Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/238789 
Year of Publication: 
2010
Citation: 
[Journal:] International Econometric Review (IER) [ISSN:] 1308-8815 [Volume:] 2 [Issue:] 1 [Publisher:] Econometric Research Association (ERA) [Place:] Ankara [Year:] 2010 [Pages:] 11-35
Publisher: 
Econometric Research Association (ERA), Ankara
Abstract: 
The behaviour of limit order quotes and trading activity are studied using a unique and rich database that includes the identity of market participants from a fully automated derivatives market. The analysis is performed using transactions records for three aggregated trader types and three trade identifiers, with trades stamped in milliseconds for the SXF, the equity futures contract of the Montreal Exchange. The identifiers distinguish trades between principals; agency based trades, as well as transactions that are conducted for risk management as opposed to speculative purposes. Agency related trades are shown to represent the largest amount of trading activity relative to other account types. Over 90% of trades in this electronic market are limit orders. The limit order book, especially the depth 1 order, has a dominant role in providing liquidity and in explaining market participants' trading behaviour. Participants in the SXF reference their trades to the best limit order depth. Hence, investors with large positions or investors who want to build a large position have to strategically split large orders to close/build their position, according to the depth of the best limit order, to ameliorate price impact and information leakage effects. In addition, the results show that traditionally measured spreads have no relationship with trading costs.
Subjects: 
Limit Orders
Trading Activity
Transactions Costs
Electronic Trading
JEL: 
G13
G14
G18
Creative Commons License: 
cc-by-nc-nd Logo
Document Type: 
Article

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