Two-Sided Auction
Order Flow Analysis glossary · Market Mechanics & Execution
Definition
The core mechanism underlying every financial market — equities, futures, foreign exchange, commodities — in which participants who wish to buy submit bids (the maximum price they are willing to pay) and participants who wish to sell submit offers, also called asks (the minimum price they are willing to accept). Trades occur only when the two sides meet. The gap between the highest outstanding bid and the lowest outstanding offer is the bid–ask spread, Spread = P_ask - P_bid, which in liquid futures often equals a single tick.
Two-Sided Auction in plain English
A two-sided auction is the simple engine humming underneath every market — stocks, futures, currencies, oil, all of it. Buyers post "bids" (the most they'll pay) and sellers post "offers" or "asks" (the least they'll accept), and a trade only happens when a buyer and seller agree on a price, exactly like haggling at a flea market except thousands of people do it at once. The little gap between the best bid and the best offer is the "bid-ask spread," Spread = P_ask - P_bid — basically the sliver of no-man's-land between what buyers offer and what sellers want. In heavily traded markets that gap shrinks to the smallest possible price step (one "tick"), meaning buyers and sellers are almost nose-to-nose.
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