ECBOT / Globex matching engines

Discussion in 'Order Execution' started by SethArb, Aug 28, 2005.

  1. I have always been curious how they

    determine the opening print for overnight
    futures trading

    after a prior settlement ...

    is it a price or price + volume weighted average

    or something else based on spot price ...
    if indeed there is a cash market trading at the time

  2. Most electronic futures markets open with a single price call market auction. I'm guessing ecbot and globex fall in that category.
  3. kotika



    Is this some type of an auction?
    how do you enter your order to get a fill at that price?
  4. Well, it is an auction because there are bids and offers. There's no way to enter an order so that you are certain to get a fill at the opening price.

    To answer more fully, a "call market" is one where all the trading takes place at the same time. A "single price auction" is one where one price is determined as the price at which all trades take place.

    For example, the eCBOT bond futures market (the one I trade) halts every day at 4pm and resumes at 7pm. When it resumes, a "single price call market auction" is held to determine the opening price. Thereafter, a continuous auction takes place.

    What happens is that after the market halts, traders continue to enter bids and offers into the system. Normally, these will overlap, so that the highest bid is greater than the lowest offer. At the call (7pm), these overlaping bids and offers are matched, and the last match that leads to a trade is the opening price, which is called the "market-clearing price." All tradable bids and offers in the system at the call take place at the market-clearing price, and the market continues from that point.

    The matching process is quite simple, but a bit difficult to explain in a few words. Orders are matched by price first, then by time, then (in some markets) by other criteria.

    To see how it works, imagine some market receiving bids and offers at various prices, then take those prices and order them into two columns. On the left place the Buys with the highest bid at the top down to the lowest. On the right place the Sells with the lowest offer at the top down to the highest offer. The quantites (contracts or shares) for each bid and offer can also be noted. If there are bids or offers for the same price, you will need to note the times at which they are received. You can then easily see how the top bid will match to the top offer, and you can work down the list until you reach the last trade that will work. That last trade is at the market-clearing price, and in a single price auction, all trades will take place at this price. Everybody who trades should be happy because they will either get the price they bid or offered or a better price.
  5. kotika


    So, in other words i can enter an order to buy, let's say at a price below what i think it will actually open, and get a fill at the "fair" price which is determined as you described. That's very nice...

    BTW, which other markets have that?

    Is it just a matter of submitting a limit order before the deadline? Any old discount futures brokerage account will do?

    The reason i ask this is that there is an opening auction of similar kind on CBOE for S&P index options on morinigs when VIX futures expire. I havent been able to figure out a way to participate in that using my regular broker so far.
  6. No, that order won't work. You will have to enter a buy order above the market-clearing price to be sure of a fill.

    Of course, you will not be sure what that price is. And your order will itself influence the price.

    Most continuous stock markets and electronic futures markets open with an auction of this type to clear the overlapping bids and offers and set the opening price.

    It's just a matter of submitting an order into the system, so any broker who handles your market can do it for you. I'm not familiar with the option auction you're referring to, so I can't say anything about that.
  7. kotika


    Thanks, sorry of my mistake: of course you'd enter a price above to be assured of filling a buy order.