The forgotten quote that everyone else can see

Question

You have a resting bid at 50.00 for 2{,}000 shares. The market just fell, true fair value is now 49.80, but your quote engine hasn't updated, so your 50.00 bid is still live. A seller happily hits it. What did the stale quote cost you the instant it filled? Why are stale quotes a structural danger, and what limits the damage?

Accepted Answer

The instant loss. You bought 2{,}000 shares at 50.00, but they're worth 49.80 the moment you own them: (50.00 - 49.80) 	imes 2{,}000 = 0.20 	imes 2{,}000 = \400 	ext{ loss, instantly.} You're now long 2{,}000 shares that are already 20 cents underwater, before the market moves another tick. The seller didn't need private information; they just saw a bid that was too high and took the free money. Your stale quote was the edge, and you handed it away. Why stale quotes are structurally dangerous. A resting quote is a free option you've written to the rest of the market. As long as it's live a…

The forgotten quote that everyone else can see

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