Why are there hidden bids and offers in the US stock market for the more illiquid stocks?
When you place a bid between the bid/ask spread, that means you are raising the bid (or lowering the ask, if you are selling). The NBBO (national best bid and offer) is now changed because of your action, and yes, certain kinds of orders may be set to react to that (a higher bid or lower ask triggering them), also many algorithms (that haven't already queued an order simply waiting for a trigger, like in a stop limit) read the bid and ask and are programmed to then place an order at that point. "Certain brokers allow for hidden orders to be placed in the market. It is as simple as that. Refer to Interactive Brokers as one example. If you press on the "" i "" next to ""Hidden"" you will get the following description.  Some brokers may represent the hidden orders by an * next to the price level. Sometimes large orders are place as these hidden orders to avoid large movements in the stock price (especially if the stock is illiquid as per your observation)."
If the stock has low liquidity, yes there could be times when there are no buyers or sellers at a specific price, so if you put a limit order to buy or sell at a price with no other corresponding sellers or buyers, then your order may take a while to get executed or it may not be executed at all. You can usually tell if a stock has low liquidity by the small size of the average daily volume, the lack of order depth and the large size of the gap between bids and offers. So if a stock for example has last sale price of $0.50, has a highest bid price of $0.40 and a lowest offer price of $0.60, and an average daily volume of 10000 share, it is likely to be very illiquid. So if you try to buy or sell at around the $0.50 mark it might take you a long time to buy or sell this stock at this price. "I may be underestimating your knowledge of how exchanges work; if so, I apologize.  If not, then I believe the answer is relatively straightforward. Lets say price of a stock at time t1 is 15$ .  There are many types of price that an exchange reports to the public (as discussed below); let's say that you're referring to the most recent trade price.  That is, the last time a trade executed between a willing buyer and a willing seller was at $15.00. Lets say a significant buy order of 1M shares came in to the market. Here I believe might be a misunderstanding on your part.  I think you're assuming that the buy order must necessarily be requesting a price of $15.00 because that was the last published price at time t1.  In fact, orders can request any price they want.  It's totally okay for someone to request to buy at $10.00.  Presumably nobody will want to sell to him, but it's still a perfectly valid buy order. But let's continue under the assumptions that at t1: This makes the bid $14.99 and the ask $15.00.  (NYSE also publishes these prices.) There aren't enough people selling that stock. It's quite rare (in major US equities) for anyone to place a buy order that exceeds the total available shares listed for sale at all prices.  What I think you mean is that 1M is larger than the amount of currently-listed sell requests at the ask of $15.00. So say of the 1M only 100,000 had a matching sell order and others are waiting. So this means that there were exactly 100,000 shares waiting to be sold at the ask of $15.00, and that all other sellers currently in the market told NYSE they were only willing to sell for a price of $15.01 or higher.  If there had been more shares available at $15.00, then NYSE would have matched them. This would be a trigger to the automated system to start increasing the price. Here is another point of misunderstanding, I think.  NYSE's automated system does not invent a new, higher price to publish at this point.  Instead it simply reports the last trade price (still $15.00), and now that all of the willing sellers at $15.00 have been matched, NYSE also publishes the new ask price of $15.01.  It's not that NYSE has decided $15.01 is the new price for the stock; it's that $15.01 is now the lowest price at which anyone (known to NYSE) is willing to sell.  If nobody happened to be interested in selling at $15.01 at t1, but there were people interested in selling at $15.02, then the new published ask would be $15.02 instead of $15.01 -- not because NYSE decided it, but just because those happened to be the facts at the time. Similarly, the new bid is most likely now $15.00, assuming the person who placed the order for 1M shares did not cancel the remaining unmatched 900,000 shares of his/her order.  That is, $15.00 is now the highest price at which anyone (known to NYSE) is willing to buy. How much time does the automated system wait to increment the price, the frequency of the price change and by what percentage to increment etc. So I think the answer to all these questions is that the automated system does none of these things.  