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"mid", "buy", "sell" volumes
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"mid", "buy", "sell" volumes

  #1 (permalink)
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"mid", "buy", "sell" volumes

I hit a roadblock when I look at stock tracker with "mid", "buy" and "sell" volume. I wonder what all the volumes represent. Anyone could shed some light on me?

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  #3 (permalink)
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lokgotkent View Post
I hit a roadblock when I look at stock tracker with "mid", "buy" and "sell" volume. I wonder what all the volumes represent. Anyone could shed some light on me?

Obviously all volume requires buyers and sellers.

In a continuous auction there are usually two basic order types, limit orders and market orders.

Limit orders are waiting in the order book. They supply liquidity to the market. The buy limit orders are sitting below current price, the sell limit orders are sitting above the current price.

When a market buy order hits the book, it is typically matched with the lowest available sell limit order from the order book. This is considered to be buying volume, as the buyer was willing to pay any price, while the seller had been patiently waiting until price moved to hit his limit.

Accordingly, if a market sell order hits the book, it is typically matched with the highest buy order available. This is considered to be selling order, as the seller was eager enough to pay any price, while the buyer had been waiting to buy at the limit price of his order.

Buying volume: market buy order matched with sell limit order
Selling volume: market sell order matched with buy limit order

Mid volume would be transaction that occur between the highest bid and the lowest ask from the order book.

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Nice..

descriptive, accurate response Fat tails.

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Woah. Very informative. I was unable to find this in any book/website.

Anyway, to further understand this, let's say at price of $1.00 of stock ABC, I have:

1. sell volume: 1000
2. mid volume: 2000
3. buy volume: 3000

Does this imply the following?

1. 1000 shares of buy limit order are matched by sell market order
2. 2000 shares transacted at $1.00 when buy limit orders is under $1.00 and sell limit order is above $1.00 (buy and sell occur at the same time? how does this happen?)
3. 3000 shares of sell limit order are matched by buy market order

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lokgotkent View Post
Woah. Very informative. I was unable to find this in any book/website.

Anyway, to further understand this, let's say at price of $1.00 of stock ABC, I have:

1. sell volume: 1000
2. mid volume: 2000
3. buy volume: 3000

Does this imply the following?

1. 1000 shares of buy limit order are matched by sell market order
2. 2000 shares transacted at $1.00 when buy limit orders is under $1.00 and sell limit order is above $1.00 (buy and sell occur at the same time? how does this happen?)
3. 3000 shares of sell limit order are matched by buy market order

Best you visualize the order book. Imagine for example that the last traded price was $ 1.00 and that you now have
15,000 limit buy orders at $1.00 and 12,000 limit sell orders at $1.02. These cannot be matched.

Now a market sell order of 1,000 shares drops in. This is matched with the limit buy orders at $ 1.00. The best bid on the order book drops from 15,000 to 14,000 shares. This is considered sell volume.

Then a market buy order of 2,000 shares is matched with the sell limit orders at $ 1.02. The best ask on teh order book drops from 12,000 to 10,000 shares. This is considered buy volume.

Now a transaction is concluded at $ 1.01 - for whatever reason. As $ 1.01 is a price between the best bid ($ 1.00) and the best ask ($ 1.02) this is considered as mid volume. Explaining mid volume is not easy. There are several possible explanations

Mid-point Match

The mid-point match refers to the matching of two market orders. In a normal continuous auction this is not possible, as a new arriving market order would be immediately crossed with one of the limit orders sitting in the book. However, in some cases, market ddo not have their own price discovery mechanism, but rely on external (primary) markets. In this case the execution price is determined by the midpoint of the external best bid and best offer.

If market order are supported, they execute at the mid-point of the external best bid and offer. In this case they can only be matched with a limit order, if the mid-point price is better than the limit price. Otherwise the market order cannot be executed, until

- either a market buy order is matched by a market sell order or vice-versa -> this is considered mid-volume
- or the external mid-point moves beyond the limit-price to allow matching the market order with a limit order -> in this case it will be buy or sell volume

Crossed Order Book

If the best bid is above the best sell, the order matching algorithm may match the order at the midpoint between best bid (higher price) and best ask (lower price). The limit order will be executed with negative slippage resulting in better fills. This volume can also be considered mid-volume, as it is neither buy nor sell volume.

Negotiated Orders

Some market participants may pre-negotiate their orders and then channel them through the auction at a pre-determined price. This cannot be considered buy or sell volume either.

Flash Orders

Flash orders are essentially limit orders at the national best bid or offer flashed to the exchange with the lowest routing fees. I would consider those mid-volume as well, for the following reasons:

Let us assume a market sell order which arrives at exchange A. The national best bid is at exchange B. Now the standard procedure would be

(1) The market sell offer is matched with the best bid from exchange B. This is considered sell volume. Unfortunately this involves higher routing fees, and the issuer of the market sell order will not get the best bid, but the best bid minus routing fees.

(2) To avoid this problem, the order is flashed to the originating exchange A as a sell limit order at the best national bid. It can now be matched with a buy market or a buy limit order. If it is matched with a buy market order, this would be considered buy volume.

The problem here is that the flashing of the order may convert sell volume into buy volume. I would not count this as buy volume, but probably there is no statistics allowing for deducting this volume.

Books

If you are interested in the subject you should read the following book, which explains the subject pretty well:

Amazon.com: Algorithmic Trading and DMA: An introduction to direct access trading strategies (9780956399205): Barry Johnson: Books


Last edited by Fat Tails; September 30th, 2011 at 08:23 AM.
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  #7 (permalink)
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This is very informative. Definitely will look into that book. (:
Thanks a lot for your explanation.

(:

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