Trades Outside the Bid & Ask

[cunparis 10]

I'm hoping someone can give me an explanation for trades that occur outside the bid & ask. How & why do they occur?

 

As an example, this morning during the London session the Euro currency futures had a massive amount of volume trade in just 2 seconds. The normal trade size was 1-4 contracts, yet 2000 contracts were traded without moving the market one tick.

 

 

I'd really like to understand how this can happen. It's not a special case, it happens all the time on all the markets I watch except ES. I assume ES isn't affected because it has more liquidity.

[Tams 20]

that's what we called the "professionals" or the "commercials".

we use indicators to detect them.

[cunparis 10]

that's what we called the "professionals" or the "commercials".

we use indicators to detect them.

 

Can you elaborate? How do they trade without going through the order book?

[uexkuell 10]

Quote feed is probably not updating bid and ask fast enough while trades are reported (more) completely.

 

With symbols that move fast (like e.g. EUR, CL, DAX) this can happen more frequently.

ES bid and ask moves slowly. Therefore the feed has a chance to keep the bid and ask values up to date.

 

(At least that's the way things are working with Zenfire feed. Only suspecting that it applies for TS also)

[cunparis 10]

Quote feed is probably not updating bid and ask fast enough while trades are reported (more) completely.

 

With symbols that move fast (like e.g. EUR, CL, DAX) this can happen more frequently.

ES bid and ask moves slowly. Therefore the feed has a chance to keep the bid and ask values up to date.

 

(At least that's the way things are working with Zenfire feed. Only suspecting that it applies for TS also)

 

I thought it might be the data feed not updating but in the example I posted, the market wasn't moving fast, in fact the price before and after the high volume trades was the same.

 

Also I get exactly the same data from both tradestation & iqfeed. So it's possible that one might fall behind but the chance of both datafeeds falling behind is much less.

[SIUYA 11]

completely random guess -

could it be related to a spread of some sort, or a related option trade whereby this it the hedge or the other side of the spread.

In some markets these can be reported at prices that are close to the market, but still outside the market at that time.

The other side of the spread could be anything but likely to be another contract month.

 

No dig at anyone in particular, or any style - but one of the issues I have always found with people attempting to track or understand every trade often misses the point that so many trades are merely hedges, parts of option spreads or generally unrelated to a directional view in an instrument.

[cunparis 10]

completely random guess -

could it be related to a spread of some sort, or a related option trade whereby this it the hedge or the other side of the spread.

In some markets these can be reported at prices that are close to the market, but still outside the market at that time.

The other side of the spread could be anything but likely to be another contract month.

 

Great guess. I asked IQFeed and this is what they said:

 

Implied trades are part of the "Non qualifying last trades" Here is a defenition I got from Market Interity

 

Implied is a trade condition. Below is an explanation of how implied trades come about.

 

Implied IN spread orders derive from existing outright orders in individual legs. Implied OUT outright orders are derived from a combination of an existing spread order and an existing outright order in one of the individual underlying legs. Implied functionality fills in “holes” in the market. In other words, it allows both spreads and outright futures traders to participate in a specific contract where there would otherwise have been little or no available bids and asks. Such implied quotes are critical to building volume in new electronic markets like the NYMEX energy contracts.

 

back to your post:

 

No dig at anyone in particular, or any style - but one of the issues I have always found with people attempting to track or understand every trade often misses the point that so many trades are merely hedges, parts of option spreads or generally unrelated to a directional view in an instrument.

 

On the other side of those hedge trades are usually speculators, so I find them useful. In the case of the trades I'm looking at, I'm interested in them because they mess up my volume analysis.

 

Cheers

[bakrob99 11]

Have you considered phoning Tradestation to see what these trade represent?

[emg 12]

its what u call filter vs unfiltered datas. TS is known to have filtered data feed.

[cunparis 10]

its what u call filter vs unfiltered datas. TS is known to have filtered data feed.

 

Can you elaborate? When I compare Tradestation data to IQFeed it's usually identical.

[emg 12]

that's what we called the "professionals" or the "commercials".

we use indicators to detect them.

 

i am assuming u are a vendor or possible a broker. am i right?

[SIUYA 11]

On the other side of those hedge trades are usually speculators, so I find them useful. In the case of the trades I'm looking at, I'm interested in them because they mess up my volume analysis.

 

Cheers

 

I understand, however not everything is a result of speculation as such....depending on how you define this of course. I give you kudos for what you are doing, I just feel that you need to be very clear in what is included, and ultimately it is next to impossible to tell the reasons for the trades.....but maybe this is not the point.....

 

eg; speculators are trading in nat gas, and the hedging type market makers decide to hedge/spread in the crude market, and the heating oil market.

eg; a long term holder of an equity (say a bank stock) always sells calls against their holdings every two months, and either rolls these calls or sells them against their holdings each time. the market makers generally buy these calls and to hedge in their books sell the underlying stock.

eg; a client requires an average price swap over the period of a week in a particular instrument as part of a portfolio, and sometimes the averaging of portfolios - depending on the exchange reporting requirements - see these prices be executed at close to but not exactly within the market, in order to report the entire portfolio at the one time.

[emg 12]

unfiltered data means u will be able to see bad ticks outside the bid/ask spread hititng less than 1 second. filtered means getting rid of the bad ticks. some platforms have unfiltered data some have not. the worst of having an unfiltered data is it freezes the computer because too many data flowing into the computer.

[emg 12]

unfiltered data means u will be able to see bad ticks outside the bid/ask spread hititng less than 1 second. filtered means getting rid of the bad ticks. some platforms have unfiltered data some have not. the worst of having an unfiltered data is it freezes the computer because too many data flowing into the computer. when your computer freezes, order filled is slower or in a worst case senario, your computer crashed and need to restart. that is worst when u have orders pending or open positions

[cunparis 10]

unfiltered data means u will be able to see bad ticks outside the bid/ask spread hititng less than 1 second. filtered means getting rid of the bad ticks. some platforms have unfiltered data some have not. the worst of having an unfiltered data is it freezes the computer because too many data flowing into the computer.

 

so it sounds like filtered is a good thing.

 

Thanks for the explanation.

 

I am still unsure as to how these trades happen. I think trades should not be allowed if they don't go through the order book.

[justtrade01 10]

so it sounds like filtered is a good thing.

 

Thanks for the explanation.

 

I am still unsure as to how these trades happen. I think trades should not be allowed if they don't go through the order book.

 

I also have become doubtful about this ! Could trades actually occur without going through the order book ? Is it possible ?