Does a time and sale window ever "lie" about buying and selling ?

[obradt]

That is how does the software that encodes whether the trade that just went through was a buy or sell actually determine that it WAS a buy or sell ? Does it simply determine that the last price was transacted at what was at the time either a bid or ask ? because if that is the only basis for determining if a given transaction was a buy or sell then aren't there times when a "green" trade was actually a sell and a "red" trade was actually a buy ? Or to simplify things : can an emini trader cut the spread (selling the bid or buying the ask) , or does electronic trading make this next to impossible ? I would expect that it can happen in stocks (or perhaps used to before decimalization cut the spread so greatly) , but in either case futures or stocks can such a possible occurrence result in a misleading time and sales print ? For that matter even bid and ask volume would be called into question as a reliable source ! Comments ?

[JayF]

Hello obradt,

First let's just clear up a common misconception. A trade is just that... a trade. A transaction between a buyer and a seller. One person is buying and another is selling. Technically speaking, it's not possible to define whether a trade is a buy or a sell because it is both at the same time.

I believe you are trying to detect whether a trade was filled at the Bid or at the Ask to give you an interpretation of trend. Keep in mind that the order in which the trade data and Bid/Ask data is disseminated is not always lined up perfectly, so there certainly can be anomolies. A trade looks like it was at the Ask, but is actually an out of order trade at the Bid.

Regarding your question, "can an emini trader cut the spread (selling the bid or buying the ask)". Selling the bid or buying the ask is a market order. These occur all throughout the day. If you are asking can you get a better deal than that? The answer is possibly by placing a limit order to match the current market, but there's no guarentee of getting filled. The market could move away from you before you get filled. It's really all a matter of trading style.

[obradt]

Thank-You for the quick response JayF

But does the market have to move in my favor in order to be filled ?

[obradt]

I think that you misunderstood

JayF , you said that "Selling the bid or buying the ask is a market order" . But that isn't true . In a market order you would BUY the bid , and SELL the ask . I am talking about buying at the price that a market order would sell at (the lowest price of the two) , and selling at the price that a market order would buy at (the highest price) . This is reverse of what normally happens . Cutting the spread has for over a hundred years been perhaps the chief source of income for the floor traders in the pits who pay little or no commission and effectively reduce slippage to 0 or even put it in their favor , pocketing an instant profit in moments . You must have read my post too quickly . Selling the bid or buying the ask is definitely not the normal method for off-the-floor traders , but just the reverse . To reiterate people sending a market order would buy the bid and sell the ask .

[DionLoy]

obradt, JayF is correct. When you send in a market BUY order, it will match up with the lowest price that someone is willing to sell, which will be the current ASK.

When you send in a market SELL order, it will match up with the highest price that someone is willing to buy, which will be the current BID.

If all my market orders could pocket the spread (by buying the bid and selling the ask as you say), then I'd be happily doing that all day instead of programming =).