[tape reading] Bid Adk Action

[Karish 10]

While watching the tape at the Bid / Ask action sometime there are trades at Bid and than without any up tick a trade at the Ask with the same price (the opposite occurs too).

 

Attached is example from ES T&S yesterday using IQfeed.

 

I am wondering how such event is possible, is it bad data ?

 

Thanks.

[BlowFish 10]

The bid being pulled and then someone offering at the old bid price would do it. A trade at that same price would be flip from bid to ask.

 

Someone hitting the bid with a limit order larger than the total bid would also. (Again the next trade would need to hit that new offer of the unfilled part of the limit order)

 

There are probably other ways, those are two that spring to mind.

[TechnicalTrader 10]

Allow me to ask a related question.

 

When I look at the depth of all the bid/ask levels on a Dom/Matrix, there are huge sums (especially in futures) which are way out of current bid/ask, however they float with the price action - they seem intent to maintain their relative position away from the current bid/ask. As the bid/ask ebbs and drops, they also move.

 

What do those offers hope to gain, so far from the action? It would make sense if they were fixed, anticipating the market would come to them, however they seem to purposely remain equidistant from the bid/ask.

[enochbenjamin 10]

while we are at observations here is one i have noticed in ES and not so much in other futures.

 

I use sierra charts and can show depth of dom on the chart. This nifty feature gives the total percentage bid vs total percentage ask. I have noticed that when the price is slanted more than 60% in one direction - price is going to go in the opposite direction.

[SIUYA 11]

Allow me to ask a related question.

 

When I look at the depth of all the bid/ask levels on a Dom/Matrix, there are huge sums (especially in futures) which are way out of current bid/ask, however they float with the price action - they seem intent to maintain their relative position away from the current bid/ask. As the bid/ask ebbs and drops, they also move.

 

What do those offers hope to gain, so far from the action? It would make sense if they were fixed, anticipating the market would come to them, however they seem to purposely remain equidistant from the bid/ask.

 

Possible reasons - They may be one of the firms looking to take advantage of sudden spikes that allow them to hedge with other products, arbitrage firms relying on speed - these guys usually have servers in the same buildings as the exchanges as speed is vital. They also may be continually having positions in the market moving up and down with options, waiting for an option spread to be crossed, before they have to move the hedge in the underlying. Sometimes, they are just spreads that are continually moving in the market at certain levels, waiting for one leg to be hit.

[TheDude 10]

TechT - as well as the explanation SIUYA gave regarding auto-spreaders adjusting quotes corresponding to other markets, some exchanges/products pay liquidity providers to quote similar to a market making scheme, but with little or no obligation to trade.

 

LIFFE used to do this on some products, but I doubt it would ever happen on ES! I knew people who would link Excel to TT in order to auto-quote 5 ticks either side. They had no intention of ever getting filled. They just saw the opportunity of: Exchange Payment - TT costs = good profit. LIFFE stopped that gig a while back I think, but they still offer good pay on liquidity rebates (actual fills).

 

Enoch - size tends to attract price. If the book is stacked with everyone (day traders & locals) on the bid, thats when Mr Hedge Fund sees an ideal opportunity to put his massive sell order algorithm in to the market and fill those bids. This is where the old mantra 'sell rallies, buy the dips' comes from. It's really for those shifting size so they have liquidity to trade against - before we all had DOM/Level II. Now we can see the same thing in a more granular level in microstructure.

 

It's quite an interesting point how the local and swing/fund trader will operate. The local in contrast tends to look at the DOM in the opposite way to Mr Fund described above. The local sees 1000 on bid, 80 offered. He thinks the bid will be there longer, all things being equal than the offer as it will take longer to fill. Therefore, the 80 lots will go, and the market will move up. So he offers the tick above the 80 lots and then takes what he can of the 80 lots, assuming the other locals are thinking the same. He's using the 1000 lots as a support. This is a very basic level 1 type of local trading style. He gets steam rollered when Mr Fund marches in and stomps through the bids he's 'leaning' on

Edited July 23, 2010 by TheDude