It merely publishes information about (a) the last trade price, (b) the price that is currently the lowest price at which anyone has expressed a willingness to sell, and (c) the price that is currently the highest price at which anyone has expressed a willingness to buy. ::edit:: Oh, I forgot to answer your primary question. Can we estimate the impact of a large buy order on the share price? Not only can we estimate the impact, but we can know it explicitly.  Because the exchange publishes information on all the orders it knows about, anyone tracking that information can deduce that (in this example) there were exactly 100,000 shares waiting to be purchased at $15.00.  So if a ""large buy order"" of 1M shares comes in at $15.00, then we know that all of the people waiting to sell at $15.00 will be matched, and the new lowest ask price will be $15.01 (or whatever was the next lowest sell price that the exchange had previously published)." "For every buyer there is a seller. That rule refers to actual (historical) trades. It doesn't apply to ""wannabees."" Suppose there are buyers for 2,000 shares and sellers for only 1,000 at a given price, P. Some of those buyers will raise their ""bid"" (the indication of the price they are willing to pay) above P so that the sellers of the 1000 shares will fill their orders first  (""sold to the highest bidder""). The ones that don't do this will (probably) not get their orders filled. Suppose there are more sellers than buyers. Then some sellers will lower their ""offer"" price to attract buyers (and some sellers probably won't). At a low enough price, there will likely be a ""match"" between the total number of shares on sale, and shares on purchase orders." It could be that the contracts were bought at cheaper prices such as $.01 earlier in the day. What you see there with the bid and ask is the CURRENT bid and CURRENT ask. The high ask price means there is no current liquidity, as someone is quoting a very high ask price just in case someone really wants to trade that price. But as you said, no one would buy this with a better price on a closer strike price. The volume likely occurred at a different price than listed on the current ask. As others have stated, the current price is simply the last price at which the security traded. For any given tick, however, there are many bid-ask prices because securities can trade on multiple exchanges and between many agents on a single exchange. This is true for both types of exchanges that Chris mentioned in his answer. Chris' answer is pretty thorough in explaining how the two types of exchanges work, so I'll just add some minor details. In exchanges like NASDAQ, there are multiple market makers for most relatively liquid securities, which theoretically introduces competition between them and therefore lowers the bid-ask spreads that traders face. Although this results in the market makers earning less compensation for their risk, they hope to make up the difference by making the market for highly liquid securities. This could also result in your order filling, in pieces, at several different prices if your brokerage firm fills it through multiple market makers. Of course, if you place your order on an exchange where an electronic system fills it (the other type of exchange that Chris mentioned), this could happen anyway.  In short, if you place a market order for 1000 shares, it could be filled at several different prices, depending on volume, multiple bid-ask prices, etc. If you place a sizable order, your broker may fill it in pieces regardless to prevent you from moving the market. This is rarely a problem for small-time investors trading securities with high volumes, but for investors with higher capital like institutional investors, mutual funds, etc. who place large orders relative to the average volume, this could conceivably be a burden, both in the price difference across time as the order is placed and the increased bookkeeping it demands.  This is tangentially related, so I'll add it anyway. In cases like the one described above, all-or-none (AON) orders are one solution; these are orders that instruct the broker to only execute the order if it can be filled in a single transaction. Most brokers offer these, but there are some caveats that apply to them specifically. (I haven't been able to find some of this information, so some of this is from memory).  All-or-none orders are only an option if the order is for more than a certain numbers of shares. I think the minimum size is 300 or 400 shares.  Your order won't be placed until your broker places all other orders ahead of it that don't have special conditions attached to them.  I believe all-or-none orders are day orders, which means that if there wasn't enough supply to fill the order during the day, the order is cancelled at market close.  AON orders only apply to limit orders. If you want to replicate the behavior of a market order with AON characteristics, you can try setting a limit buy/sell order a few cents above/below the current market price. But what about the following scenario which is my paraphrasing of a Nanex article (I'm hoping you can help clarify this for me).  1. I observe a 1,000 lot @$10 advertised for Sell on a lit exchange.  