Queueing and inventories on the limit order book

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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%.

Figure 3: Correlation of market maker inventory with queue position

Citation

Garriott, C., van Kervel, V., & Zoican, M. (2025). Queuing and inventories in limit order markets. Journal of Financial Markets, 100982.

@article{garriott2025queueing,
  title={Queueing and inventories in limit order markets},
  author={Garriott, Corey and van Kervel, Vincent and Zoican, Marius},
  journal={Journal of Financial Markets},
  volume={75},
  pages={100982},
  year={2025},
  publisher={Elsevier}
}