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So what exactly moves the market again?
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So what exactly moves the market again?

  #1 (permalink)
Trading Apprentice
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So what exactly moves the market again?

I read that,

Markets move up when their are no sellers left at the ask price.

Markets move down when their are no buyers left at the bid price.


How does that happen? essentially they got bought out by all the buyers or sellers..

If there were all of a sudden market orders for 101 buyers and 100 sellers the market would move up a tick, right?

Or have I been misled?

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  #2 (permalink)
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  #3 (permalink)
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There are two sides to this.

1. The market order queue (buyers at ask, and sellers at bid)
2. The limit order queue (buyers at bid, sellers at ask)

The market moves up when the ask limit order queue is cleared
The market moves down when the bid limit order queue is cleared

The limit order queues can be cleared for 2 reasons:

1. Transactions occur do to market orders hitting it.
2. Cancels from orders inside the limit queue.

In your example the 101 market order buyers at ask and 100 market order sellers at bid would only play out the way you described if there were exactly 100 limit orders in both the bid and ask queue and no one canceled at all and every market order filled.

The more common case of a price level clearing is a combination of

1. Canceled from inside the limit order queue
2. Additions to a one of the limit orders queue
3. Market orders hitting the limit order queue

So in short market orders are only 1 of 3 factors that can influence if a price level changes.

Hope this helps.

Ian




Revan View Post
I read that,

Markets move up when their are no sellers left at the ask price.

Markets move down when their are no buyers left at the bid price.


How does that happen? essentially they got bought out by all the buyers or sellers..

If there were all of a sudden market orders for 101 buyers and 100 sellers the market would move up a tick, right?

Or have I been misled?


In the analytical world there is no such thing as art, there is only the science you know and the science you don't know. Characterizing the science you don't know as "art" is a fools game.
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  #4 (permalink)
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A basic version: the market moves to that price which results in the largest transaction possible for that moment in time. (Transaction = a match between buyers and sellers).

Once I got that, imagining the different variations that @iantg explained so well got much more clear and also more practical for me. Because looking at a chart I can often imagine where certain orders may come in, or others may dry up.

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  #5 (permalink)
Market Wizard
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@Revan
You have a certain model of how things work. It is not precisely accurate. In the futures market, all buys and sells are matched and equal. It is the aggressive trade that moves the market: the market order. Actually, if you think about buyers/sellers on the limit order there are always buyers/sellers in a liquid market but they aren't willing to cross/pay the spread. They are passive and thus normally do not move the price (though they can determine it). Also, not every trader will trade the same size: you could have 1 trader who wants to sell 1000 and 1000 traders who want to buy 1 lot. Does it mean the trader who wants to sell 1000 will move the market? Only if they are willing to cross the spread.

In simple terms, it helps to think about a supply/demand curve. There is going to be more supply and more demand at higher and lower prices respectively. In other words, there is limited supply/demand at any price and time. Price and time is key because everything can change from moment to moment. As such, the thought of a supply/demand curve does not really tell you how the market works even though it is a good start.

Imagine a market with only 2 traders and one transaction. The market trader buys at market and the limit trader sells at limit. The market order trade moved the market. All of that information is now priced in. In this model, neither trader can close for profit unless one decides to take a loss or a new buyer/seller enters the market. It is the new information, new trader, that moves the market primarily. It is possible to go a lot deeper into understanding these dynamics. It helps to understand markets can also move without a lot volume. For example, if some very negative or positive report or news came out, it might cause both the limit and market order traders to change their perception of value.


Last edited by tpredictor; May 10th, 2018 at 11:55 AM.
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  #6 (permalink)
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tpredictor View Post
@Revan
Imagine a market with only 2 traders and one transaction. The market trader buys at market and the limit trader sells at limit. The market order trade moved the market. All of that information is now priced in. In this model, neither trader can close for profit unless one decides to take a loss or a new buyer/seller enters the market. It is the new information, new trader, that moves the market primarily. It is possible to go a lot deeper into understanding these dynamics. It helps to understand markets can also move without a lot volume. For example, if some very negative or positive report or news came out, it might cause both the limit and market order traders to change their perception of value.

