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Queuing and inventories in limit order markets

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  • Garriott, Corey
  • van Kervel, Vincent
  • Zoican, Marius

Abstract

Limit order markets use a queuing system in which limit orders must wait in line to execute. We show that the queue position of a limit order influences its adverse selection risk and inhibits inventory risk management. Trade may worsen market maker risk sharing, unlike many protocols without queuing. We uncover a crowding-out effect: An inventory shock reduces liquidity provision by market makers later in the queue. Using futures data, we confirm both low risk sharing and the crowding-out effect. These two results imply a trade-off, as the queuing sequence that optimizes risk sharing decreases quoted depth up to 8.4%.

Suggested Citation

  • Garriott, Corey & van Kervel, Vincent & Zoican, Marius, 2025. "Queuing and inventories in limit order markets," Journal of Financial Markets, Elsevier, vol. 75(C).
    • Handle: RePEc:eee:finmar:v:75:y:2025:i:c:s1386418125000229
    DOI: 10.1016/j.finmar.2025.100982
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    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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