Expected Versus Realized Average Cost for a Market Order
Summary
The document asks how to distinguish expected from realized average transaction cost for a market sell order using a limit order book. The questioner walks through consuming visible buy-side depth to fill an order and computes a volume-weighted average price from the displayed levels. That calculation represents the average execution price implied by the visible book, assuming the displayed quantities remain available and the order can execute against them as shown.
The answer suggests that the distinction may involve hidden liquidity: an estimate based on the visible book excludes orders that cannot be seen, while the realized outcome may include them. This is a brief, tentative explanation rather than a full definition of transaction cost. The exchange does not specify a benchmark price for measuring cost or address changes in the book, partial fills, or other execution effects.
Key ideas
- A market order can be estimated by walking through available opposite-side book levels.
- The average price across fills should be weighted by the quantity executed at each level.
- An estimate from displayed depth omits hidden orders.
- Realized execution can differ from a visible-book estimate when hidden liquidity or other execution conditions affect fills.
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# Difference between real and expected average transaction price of an order? # Difference between real and expected average transaction price of an order? This might be a really simple question but I'm quite confused. I've been given a limit order book (I don't think it's necessary to upload it for my question but I can if you want me to) and I've been asked to calculate the expected average transaction cost and the real average transaction cost of a market sell order and I'm struggling to find a way to distinguish between the two. The size of the order is the only information about the order given. What I've worked out using the limit order book is this: $(4/12 \cdot 102)+(7/12 \cdot 101)+(1/12 \cdot 100) = 101.25$ I worked this out by taking the best buy orders available on the limit order book, these were 'Buy 400 at price 102', 'Buy 700 at price 101', 'Buy 500 at price 100'. So I took 400 from the first order, 700 from the next and 100 from the last order, therefore I would have $400+700+100=1200$ and my order would be satisfied. (I can explain further if this doesn't make sense). However, I'm not actually sure what this value I've found represents. I believe it is the expected average transaction cost but I'm really not sure if it is the real or expected average transaction cost (or neither). Also, if this value is, let's say, the expected A.T.C, I'm then not sure how I would find the real A.T.C, and vice versa. I'm hoping someone can clarify what value I've worked out and how I can find the other. Thanks in advance. ## Answer by 1186267999 (score 2, accepted) https://quant.stackexchange.com/a/69616 Some orders may be hidden, I guess your expected result is that you don't consider hidden orders as you can't see them in the limit order book, and the real result includes hidden orders.
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