What is Buy The Book
Buy the book refers to an order to purchase all available shares of a particular stock, generally at the current market price.
Only an institutional investor or trader typically employs such an order. Note that shares can be purchased on any exchange, as well as from dark pools.
BREAKING DOWN Buy The Book
Buy the book is mostly a colloquial term. Sometimes investors or traders say they are going to “buy the book” when they feel especially strongly about a long position, when what they really mean is they intend to buy either a large number of shares, or all the shares they can afford.
Professionals also commonly use the term “buy the book” when bragging about the prospects of a position they already hold, especially one for which the underlying company just reported positive news.
For example, say Skill Holdings plans to acquire Expertise Co at a 70 percent premium, and the two companies issue a press release that says the combined entity expects meaningful revenue and profit synergies within the first two quarters of operation. Most consider these statistics rare, as many mergers take at least a year to generate even profit synergies, and often notably longer before they see notable cross-selling benefits.
Investors who already hold Skill Holdings are likely to shout out to colleagues, some of which may have doubted the company’s prospects, that it’s time for everyone to ”buy the book.”
For similar reasons, sell-side analysts sometimes include a headline in a research note to “buy the book” of a company when they first implement a “strong buy” recommendation.
“Book" refers to the record of positions of all shares owned, generally kept by a broker or specialist. Buying the book at one point literally meant purchasing all of the shares under that specialist’s control.This market term was used many decades ago before exchanges kept records electronically.
Today, few exchanges other than the New York Stock Exchange use specialists any longer, and even the NYSE doesn’t technically have specialists, as the exchange now employs designated market makers. Still, the term “buy the book” survives, even in the era of electronic exchanges.
Risks of Buying the Book
Today, only very large and powerful market participants swoop in and buy all available shares of a stock.
The dangers of becoming exceptionally bullish on a single position, of course, is concentration risk. Say an investment group purchases even 20 percent of a fairly low-float holding they think will appreciate very strongly. The group likely will need to purchase this stake on the open market over several weeks, or even months.
The risk of executing such a transaction is that the investment group likely will have difficulty selling such a position quickly if the company’s story quickly turns negative. It may also take weeks or months to sell such a position, and lack of demand for a stock with a diminished fundamental story means the investment group may need to sell shares at far less than what they initially paid.