order driven market
Order Driven Market: a stock exchange where prices come only from matching what buyers offer and what sellers ask, with no middleman setting the price.
In plain English
Think back to Balogun market on a Saturday morning, before you had learned to open your mouth and haggle properly. A trader is not shouting a fixed price at you from a signboard. She looks at what you are offering, you look at what she is asking, and the two of you circle each other until a number sits comfortably between you. Nobody outside that conversation decided the price for you.
That is exactly how the Nigerian Exchange, the NGX, works for most shares. There is no shopkeeper standing in the middle deciding what MTN Nigeria shares should cost today. Instead, the exchange simply collects every buy order and every sell order into a big electronic book, matches the ones that agree on price, and the trade happens. The price you see quoted is really just the last point where a buyer and a seller shook hands.
Contrast this with a market where a designated dealer sets the price and you trade against that dealer directly, which is called a quote driven market. In an order driven market, you are trading against other real investors, not against the house. Your broker's trading platform sends your order into that shared book and it waits its turn like everyone else's.
Say a Nigerian in London wants to buy Dangote Cement shares for his mother's retirement portfolio back home. His broker does not call up NGX and ask for a special price. His buy order simply joins the queue of other orders at ₦380 per share, and if a seller in Lagos is willing to let go at that price, the two orders match and the trade is done, instantly and transparently.
This is why share prices can move so quickly during a rush of buying or selling. There is no dealer smoothing things out. The price is only ever a mirror of how many people want in and how many want out at that exact moment.
You place an order to buy 200 shares of Zenith Bank at ₦42 each. Somewhere in the order book, another investor has placed an order to sell 200 shares at ₦42. The system matches you both instantly, and ₦8,400 changes hands with no dealer taking a cut of the price difference.
Questions people ask
Is the Nigerian Exchange fully order driven?
Yes, for the vast majority of listed shares, the NGX matches buy and sell orders directly through its electronic trading system rather than using dealers to set prices.
What happens if my order does not find a match?
It simply waits in the order book at your chosen price until another investor places an order that matches it, or you cancel it yourself.
Does an order driven market mean prices are always fair?
It means prices reflect real buying and selling interest at that moment, which is usually fairer than one dealer deciding, though prices can still swing sharply when few people are trading.
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