his books. This means that the market mechanism temporarily broke down, and that the specialist is temporarily unable to fill market orders to buy (sell), though he can still fill market orders to sell (buy).
(What would be really cool is if they managed to have a double-sided market break down, with the specialist unable to fill both buy and sell market orders...)
These things happen regularly only on the NYSE, as market makers on the Nasdaq are required to always provide 2-sided quotes. It is a sign of lack of liquidity in the market for that stock, liquidity being the quantity of limit orders that make up the market for a stock.
The surprising thing is that these happen with great regularity on the NYSE. It is my belief that these are caused by the fact that NYSE specialists keep their limit order books secret, combined with people making market orders either overnight, or just before the market close. If they opened up their order books, or allowed competition between market makers as in the Nasdaq, or insisted that NYSE specialists also provide continuous 2-sided quotes, then these wouldn't happen, just as they don't happen on the Naz.
The only time these are worrisome is when they happen in the middle of the trading day to big name stocks. This indicates a panic, but you will be well aware that a panic is going on without having to look at the order imbalance figures, just turn on CNBC, it will be front page news...
The reason people put a lot of market orders in overnight is obvious. The reason they put them in just before market close is not so obvious, but we can probably all think of a couple of reasons people might do so.
-- Carl |
