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.
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.
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.
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.
Bracket Order is an order where one can enter a new position along with a target/exit and a stop-loss order. As soon as the main order is executed, the system will place two more orders (profit-taking and stop-loss). When one of the two orders (profit taking or stop loss) gets executed, the other order will get cancelled automatically.
Dangling or Smoking
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.
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.
Depth of Market (DOM)
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.
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.
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.
Full Depth of Market
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.
Hitting the Bid
Hitting the Bid - Aggressor sell volume transacting on the Best Bid.
Iceberg Order (Hidden Order)
Iceberg Order (Hidden Order) is a sub-type of a Limit Order 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.
Native Iceberg order
Sometimes Iceberg orders are called Native simply to distinguish them from Synthetic / Heuristic Iceberg orders. Given accurate market data, it's possible to detect native iceberg orders with 100% accuracy at least at some exchanges, e.g. CME. This is the main reason why some traders use synthetic iceberg orders instead.
Synthetic / Heuristic
Iceberg orders are regular Limit orders (at least from the exchange perspective). These orders are typically managed by HFT and in their behavior resemble the Native Iceberg orders: once such order is executed, the trader sends another similar one, and so on.
Intent to Trade
Intent to Trade - Liquidity that remains in the order book looking to transact at thattheir specific price levels.
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.
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.
Lifting the Offer
Lifting the Offer - Aggressor buy volume transacting on the Best Offer.
Limit Order is an order to buy or sell at a particular price, known as Limit Price, or better. For the trade to be executed, the Market Price must reach a specified Limit Price.
Lit Pools (Lit Book)
Lit Pools (Lit Book) - Liquidity publicly displayed in exchange’s Centralized Limit Order Book.
Liquidity - The total sum of limit orders that are available in the market for purchase or sale at specific price levels.
Market Order is an order to buy or sell at the best currently available Market Price. It needs liquidity to be filled; therefore, its execution is based on the previously placed Limit Orders.
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.
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.
Matching Engine (Matching Algorithm)
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.
Order ID Number
Order ID Number - A unique identification number assigned to an order upon the order creation.
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.
Passive Resting Orders
Passive Resting Orders - Limit buy and sell orders sent to the Order Book waiting to trade at specific price levels. They are providing liquidity.
Pulled Liquidity - Limit orders that are canceled, typically liquidity in close proximity to the BBO is being canceled more often.
Quant (Quantitative) - A person who analyzes specific financial situations or events, by means of complex mathematical and statistical modeling.
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.
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.
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.
Stop Order is an order to buy or sell when the price moves past a predefined threshold, also known as the Stop Price. Once it is crossed, a Stop Order becomes a Market Order. Stop Order is an order which, when accepted, does not immediately go on the book, but must be “triggered” to be activated. The trigger is a trade that occurs at a price, specified by the order -- the trigger price. Once a trade occurs at the trigger price, the order is activated. At this moment, the order enters the matching engine like a regular order; namely, it can be a market order, or limit order and is processed accordingly. Stop Orders can be used for two purposes: to enter and increase the position following a trend, or to exit and decrease a position when the price moves against. The latter is used more frequently, therefore Stop Orders are also informally called Stop-Loss Orders. Also, this is why Stop-Market Orders are used more regularly than Stop-Limit Orders.
Buy Stop is an order to buy at the next available Ask Price when the last trade price reaches the Stop Price.
Sell Stop is an order to sell at the next available Bid Price when the bid decreased to the Stop Price.
Timestamp - A sequence of characters or encoded information identifying when a certain trade event occurred, accurate to a small fraction of a second.
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.
Trailing Stop Order
Trailing Stop Order is a stop order that tracks the price of an investment vehicle as it moves in one direction, but the order will not move in the opposite direction.
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.