Order Imbalance
Categories: Trading
You own shares in a popular paint manufacturer, Fifty Shades of Whatever Color You Want. One day, the company revealed that it has been accidentally mixing a psychedelic drug into its paint recipe for years. The firm also announced that it was setting up a hotline for customers who have been experiencing hallucinations and inordinate feelings of goodwill and love.
Analysts expect lawsuits to be filed soon...a likely bankruptcy looms. The stock begins dropping precipitously as soon as the announcement comes out. Everyone is trying to get out of the stock. Tons of sell orders. No one is buying. The result is a massive order imbalance.
The term refers to a situation where there are more orders on one side of the ledger than the other. Either sell orders grossly outnumber buy orders, or buy orders significantly outstrip sell orders.
