Bid/Ask Beginners Question

Discussion in 'Trading Software' started by FXtry11, Sep 11, 2006.

  1. FXtry11


    Trading futures with InteractiveBrokers I'm interested in details of MarketDelta.

    Following their videos I got the impression they base their studies on two categories:
    1. trades at the ask
    2. trades at the bid
    what seems logical to me.

    But when following the TWS screen of my broker there seem to be other categories too.

    3. trades between bid and ask
    for example EURUSD starting with
    bid/ask 1.2892/1.2894
    then a trade comes in at 1.2893
    and afterward it's still
    bid/ask 1.2892/1.2894

    4. trades beyond bid or ask
    for example EURUSD starting with
    bid/ask 1.2892/1.2894
    then a trade comes in at 1.2896
    and afterwards it's still
    bid/ask 1.2892/1.2894

    How can this happen? I thought there has to be a bid or ask at one side of any trade so category 3 would be impossible.

    And I thought, any bid/ask has to disappear if the price is traded trough, so category 4 would be impossible.

    Could somebody please explain to me, how category 3 and 4 can occur?

    Thanks in advance
  2. Are you talking cash or futures. If it's cash, I'm not sure that MarketDelta is going to be much use. I think you need a real auction market for MarketDelta to be of any value. IB are trying their best with IDEALPRO, but it's really not like Globex.
  3. FXtry11


    It was EURUSD Globex Futures what I watched on my screen when seemingly observing several times category 3 trades (between bid and ask) and a category 4 trade (beyond ask) too if I didn't misinterpret the figures. Such trades, how are they possible.

    When a seller get's filled between bid and ask, there must be a buyer above the best bid, so the 'best bid' proofs not to have been the best - a contrary in itself in my eyes!

    Even more bizarre a trade beyond the ask, meaning that a buyer payed more than he was asked!

    Could somebody explain, how this can happen?
  4. def

    def Sponsor

    Between the bid/ask: the spreads on these futures are tight and many firms/people autoquote markets. If you enter an order between the spread, there is a good chance the order is running into another order and trading before it displays on the screen.

    Outside the spread: perhaps there were some larger trades that took out the book and the bid/asks were immediately updated. I'm not sure about the spread and/or block rules on globex so that could be a factor as well. the simple thing to do would be to look at T&S.
  5. FXtry11


    Thank you def taking a big load off my mind. Seemingly my thought was right:
    Any trade takes place either at the bid or at the ask. Speaking strictly it's impossible that a trade is filled at any other price, neither trades between bid and ask nor trades beyond bid/ask can happen. That's even true if two matching orders seem to arrive 'at the same time', since there is no 'same time' in digital world, one is always processed after the other. So the first order of a matching pair would always create a new bid/ask to be hit by the the second order. Please correct me, if I'm wrong so far.
    In consequence the guys of MarketDelta are right to break down trades into just two categories: Either trade at the bid or trade at the ask - and nothing else! The problem of this classification is not a classification problem but a problem of data transfer in the subsecond area. If we want to know how meaningful 'marketdelta' results can be, we have to measure how often incoming data allow to detect correctly if bid or ask were hit by the reported trade.

    And we have to take into consideration that probably even best quality data distributed by CME itself couldn't reach 100% detection rate - see above 'same time' example, as long as CME doesn't timestamp its data with nanosecond markers.

    More important is how real data sources behave in practice. MarketDelta offers a collection of data providers including eSignal and Interactive Brokers TWS API. As I read in another thread eSignal data feed might be pretty exact but with up to 10 seconds delay useless at news times. Whereas Interactive Brokers data are very fast but only 'snapshot' or 'bar' data with 0.2 to 0.3 seconds time frame.

    Could somebody please describe which detection rate if bid or ask trade is reachable with IB 'snapshot' data and how significant are the results of MarketDelta in news times when based on IB data?