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question about MKT and LMT orders

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emp2099
Belgium
 
 
Posts: 16 since Jan 2019
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I am having a discussion with a friend. We are analyzing the IQFeed tick data. We made the "volume delta" and the "cumulative volume delta".

IQFeed gives us the Trade price, Trade volume, Ask price, Bid price. So at any trade we know if the trade took place at the Bid price or the Ask price.

Since a lot of manipulations are going on my friend is trying to figure out who the "big boys" are and we have a misunderstanding about MKT and LMT orders trades.

In my opinion ANY trade consist out of a LMT part and a MKT side. For instance we have

ASK 4020
BID 4019.75

if the trade takes place at 4020 then somebody is using a MKT order (or a MKT order with a limit) to buy at 4020. The party selling at 4020 is sitting in the market and is using a LMT order.

So he says that this is not the case. He says: "every trade does not consist of one MKT part and one LMT part. It's two separate orders getting filled".

So if he is correct, how does one determine if a trade was a LMT order trade or a MKT order trade? Is it not the case that if a trade takes place at the ASK that the 1 buying is using a MKT order and the 1 selling has his order sitting in the market using a LMT order?

thank you

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emp2099 View Post
I am having a discussion with a friend. We are analyzing the IQFeed tick data. We made the "volume delta" and the "cumulative volume delta".

IQFeed gives us the Trade price, Trade volume, Ask price, Bid price. So at any trade we know if the trade took place at the Bid price or the Ask price.

Since a lot of manipulations are going on my friend is trying to figure out who the "big boys" are and we have a misunderstanding about MKT and LMT orders trades.

In my opinion ANY trade consist out of a LMT part and a MKT side. For instance we have

ASK 4020
BID 4019.75

if the trade takes place at 4020 then somebody is using a MKT order (or a MKT order with a limit) to buy at 4020. The party selling at 4020 is sitting in the market and is using a LMT order.

So he says that this is not the case. He says: "every trade does not consist of one MKT part and one LMT part. It's two separate orders getting filled".

So if he is correct, how does one determine if a trade was a LMT order trade or a MKT order trade? Is it not the case that if a trade takes place at the ASK that the 1 buying is using a MKT order and the 1 selling has his order sitting in the market using a LMT order?

thank you

What do you mean by one market part and one limit part?

As for the scenario you outlined, it does not have to be a market order if there is a fill at 4020. If the ask is at 4020, someone could place a buy limit at 4020, or 4021 or any price higher and it would still fill at 4020, although it is of course uncommon to intentionally place a buy limit above the current market price.

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emp2099
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Ironbeam View Post
What do you mean by one market part and one limit part?

As for the scenario you outlined, it does not have to be a market order if there is a fill at 4020. If the ask is at 4020, someone could place a buy limit at 4020, or 4021 or any price higher and it would still fill at 4020, although it is of course uncommon to intentionally place a buy limit above the current market price.

yes the scenario you talk about they call a MKT order with a limit, see:
https://www.cmegroup.com/confluence/display/EPICSANDBOX/Order+Types+for+Futures+and+Options?desktop=true&macroName=multiexcerpt

i think i will sort it out with the friend of mine. My point with a LMT part and MKT part I meant for instance if you want to buy a car from me. If I say the price is 30000$ then I put out an order on the LMT. If you buy that car for 30000$ then your put our a MKT order. So the trade takes place at 30000$ but imo you can not say if the trade was a MKT order trade or a LMT order trade. Since from your perspective it was a MKT order. From my perspective it was a LMT order. The friend of mine thinks this order only can have 1 name, either a MKT order or LMT order.

I will sort it out, maybe we need to talk in a language without using the terms MKT and LMT

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 Hulk 
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emp2099 View Post
yes the scenario you talk about they call a MKT order with a limit, see:
https://www.cmegroup.com/confluence/display/EPICSANDBOX/Order+Types+for+Futures+and+Options?desktop=true&macroName=multiexcerpt

i think i will sort it out with the friend of mine. My point with a LMT part and MKT part I meant for instance if you want to buy a car from me. If I say the price is 30000$ then I put out an order on the LMT. If you buy that car for 30000$ then your put our a MKT order. So the trade takes place at 30000$ but imo you can not say if the trade was a MKT order trade or a LMT order trade. Since from your perspective it was a MKT order. From my perspective it was a LMT order. The friend of mine thinks this order only can have 1 name, either a MKT order or LMT order.

I will sort it out, maybe we need to talk in a language without using the terms MKT and LMT

I know what you are trying to do. Basically, you are trying to determine the aggressor. Every buy order is matched with a sell order by the exchange so when a trade occurs, 2 orders are filled. So your friend is right in that sense. They could both be limit orders or one could be a market order. But they way you are going about doing this will not give you the desired result.

CME disseminates information about the aggressor side. I am not sure if IQFeed relays that information. But still, it is impossible for you to accurately determine the aggressor by using just the time and sale data with the bid and ask data even if the data you are receiving is 100% unconflated, which I very much doubt.

If you want to understand matching algorithms used by CME, check out these 2 links:
https://www.cmegroup.com/confluence/display/EPICSANDBOX/Complex+Match+Example
https://www.cmegroup.com/confluence/display/EPICSANDBOX/CME+Globex+Matching+Algorithms

Basically, unless you apply the logic you are using to the entire liquidity surface of an instrument, you wont get accurate results and your algorithm will be flawed. And you need to make sure that there is zero conflation in your data feed.

