KNOWLEDGE / LIQUIDITY AND MICROSTRUCTURE

Liquidity and microstructure

Order Book L2, spoofing, spread, slippage, liquidations and liquidity sweet.

06articles

Liquidity and microstructure4 min read

Order Book L2 — how to read the depth of the market

Order Book L2 shows visible orders waiting for subsequent price levels. This allows to evaluate the current depth, asymmetry of bid/asc/asc and potential cost of execution of larger orders. The most important is not the total number of orders, but their distribution and stability over time. The shallow market with a large gap between levels can move rapidly even with moderate...

First, define the context and horizon of the analysis.
Confirm your applications with independent data layers.
Take into account the quality of feed, spread and real cost of execution.

Liquidity and microstructure4 min read

Spoofing and False Walls — Why Order Book Can Lie

Spoofing involves making large orders without real intent to perform them to influence the perception of liquidity. In practice, a large wall can appear, move with price and disappear before implementation. You cannot reliably recognize the spoofing from a single snapshot. You need a lifetime of the order, a cancellation frequency, a price-contact behavior and a comparison with...

First, define the context and horizon of the analysis.
Confirm your applications with independent data layers.
Take into account the quality of feed, spread and real cost of execution.

Liquidity and microstructure4 min read

Spread and slippage — hidden cost of each transaction

The price on the chart is not always the price at which the order can be executed. Spread is the difference between bid and ask, and slippage describes the deterioration of the execution when the order consumes the available liquidity or the market moves quickly. Even a good setup may lose sense if the expected traffic is small compared to the cost of entry and exit. The problem grows on less liquid pairs, during the publication...

First, define the context and horizon of the analysis.
Confirm your applications with independent data layers.
Take into account the quality of feed, spread and real cost of execution.

Liquidity and microstructure4 min read

Liquidation Cascade — How Liquidation Accelerates the Move of Price

In the market with levers, the price drop can trigger forced closing of longs and the growth can eliminate shorts. These orders are aggressive and can create self-propelled movement, especially with thin liquidity. The helmet often starts after breaking the level at which a lot of positions have been accumulated. The volume increase, the OI jump or its steep drop and the fast price shift can...

First, define the context and horizon of the analysis.
Confirm your applications with independent data layers.
Take into account the quality of feed, spread and real cost of execution.

Liquidity and microstructure4 min read

Liquidity Sweep — Why the price often takes away the stop of the loss before moving

Stop the fates and waiting orders focus around obvious high/low swings. Short breach of such level can run a large number of orders, provide liquidity and end up quickly returning to the earlier range. Liquidity sweet is recognized not by the wick itself, but by the reaction: rapid rejection, recovery of the level, change of the delta or absorption may suggest that...

First, define the context and horizon of the analysis.
Confirm your applications with independent data layers.
Take into account the quality of feed, spread and real cost of execution.

Order depth of the book and liquidity asymmetry

Liquidity and microstructure4 min read

Depth Imbalance: When the asymmetry of the order book matters

Depth Imbalance compares visible liquidity on the bid and ask side at a certain distance from the price. It can indicate that one page of the sheet is at the moment much thicker, but without observing changes in time it is easy to confuse a real advantage with an impermanent declaration of orders. Asymmetry is more valuable when it persists at the price approximation, appears in several depth ranges and...

First, define the context and horizon of the analysis.
Confirm your applications with independent data layers.
Take into account the quality of feed, spread and real cost of execution.