Read the previous post: Bid-Offer in the Stock Market - Part II. In the previous post, I explained the priority of prices in supply and demand in the stock market. In this post, I will explain about TIME PRIORITY.
Price priority is a queue of stock orders based on time priority. In simple terms, time priority means a queue of shares based on investors making bids and offers at the same price, but at different times.
Here's the time priority display on stock software
Assume that the price of 7,025 is the best bid price and 7,050 is the best offer price. The word Seq in the picture above means Sequence = shows the order of buying and selling orders. Note, there are 20 people who queue up for the bid price at the price of 7,025, and 20 people who queue at the price of 7,075 at the offer price.
How to read the time priority is as follows.
The first person to queue at the bid price at 7,025, with a total of 228 lots. With nominal (Value) of Rp160,170,000 (7,025 X 228 lots X 100 pieces). The second person queues the bid price of 7,025 as much as 2 lots with a nominal value of 1,405,000. Etc. How to read also applies to the offer price queue.
So what does this order mean? This is what is called TIME PRIORITY as I discussed the definition above. Bid at the same price, but different TIME. If it's price priority, bid at the BEST PRICE.
At this time priority, automatically the first person to place a purchase order of 228 lots orders will be processed first if there is a seller who is willing to sell INDF at a price of 7,025, because the queue is the first.
So, if in the previous post: Bid-Offer in the Stock Market - Part II said you place an order based on the best price priority which will be processed immediately, actually in the best price priority there is still a queue system again, i.e. queues based on queue TIME order. So, if there are 20 people who want to buy shares at 7,025, then the buy order that will be processed/matched first is the person who queued for the first time at 7,025.
Did you understand from here?
If you understand, I will now move on to an even deeper example.
For example, if you already have 100 lots of INDF shares, your share price goes up drastically and you decide to sell the shares. You immediately want to sell at the best bid price, in this example it is 7,025 as many as 100 lots. So, how will this transaction be processed?
First case. If you sell 10o0 lots, then the person who bids in the first order will be processed first. In other words, your sell order will deal with the person who asked to buy (bid) in the first place (In the table above, the first person is the person who bids 228 lots). It's just that, you won't know who you are dealing with, because the trading system is done online. If your order is a deal, then the bid lot in the first order will be reduced to 128 (228 - 100) and the value will be 89,920,000 (7,025 x 100 pieces x 128 lots). The same applies to the offer price.
Second case. How do you own 260 lots of INDF shares? Can orders be processed? Because the buyers in the first queue only bid 228 lots. It could be.. If you buy as many as 260 lots and want to sell, then automatically the first buy order of 228 lots will run out immediately. Then where are the remaining 32 lots? The remaining 32 lots will be processed in the next order, namely the second, third and so on. Because in the example above, the person in the second queue only asks for 2 lots, the remaining 30 lots will be processed by the third person. Because the third person only asks for 25 lots, the remaining 5 lots will be processed in the fourth order. Because the fourth person only asks for 1 lot, the remaining 4 lots will be processed by the person who asks for a buy order in the fifth queue. The fifth person asks for 5 lots. Therefore, the person who previously queued at the fifth order of 5 lots will be the first queue with the request being only 1 lot (5 lots - 4 lots). The same applies to the offer price.
Those are bids and offers based on time priority in the stock market. How do you understand? If you do not understand, look and understand well again.
ILLUSTRATION OF TIME PRIORITY STOCK IN THE REAL MARKET
Actually, time priority in the stock market is no different from the time queue system, when you buy goods at the supermarket or at any store, which requires you to queue. I will give a concrete example.
You are entering a supermarket because you want to shop for your needs. You buy a 1/4 kg egg, it costs 5500. When you're done shopping, you go to the cashier to pay. At the cashier, it turns out that there are 5 people who have queued in front of you first. That is, if you queue then you are in the sixth queue. Let's say the 5 people also bought a 1/4 kg egg, the price was 5,500. When will your order be served by the cashier?
Of course, your order will only be served when the person in the first queue has been served by the cashier, as well as up to the fifth person. When 5 people have been served by the cashier, you are the sixth person to be the first, and you are served by the cashier. You can't just walk around asking to be served first. That is what is called TIME PRIORITY.
So, actually transactions in the stock market can occur because there is pure DEMAND and SUPPLY. There are those who want to buy, there are those who want to sell.
