What Is the Difference between an ‘Active’ and ‘Passive’ Order in the Context of Market Making?
A passive order, such as a limit order placed on the order book, adds liquidity and is often executed at the bid or offer price. An active order, such as a market order, removes liquidity and executes immediately against a passive order.
Market makers typically use passive orders to quote the bid and offer, profiting when an active trader "hits" their quotes.