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emp2099
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Hulk View Post
I know what you are trying to do. Basically, you are trying to determine the aggressor.

thanks, I will study the links you gave. Indeed we programmed the standard "volume delta" and "cumulative volume delta" (CVD). They should help to find who is in control of the direction.

But often you see strange things happening. We followed the setup of MBoxMike but he recently changed his algorithm. He also mentioned the sometimes strange behaviors of the CDV which made him adjust his algorithm.

He apparently eliminated certain trades. Or I do not know what he does and I also do not know if his new algo is any better. I am actually quite happy with the original CVD for ESmini and NQmini. Volumes are so big that it is tough to manipulate (i would think).

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HiLatencyTRDR HLT
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Ok let me chime in here and this is good stuff to think about.

You need to take it a little further but this is a fun exercise.

Break it down 1st to it's most elemental form.

Do either of you have a position already? Do you have open interest?

Or are you looking to buy something for the 1st time? Or borrow something
For the 1st time?

Start there to learn how different pricing can be emotionally from already own it or borrowed it vs.. I want to borrow or I want to buy.

It's called a clob. Central limit order book.

They can all work differently. However they move aka prices jump based on limit orders.
Remember in nano to pico seconds no 2 mkt orders fire off at the same time! Even down to the length of cable used at the colocated cme server rooms!!
Now a mkt buy and a mkt sell won't match at any price because a limit order will hit the book as soon as and advantageous price is hit. Aka limit if touched or even an iceberg could trigger n populate along with many gtc limits that hold book priority months in advance. Have you thought about that before? You can place hold nasdaq sell limit at 18000 right now.. maybe be 1st on the book. But then u gotta decide to fill it or cancel it when 17999 is trades! This is why I say trading by cancel also moves mkts more than buying and selling does.

Anyway back to mkts n limits. A computer will fill you at an advantageous price if they can fill better! I em your mkt noise out of priciledctrsde will be filled.

If no bid ask say in an obscure option strike no volume then mkt vs mkt fills on a limit and limit. You are not matching 2 mkt orders. You are matching 2 limit orders. They may not have been on the book. But we're triggered when your mkt order was placed.

Why don't people go mkt in liquid mkts? Because they don't know where the limit order will fill... Could be 101 to 110! Who knows. It's a free open mkt so someone that can arb a profit will for sure.

If the ask is 120 but the last trade was 101 hours ago. If you and your friend buy sell mkt orders then 120 will match the buyer because the ask is selling.

At the cme you cannot have 2 limit orders and ask and a bid at the same price at the same time. There are some clob or trade engines that allow this. They are in Europe.
It's important to dissect things and understand them. Pick out a cheap option. You and your friend go mkt. The mkt makers will give you both a limit price to trade into. The froces of cheap expensive etc will always be at work.

This is just scratching the surface

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emp2099
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Posts: 16 since Jan 2019
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thanks for your reply.

we had some issues in the communication but basically what we are doing is just analyzing the tick data. We use IQFeed so we have the 1) the Trade Price, 2) Trade Volume, 3) Bid Price, 4) Ask Price.

the delta volume or volume delta is a well known tool. In the package we use it is calculated using

// Aux2 is Ask Price
// Aux1 is Bid Price
BuyVolume = IIf( Close >= Aux2 AND Aux2 != Aux1, Volume, 0 );
SellVolume = IIf( Close <= Aux1 AND Aux2 != Aux1, Volume, 0 );

The the DeltaVolume is calculated by: DeltaVolume = BuyVolume - SellVolume

If the Price is going up you would expect more buying on the ASK side and therefore also the (Cumulative) DeltaVolume would go up. Key is to identify divergence. So if the price still moves up but the DeltaVolume is starting to turn down then this could indicate the price is about to turn down.

But for some futures the Delta Volume looks weird. The price could go up continuously even though the Delta Volume goes down. The guy who sells the MBOX package (MBoxMike) recently adjusted his algorithm because of this. So I think he changed his algorithm for the BuyVolume and SellVolume. He claims his deltavolume is now much more accurate.

So we are analyzing our data, see chart. You get a glimps of how the orders look like in the tick timeframe. A red bar means volume at the BID (Sell Volume). Green is volume at the ASK (Buy Volume). The orders sometimes consist out of multiple trades. But it is the same order (bundled).

So we are trying to figure out how to adjust the algorithm shown above, similar to what MBoxMike is doing to filter out possible manipulations.


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 Hulk 
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This reminds me so much of what I did almost 8-9 years ago. I had gone down this path and shared my development of a way to visualize orderflow. It was very crude. I was using TradeStation at that time and programmed everything in TS easy language.

If you are interested, take a look at this: and a few posts before this one where I share the code and how I got to this end result.

I captured the video in that post in real-time when the CL inventories report came out to test out my theory.

I still trade a variation of this theory.

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emp2099
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Posts: 16 since Jan 2019
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thank you, will go look at it tomorrow

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HiLatencyTRDR HLT
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I will say this.. any and all that you study is good but you will never be able to decipher it and even if you did to execute on it with an extended period of time as an edge is a ridiculous endeavor. I admire your in depth study and it's good for a bit but there is no special key to unlock.

Also hft citadel virtu spend 200 million a year around the glove on tech and even more on bright minds to do what you are doing x a million.

Keep at it but understand longer term is the only way you can compete. This may be 1 minute or 5 or 4 hours but no way you can go against the hft. Just not possible sorry. At least not in futures with fees etc.

It is a good study though but understand it and move on for your sanity and pocket book

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