2. I try to lift the 1,000 by placing a limit order @10.  3. My order goes through some kind of order routing process. First, 3 orders get executed on a dark pool. Let's say I got a 50 lot filled (so available offer reduces to 950).  4. My order hits a lit exchange. I get a partial fill for 100 (offer shrinks to 850); but the offered size shrinks instead to 500. Or 0.  5. Now, in order to execute my trade, I will have to take a higher price than the original advertised liquidity.  My question (maybe you can answer this) is why did my original order size of 1,000 appear in smaller blocks? Is this because the order routing algorithm breaks up the size?  Or is it that market makers only post offers in small block sizes (e.g. 100) So even if the order book looked like:  100 @ 10  100 @ 10  100 @ 10  100 @ 10  100 @ 10  100 @ 10  All the way to 1,000 total -- as soon as the first 100 shares were lifted, the MM can immediately cancel the remainder of the advertised liquidity -- in practical terms making it impossible to execute large orders at an advertised price. Many of the above comments are correct about illiquidity.  If someone needs to trade at a time of low liquidity, for instance when the markets are closed, the bid/ask spread can often be large to induce someone to trade at odd times.  Especially as the broker/bank on the other side of the trade can't immediately go to the market to close out the risk as they often prefer to do. In this case the jump is actually is large but not that large (~4%).  Note this trade price is near the close price on the day before. The system I use shows a trade that evening for 5 shares near the price on the graph.  If you called me after I was done with work and tried to buy 5 shares I'd quote you a bad price too. "Many people assume that if the price of something is $10 and they have 1,000 of that thing, they should expect to be able to sell them for something around $10,000.  Such an assumption may hold much of the time, but it doesn't always.  Worse, the cases where it fails to hold are often those where it would be relied upon most heavily.  Such an assumption should thus be considered dangerous. In a liquid market, the quantity of a something that people would be willing to buy at something close to the market price will be large relative to the quantity that people would seek to sell in the short term.  If at some moment in time one person in the market was willing to immediately buy 500 shares at $9.98 and another was willing to immediately buy 750 at $9.97, someone seeking to sell 1,000 shares could immediately receive $997.50 for them (selling 500 to the first person and 500 to the second, who would then be ready to buy 250 more from the first person who was willing to sell for $9.97).  Such behavior would be in line with what many people's assumptions. In an illiquid market, however, the quantity of something that people would be willing to buy near market price could be surprisingly low.  This is more often a problem in the marketplace of things like collectibles than of stocks, but the same thing can happen in the stock market.  If there's one potential buyer for a stock who thinks it's overpriced but has potential and would be worth $9.50, but that person only has $950 to spend, and nobody else thinks the stock would be worth more than $0.02/share, then until people sold a total of 100 shares the price would be $9.50, but after that the price would drop instantly to $0.02.  There would be no ""cushioning"" of the fall.  If the person with 1,000 shares was first in line, he'd get to sell 100 shares for $950 to the aforementioned seller, but would be unable to get more than $18 for the remaining 900. A major danger with markets is that markets which are perceived as liquid attract people to the buying side, while those which are seen as illiquid repel people.  The danger in the latter is obvious (having people flee a seemingly-illiquid market will reduce its liquidity further) but the former is just as bad.  Having people flock to a market because of its perceived liquidity will increase its liquidity, but can also create a ""false price floor"", causing demand to appear much stronger than it actually is.  Unless real demand increases to match the false price floor, the people who buy at the higher price will never be able to recoup their investment." the implications are that the company's earnings per share may seem greater, (after the company buys them there will be less shares outstanding), giving wall street the impression that there is more growth potential than there really is. its an accounting gimmick that can work for a few quarters while the company evaluates how else to impress wall street If the share is listed on a stock exchange that creates liquidity and orderly sales with specialist market makers, such as the NYSE, there will always be a counterparty to trade with, though they will let the price rise or fall to meet other open interest.  