[BlowFish]

There are instances where a trade can occur between best bid and best ask. Essentially it relies on orders arriving together that can be matched before being placed on the book.

[AgeKay]

Not really. You are talking about two different things here. Stale data happens. But how is a trade at the mid-point supposed to happen? You can't enter limit orders at half a tick on an exchange, can you?

[taotree]

Originally Posted by AgeKay »

Not really. You are talking about two different things here. Stale data happens. But how is a trade at the mid-point supposed to happen? You can't enter limit orders at half a tick on an exchange, can you?

Are you assuming a spread of only one tick? In that case, you are correct. However, many instruments have spreads of much greater than one tick. Speaking in terms of ticks, if bid is at 0 and ask is at 2 then a trade at 1 is at the midpoint.

[AgeKay]

I don't want to beat a dead horse, but even if the spread is 2 ticks, the "mid-point" of a 2 tick spread is still either bid or ask. If it looks as if it traded at that "mid-point" without being bid or offered, it just means that as soon as someone bid or offered, someone sweeped the market so quickly that you couldn't see it. I just want people to understand how orders are matched. There are no magic trades at mid-points on exchanges.

[taotree]

Originally Posted by AgeKay »

I don't want to beat a dead horse, but even if the spread is 2 ticks, the "mid-point" of a 2 tick spread is still either bid or ask. If it looks as if it traded at that "mid-point" without being bid or offered, it just means that as soon as someone bid or offered, someone sweeped the market so quickly that you couldn't see it. I just want people to understand how orders are matched. There are no magic trades at mid-points on exchanges.

Yes. As I mentioned before, you're talking about the internals of how exchanges work, and I'm talking about the actual data that arrives at your trading platform and how to code an indicator to deal with it. As you say, the two don't always match.

[paolfili]

This is a very interesting point.
Can you explain better how can an order be executed before being placed on the book?
Can you detail better the entire process of the order execution?
I suppose there were 3 distinct step (for non market order):

1)order insertion on the book
2)cross between an arriving order
3)execution information from the Exchange

Can the sequence be different in your opinion? (i.e. becouse of different TCP packet delay and late reconstrucion,etc ...)

Originally Posted by BlowFish »

There are instances where a trade can occur between best bid and best ask. Essentially it relies on orders arriving together that can be matched before being placed on the book.

[AgeKay]

BlowFish, I would also like to know how that works. None of the order matching rules of exchanges that I have read mention that. All I know is that block trades can be executed on Eurex without going through the book. They are basically just reported for clearing without affecting the market in the order book.

[paolfili]

Only EUREX (for block trades out of the book)?

Thanks

Originally Posted by AgeKay »

BlowFish, I would also like to know how that works. None of the order matching rules of exchanges that I have read mention that. All I know is that block trades can be executed on Eurex without going through the book. They are basically just reported for clearing without affecting the market in the order book.