Hey sorry I haven't replied promptly, been busy, anyway I included this diagram to help simplify what I'm getting at, I read and agree with your statement, cheers.

So like you said the market buyers pay the spread and obtain the lowest offer and the market sellers lose the spread via selling down to the highest bidder, this I fully understand and by default the lowest offer dictates current market price which is currently "34" and has a box around it.

What I don't understand however is what exactly moves that black bar in the middle of the best bid and offer? the market can sit and trade at 34 all day long and I will understand what's happening, I simply don't understand what moves the bar/price as a whole however, anyone care to explain?

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  #7 (permalink)
Market Wizard
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@Revan What you are showing is the "mid point" which is a hypothetical price. It is not a real price that anyone can buy or sell at. It would be the average though if equal contracts traded on the bid/offer. The price that you see on the charts is normally the "last traded price" which is different then the "mid point". The "mid point" can be thought of as the instantaneous fair value because if it were not then arbitrage would be possible: this is relevant if you are trading non-primary markets.

Try to pull up a time and sales. A market buyer or market seller must cross the spread. There are always 2 prices in the market, the bid and offer. The limit order trader gets guaranteed price but not guaranteed fill. The market order gets guaranteed fill but not guaranteed price. Market order traders tend to be looking for bigger movements where the spread is a smaller percentage of the trade. Limit order traders tend to be higher frequency. Limit order traders are price sensitive. Market order traders are time sensitive.

The following is more advanced and not very relevant: normally, the orders cannot cross (to my knowledge) because it would be similar to jumping in line.

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Revan View Post

What I don't understand however is what exactly moves that black bar in the middle of the best bid and offer? the market can sit and trade at 34 all day long and I will understand what's happening, I simply don't understand what moves the bar/price as a whole however, anyone care to explain?

Check this post out.

The pic posted in there shows 10 contracts on the inside offer.

Assuming nobody is going to add any more contracts on the offer at that level, buying 11 contracts at market at that point in time would cause price to tick up.


It's a simplification but that's generally the mechanism that moves price.

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  #9 (permalink)
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xplorer View Post
Check this post out.

The pic posted in there shows 10 contracts on the inside offer.

Assuming nobody is going to add any more contracts on the offer at that level, buying 11 contracts at market at that point in time would cause price to tick up.


It's a simplification but that's generally the mechanism that moves price.


So you are saying that the price moves up and down a tick based on the bids/offers being "bought out" or "sold out" with no more pending orders among the depth? - if buyers buy out all the offers it will move up, and if sellers sell out to all the bids it will move down.. ?


"Markets move up when their are no sellers left at the ask price.

Markets move down when their are no buyers left at the bid price." - So that is true?


"If there were all of a sudden market orders for 101 buyers and 100 sellers the market would move up a tick, right?" - Wrong. right? it would depend on the market depth.


Last edited by Revan; May 12th, 2018 at 06:13 AM.
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  #10 (permalink)
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@Revan

Consider the hypothetical

Offered Volume/Contracts @ Price
60 101
50 100

Bid Volume/Contracts @ Price
50 99
60 98

Next, let us imagine a market buy order for 55 contracts executes. 50 contracts will execute at price of 100. That would be 50 prints of "last price" 100. 5 contracts will be bought at 101. That is 5 prints at 101. In tight spread/efficient markets as soon as the 50 @ 100 is cleared then the bid would move up to 100 from 99.

But let's say it didn't. In that case, you'd have a larger spread and your offer would be 101 and bid of 99. Your last price would still be 101. If you bought 1 contract you'd get 101 and you sold 1 contract you'd get 99.

In regards to your question, remember there are always 2 prices, the bid and offer. You might want to think of 3 prices: bid, offer, and last. So the bid/offer will move when the depth is cleared yes. However, it would take at least 1 more contract to execute at the new price to generate an actual print. If you go by "last price", that is. So, when you say "move the market", yes if all the liquidity on a level is cleared then the bid or offer will move (either both will move in tandem or the spread will widen). However, it would take at least 1 more contract to trade at the new level to generate a print. For example at the lowest price of the day, your bid is going to be normally 1 tick below that. As well, at your highest price of the day your offer is 1 tick above that.


Last edited by tpredictor; May 12th, 2018 at 06:42 AM.
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