How can I trade using a limit order book?

If a market participant places a bid lower than the highest bid or an offer higher than the lowest offer, their order will join the others in the limit order book and not be executed immediately.

To execute an order immediately, a buyer must match the lowest offer price, and a seller must match the highest bid price.

For example, if a buyer wants to purchase 7,000 shares and places a bid at R10.70, they will first fill the available 5,000 shares at the lowest offer of R10.50. If there are additional shares offered between R10.50 and R10.70, those would be filled next, up to the total number of shares the buyer wants. If the buyer's bid of R10.70 exceeds the available offers, their order for the remaining shares becomes the new highest bid at R10.70, unless there are other higher bids already present.

Alternatively, if a buyer places a bid at R10.50 for 7,000 shares and there are only 5,000 shares offered at that price, they will purchase those 5,000 shares. The remaining 2,000 shares would then represent a new bid at R10.50, potentially becoming the highest bid if there are no existing bids at that price. As a result of this transaction, the bid-ask spread could potentially narrow, depending on the next lowest offer available in the order book.

The limit order book is constantly updating in real-time as market participants place and remove orders, and as trades are executed. Thus, traders need to monitor the order book continuously for the latest information.