On other exchanges, or in closely held or private equity scenarios, this is not necessarily the case (NASDAQ has market maker firms that maintain the bid-ask spread and can do the same thing with their own inventory as the specialists, but are not required to by the brokerage rules as the NYSE brokers are).  The NYSE has listing requirements of at least 1.1 million shares, so there will not be a case with only 100 shares on this exchange. "To add on to the other answers, in asking why funds have different price points one might be asking why stocks aren't normalized so a unit price of $196 in one stock can be directly compared to the same price in another stock.  While this might not make sense with AAPL vs. GOOG (it would be like comparing apples to oranges, pun intended, not to mention how would two different companies ever come to such an agreement) it does seem like it would make more sense when tracking an index.  And in fact less agreement between different funds would be required as some ""natural"" price points exist such as dividing by 100 (like some S&P funds do). However, there are a couple of reasons why two different funds might price their shares of the same underlying index differently. Demand - If there are a lot of people wanting the issue, more shares might be issued at a lower price.  Or, there might be a lot of demand centered on a certain price range. Pricing - shares that are priced higher will find fewer buyers, because it makes it harder to buy round lots (100 shares at $100/share is $10,000 while at $10/share it's only $1000).  While not everyone buys stock in lots, it's important if you do anything with (standardized) options on the stock because they are always acting on lots.  In addition, even if you don't buy round lots a higher price makes it harder to buy in for a specific amount because each unit share has a greater chance to be further away from your target amount. Conversely, shares that are priced too low will also find fewer buyers, because some holders have minimum price requirements due to low price (e.g. penny) stocks tending to be more speculative and volatile. So, different funds tracking the same index might pick different price points to satisfy demand that is not being filled by other funds selling at a different price point." Perhaps it was to close a short position.  Suppose the seller had written the calls at some time in the past and maybe made a buck or two off of them.  By buying the calls now they can close out the position and go away on vacation, or at least have one less thing they have to pay attention to.  If they were covered calls, perhaps the buyer wants to sell the underlying and in order to do so has to get out of the calls. It this a real situation or is it a made up example? Because for a stock that has a last traded priced of $5 or $6 and volume traded over $4M (i.e. it seems to be quite liquid), it is hardly likely that the difference from bid to ask would be as large as $1 (maybe for a stock that has volume of 4 to 5 thousand, but not for one having volume of 4 to 5 million). In regards to your question, if you were short selling the order would go in exactly the same as if you were selling a stock you owned. So your order would be on the ask side and would need to be matched up with a price on the bid side for there to be a trade. "Bloomberg suggests that two Fidelity funds hold preferred shares of Snapchat Inc.. Preferred shares hold more in common with bonds than with ordinary stock as they pay a fixed dividend, have lower liquidity, and don't have voting rights. Because of this lower liquidity they are not usually offered for sale on the market. Whether these funds are allowed to hold such illiquid assets is more a question for their strategy document than the law; it is completely legal for a company to hold a non-marketable interest in another, even if the company is privately held as Snapchat is. The strategy documents governing what the fund is permitted to hold, however, may restrict ownership either banning non-market holdings or restricting the percentage of assets held in illiquid instruments. Since IPO is very costly, funds like these who look to invest in new companies who have not been through IPO yet are a very good way of taking a diversified position in  start-ups. Since they look to invest directly rather than through the market they are an attractive, low cost way for start-ups to generate funds to grow. The fund deals directly with the owners of the company to buy its shares. The markdown of the stock value reflects the accounting principle of marking to market (MTM) financial assets that do not have a trade price so as to reflect their fair value. This markdown implies that Fidelity believe that the total NPV of the company's net assets is lower than they had previously calculated. This probably reflects a lack of revenue streams coming into the business in the case  of Snapchat. edit: by the way, since there is no market for start-up ""stocks"" pre-IPO my heart sinks a little every time I read the title of this question. I'm going to be sad all day now :(." you need to use easy programming language to imply onto a scan  where you enter Scan all stocks  display if volume < (less than) 100