i can never seem to figure out the difference…help!
The key difference as per CFAI is intermediation.
Order-driven does not have intermediation. Quote-driven has.
Investor A wants to buy. Investor B wants to sell.
In Order-driven markets, systems (crossing networks, auctions, ECNs) are used to match Investor A to Investor B. Only Investors A & B bear risk of holding securities, i.e. the risk that the security will appreciate/depreciate.
In Quote-driven markets, dealers trade with Investor A, then trade with Investor B, or vice-versa. There is a time lag when the dealer conclude a trade with Investor A and when the dealer conclude a trade with Investor B. During this time lag, the dealer is holding the security in his own right. Therefore, in addition to both investors A & B bearing the risk of appreciation/depreciation, dealers also are exposed to that risk. For the dealers, the trade-off of holding that risk is the bid-ask spread earned in doing the transaction. A high bid-ask spread means that the dealer are exposed to that risk for a longer time due to difficulty to finding a counterparty to the transaction because the security may be illiquid.