Absorption - A market condition where substantial limit orders completely absorb all aggressive market order transactions. A significant market bounce or reversal must occur in order to properly define the absorption.
Exhaustion - A market condition where there is no or limited traded volume. The market activity is exhausted and returns to price level where the market can find participants and facilitate trading activity.
Liquidity - the total sum of limit orders that are available in the market for purchase or sale at specific price levels.
Passive Resting Orders - Limit buy and sell orders sent to the Order Book waiting to trade at specific price levels. They are providing liquidity.
Dark Pools - A place outside the exchange for trading financial instruments. The liquidity in these markets is not reported or displayed within the Centralized Limit Order Book (CLOB) at the exchange.
Market-By-Price (MBP) - According to the CME, MBP is a price-based data format that remains available and delivered in the same data feed. MBP consolidates all the quantity into a single update for each price level, which includes total quantity and number of orders. Individual queue position and order sizes cannot be determined with a high degree of accuracy.
Depth of Market (DOM) - A numerical display of currently available limit buy and sell orders at various price levels. The DOM gives insight to the current state of the market auction and liquidity.
Full Depth of Market - A display of currently available limit buy and sell orders at ALL price levels for a particular instrument. Full depth gives more insight since it is not restricted to specific number of price levels.
Pulled Liquidity - Limit orders that are canceled, typically liquidity in close proximity to the BBO is being canceled more often.
Intent to trade - Liquidity that remains in the order book looking to transact at thattheir specific price levels.
Market-By-Order (MBO) - According to the CME, an order-based data feed that provides the ability to view individual queue position, full depth of book and the size of individual orders at each price level. MBO data offers an unparalleled and unique transparency into nuances of the market orders.
Latency - The delay before a transfer of data begins following an instruction for its transfer. Delays even in the sub-second level can have a powerfully negative impact on trading activity since many orders could be execution after a specific order is sent and when it is executed.
Timestamp - A sequence of characters or encoded information identifying when a certain trade event occurred, accurate to a small fraction of a second.
Zero-sum Game - In game and economic theory, a zero-sum game is a mathematical representation of a situation in which each participant's gain or loss of utility is exactly balanced by the losses or gains of the utility of the other participants.
Quant (Quantitative) - A person who analyzes specific financial situations or events, by means of complex mathematical and statistical modeling.
Aggressor volume - Market buy and sell orders; market-takers that pay the spread in order to enter the market immediately; they take liquidity from the BBO. Aggressor volume can create price movement. For example, if aggressive buyers take all the liquidity at one price level, the next market buy order will move price up to the next Best Offer, thus moving price.
Order Routing - A process by which an order goes from the end user to an exchange and may go directly to the exchange from the customer, or it may go first to a broker who then routes the order to the exchange. "Smart" order routing attempts to achieve best execution of trades while minimizing market impact.
Trade Data - A trader’s order is routed from the trader to the exchange. The exchange then routes data back to the trader to update his order information. TCP/IP and FIX protocols are used for routing this data.
Quotes Data - Data disseminated via FIX and UDP from the exchange directly to the end user, which updating the end user to the current state of the quotes and transactions in the marketplace.
Order ID Number - A unique identification number assigned to an order upon the order creation.
Matching Engine (Matching Algorithm) - A trade matching engine is the core software and hardware components of an electronic exchange. It matches up bids and offers to complete trades. Matching engines use one or several algorithms to allocate trades among competing bids and offers at the same price.
Iceberg Order (Hidden Order) - A sub-type of Limit orders where only part of the order can be visible to other market participants via market data. This parameter instructs the exchange not to display in the market data more than a specified of the order size. Naturally, the maximum displayed size must be less than the total size of the order (typically significantly less to justify the use of Iceberg), and the difference between them is called the Hidden size.
Spoofing - Submitting or cancelling multiple bids or offers to create a misleading appearance of market depth and submitting or cancelling bids or offers with intent to create artificial price movements upwards or downwards.
Quote stuffing - Submitting or cancelling bids or offers to overload the quotation system of an exchange, and submitting or cancelling bids or offers to delay another person's execution of trades.
Ignition - A momentum ignition strategy occurs when a market participant initiates a series of orders or trades in an attempt to ignite a price movement in a specific direction with the intent was to disrupt the orderly conduct of trading. This is disruptive and prohibited practice, if the momentum igniting orders were intended to mislead others by canceling before execution, or if the conduct was intended to create artificially high or low prices.
Flipping - A “flip” order typically has two main characteristics. First, it is an aggressor order. Second, shortly before the entry of the order, the market participant cancels an order(s) on the opposite side of the market, typically at the same price as the aggressor order. The market participant, for example, has flipped from offering to bidding at the same price. Flipping activity may be considered a disruptive and prohibited practice if the entry of orders or trades are for the purpose of causing turns of the market and the creation of volatility and/or instability. For example, repeated instances of a market participant entering flipping orders that are each large enough to turn the market (i.e., being of a sufficient quantity to sweep the entire quantity on the book at the particular price level and create a new best bid or best offer price with any remaining quantity from the aggressor flipping order) can be disruptive to the orderly conduct of trading or the fair execution of transactions.
Dangling or Smoking - A disruptive and prohibited practice where an order is placed between the spread. An unknowing market participant attempts to purchase the order at market price. The order is then quickly canceled and the unknowing trader is then filled at the next price level.
Book Sweep - A market phenomena where all limit orders and taken by the aggressor and the price sweeps to the next price level of available liquidity. Several price levels may be swept very quickly by cascading market orders.
Lit Pools (Lit Book) - Liquidity publicly displayed in exchange’s Centralized Limit Order Book.
Aggregate Data - Data that is compiled into a dataset or period. Individual elements of information is diluted since the data is compiled and displayed as a whole, thus giving less transparency into the true condition of the original data.
Hitting the Bid - Aggressor sell volume transacting on the Best Bid.
Lifting the Offer - Aggressor buy volume transacting on the Best Offer.