Both quote- and order-driven markets refer to the exchanges of digital financial markets — electronic stock (or bond, or other security). The distinction between these two market mechanisms lies in the form of regards orders and bidding and asking rates for the security exchanged. The order-driven market shows all the offers and requests, while the quote-driven market focuses exclusively on the offers and requests of market owners and other parties.
Order-Driven Market
An order-driven market is one that shows all orders from both buyers and sellers, describing the price they are willing to buy or sell a security, and the amount of protection they are willing to buy or sell at that price. So, if you place an order for 100 ABC stock shares at $30 per share, your order will be seen on the market and can be used by people with access to that level of information (most exchange fees for such access).
Quote-Driven Market
More limited in nature is a quota-driven market. In other words, it is as a price-driven market or market for dealers. It shows only the bid and asks offers from specified market makers, dealers, or specialists for a defense. These market makers must post the offer and ask for the price they will consider at that time. Bond, currency, and commodity markets are the most commonly used in quote-drive market.
Bid and ask rates for a defense can continuously change, depending on the business supply and demand. As an individual investor (and not a broker, market maker, or other approved party), this program will not post your own order for 100 shares of ABC stock at $30 per share.
The market maker fills out your order from their own inventory or matches you with another order. Investors will of course try to negotiate better deals either on their own or through their broker or agent.
The major benefit of a quota-driven market is its liquidity: market owners must either buy or sell their quoted rates. So, you have an order fulfillment guarantee. The main downside of the quote-driven market is that it lacks clarity unlike the order-driven market. In other words, individual orders are not seen. There may be great deals out there but you’re not going to hear about them.
