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Bid vs Ask clarification?


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Bid vs Ask clarification?

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  #1 (permalink)
fxSOL
Belgrade Serbia
 
 
Posts: 34 since Mar 2020
Thanks: 17 given, 14 received

Greetings,
I am doing some data research and I am puzzled regarding the difference on bid and ask.
From what I have understood when doing footprint analysis is that bid is how much buyers are willing to buy for and ask is the amount the sell-side want to sell for?
Is this correct?

And footprint data show amount of volume at certain price where trade happened?

And from that information you can somehow find out where the pressure is?`

Now how can there be more buyers than sellers? Should this amount be same? For every trade there is a seller and buyer, so I am lost in space since I don't get it.

Usually large bid volume means maybe a drop in price, and larger ask means increase - however this does not always is the case.
Usually in a strong uptrend I have noticed that large bids gets executed, this does not mean a drop in price, but price continues to go up - WHY?

### EDIT

Also I am a follower of cftc. Sometimes you can see large drops in large positions on long for example. Lets say 50.000 less contracts on long. But to get rid of long positions, they have to be sold, but who bought it?

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  #2 (permalink)
 josh 
Legendary Market Wizard
Georgia, US
 
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fxSOL View Post
Now how can there be more buyers than sellers? Should this amount be same? For every trade there is a seller and buyer, so I am lost in space since I don't get it.

Usually large bid volume means maybe a drop in price, and larger ask means increase - however this does not always is the case.
Usually in a strong uptrend I have noticed that large bids gets executed, this does not mean a drop in price, but price continues to go up - WHY?

Kudos for asking the right questions. Most people never think about it and put their head in the sand. I don't have time to answer this completely, and there are MANY resources for this on this site and around the web, so you may have to simply put in some time searching.

There are not more buyers than sellers. For every transaction, the volume sold always equals the volume bought. When you hear that there was "more buying than selling, so the price went up," it is an inaccurate statement, but even seasoned traders make this mistake in wording.

What they mean is that "there is more buying pressure than selling pressure." For example, the market is 100 x 101 (100 bid, 101 offer/ask), and the last traded price was 100. At 100 there are 50 bid, at 101 there are 200 offered, and at 102 there are 80 offered. Someone puts in a limit order to buy 101 for 500 contracts. What will the market look like afterward? The market will be 101 bid for 300 contracts, and 102 offered for 80 contracts. The buy order at 101 traded at the ask, the remaining unfilled 300 contracts (500 - 200) will now be bid. Total volume traded was 200 contracts ... 200 bought, 200 sold... but now the market has moved higher.

I understand that this doesn't fully answer your question. Open up a DOM (or look at youtube video), and watch the market move, and you will understand better. Once you understand and it clicks, you'll realize just how simple it is. Until then, stick with it, and after you've done a bit more digging feel free to ask again.

I'm attaching a screenshot I took some time ago, to illustrate exactly the point we're discussing, because I anticipate that people will have these kinds of questions. The last traded price was 2223.4 -- yet, the bids and offers have all moved down, and the market is now 2222.3 x 2222.8 ... a "market" is not the last traded price. It's the price you can currently trade at. Regardless of whether the next trade is at the bid or ask, the last price will move *down*. So, orders get pulled, they get added .. so, you can see heavy selling at the bid, with the market moving higher, or heavy buying at the offer, with the market moving down.

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  #3 (permalink)
fxSOL
Belgrade Serbia
 
 
Posts: 34 since Mar 2020
Thanks: 17 given, 14 received


Josh,
I most humbly thank thee for taking your time to write to me and I appreciate most sincere. I need to do some back-testing with DOM and kill some days to fully comprehend what is going on behind the "curtain". I have always avoided using DOM since I really did not get it but think its the last piece of the puzzle...

Josh:
"What they mean is that "there is more buying pressure than selling pressure." For example, the market is 100 x 101 (100 bid, 101 offer/ask), and the last traded price was 100. At 100 there are 50 bid, at 101 there are 200 offered, and at 102 there are 80 offered. Someone puts in a limit order to buy 101 for 500 contracts. What will the market look like afterward? The market will be 101 bid for 300 contracts, and 102 offered for 80 contracts. The buy order at 101 traded at the ask, the remaining unfilled 300 contracts (500 - 200) will now be bid. Total volume traded was 200 contracts ... 200 bought, 200 sold... but now the market has moved higher."

Think this explained it =) Thank you and I am most certain it will "click" but need more practice =)




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