Central Limit Order Book
Central Limit Order Book ("CLOB") is a trade execution model based on a transparent system that matches customers' buy and sell orders based on "price/time priority."
Under the trading model , outstanding buy and sell orders are automatically stored in the system queue and prioritized by price and entry time. Price/ time priority principle refers to how to execute orders first.
orders are first prioritized by price and then sorted by the time of order entry at the same price.
The highest ("best") quote order and the lowest ("cheapest") quote order make up the best available market price.
Clients can regularly adjust the bid-ask spread and benefit from low-cost trade execution. (Limit orders are entered "between the bid and ask prices" in the market.)
Traders can also see market depth in this trading model, viewing the size and price of various orders in the market.
By definition, CLOB is completely transparent, real-time, anonymous and low execution cost.
For highly standardized securities markets and small-scale transactions, the use of CLOB is common.
In the CLOB model, customers can trade directly with intermediaries, and intermediaries can also trade with each other.
Best of all, customers can trade directly with other customers anonymously.
CLOB vs. RFQ
The opposite of the CLOB model is the inquiry transaction model (Request For Quote). RFQ is an asymmetric transaction execution model. In this model, a given number of market makers provide market quotes to customers.
Customers can only "bid to sell" (sell to the highest bidder) or "bid to buy" (buy from the cheapest seller). The
RFQ model prohibits customers from freely quoting within the buying and selling price, and cannot reduce their execution fees .
Contrary to the CLOB model, RFQ customers can only trade with intermediaries. They cannot deal directly with other customers.
The most important thing is that trading customers cannot create market prices on their own.
