How Deep Limit Orders Can Affect Prices Before Execution

Summary

The document considers whether a limit order placed away from the best bid or ask can move prices even if it is canceled before execution. It distinguishes the impact of displaying an order from the more commonly studied impact of a completed trade, and notes that orders at the touch may influence signals based on book imbalance or microprice.

The response offers a qualitative explanation: a sufficiently large displayed order may prompt algorithmic participants to react, with the effect depending on the market’s usual trading volume and the order’s distance from the spread. It suggests that a distant order in a liquid market is less likely to matter than one placed near the touch. No empirical study or quantitative model is provided, so the answer is a hypothesis rather than a measured rule; it does not specify how to estimate impact or how cancellation timing changes it.

Key ideas

• Displayed limit orders may affect prices without being executed.
• Order size, distance from the touch, and typical market volume may shape the response.
• Book imbalance and microprice can make orders at the touch informative to market participants.
• The response provides no empirical evidence or formal method for quantifying order impact.

Tags

# How do orders outside of the market clearing level affect price?


# How do orders outside of the market clearing level affect price?












Let's say a trader is trading in a LOB and he places an order deep in the book. How close can he be to the touch until he has temporary or even permanent price impact? This assumes he cancels after T amount of time and does not get executed.

Most models show price impact of a trade. What is the impact of an order? An order at the touch must have some impact since many participants use the microprice/imbalance as a signal of future price movements.

## Answer by indivisible.invisible.indivi.. (score 1)

https://quant.stackexchange.com/a/43126

Presumably a large enough order will trigger some algo's to take action. It likely depends on the typical volume seen in that market. If the market is very liquid and an order is placed 5% away from the most recent trade then it will likely have less impact than an order placed closer to the spread.

I haven't seen any research on this subject myself.

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