The Ecology of an Order-Driven Market

An order-driven market, which has no market makers, separates into limit-order and market-order traders, who balance supply and demand for immediacy. Empirical evidence confirms that a bid–ask spread is a natural property of an order-driven market. Mean reversion in price following liquidity trades compensates the marginal investor for placing a limit order. Complex market ecology suggests that regulators should permit markets to evolve naturally.