Inferring Aggressive Orders from Trades and Order Book Data
Summary
The document explains why market orders may not appear as resting entries in a limit order book: they execute against available limit orders and generate trades. Limit orders can also execute immediately when they cross the spread, either partially or fully. As a result, a trade alone does not always reveal whether the initiating instruction was a market order or an aggressive limit order.
The answer emphasizes that exchanges and data vendors use different formats and may normalize raw messages, so the dataset documentation and update sequence matter. In some feeds, order type is explicit; in others, researchers may need to infer it from trades and book changes. For modeling, the answer suggests treating a market order as similar to a sufficiently aggressive limit order, while recognizing that the available data may not distinguish them cleanly. This is practical guidance for constructing order-flow features, but the excerpt does not provide a full reconstruction algorithm or assess whether these features improve the proposed price-direction model.
Key ideas
- Market orders execute against resting limit orders and do not remain in the visible book.
- A limit order that crosses the spread can also execute immediately and cause a trade.
- Trade and order-book messages may not identify the initiating order type without feed-specific context.
- Exchange formats and vendor processing affect whether order types can be identified or inferred.
- A market order can be approximated as a limit order priced aggressively through the opposite side of the book.
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Full text
# Limit and Market Order for training a ML model # Limit and Market Order for training a ML model Goal : Using deep learning to build a ML model which would predict the right places where a stock price will increase, decrease or stay stable. For the current question, assume the labels are well defined. As features I used the limit order book, but I did not get a lot of success. So I realised that I didn't have all the features to accomplish my goal. In reading the following paper https://arxiv.org/pdf/1710.03870.pdf on page 8, I didn't consider the market and cancellation orders. A setback I got is I did not find a vendor to provide the market orders separately from the limit orders. So in the moment I have the full market depth from algoseek. You can find a sample here. Does the full market depth contain the market orders? If so, can I build just a book containing the limit and market orders I can use for the training phase of the ML model? Do we really need to separate the limit and market orders to feed the ML model. Please let me know if you question is unclear. ## Answer by Serg (score 4, accepted) https://quant.stackexchange.com/a/41176 You are right that there are limit and market orders and nothing else. But I'll clarify it. Market orders do not stay in the order book because they instantaneously matched against limit orders and generate trades. Limit orders depending on their limit price can also be instantly matched fully or partially. So, do you refer to aggressive orders in general (limit or market) or orders that are Market by type? In any case, each exchange has its own way / data format to inform about it. Plus, data vendors (e.g. algoseek) may also post-process the data and convert it to another format. In this case it's necessary because algoseek needs to provide the data of the same symbols from different exchanges in a uniform format. As you can see below they don't do it very effectively, but it's up to them. The documentation of the sample data seems to be outdated, but it's easy to guess the format from the content. So, in order to get Market orders or aggressive limit orders from the data or you need to analyse the trades. Here is an example. To make it more compact I removed the columns of Exchange, MMID, and Symbol. If you wish to see actual Market orders in the data when they arrive, check GDAX data, see the description of the full channel in the API. Here is a short sample of the raw data. Each line starts with a timestamp (set by recording device). Also, I highly recommend reading this crash course on Market Mechanics to clarify all the above and much more. To summarize, any trade that you see in the market data is caused either by a Market order or by an aggressive (crossing the spread) Limit order. Basically, you can model a Market order as an aggressive Limit order with limit price deep in the opposite side. In some cases like with GDAX data you can see explicitly the type of the order that caused a trade, in some cases you can't see it. And in some cases you can back-engineer they type of the order based on the sequence of data updates. It allows to distinguish partially executed limit orders from market orders and fully executed limit orders. See case #4 from top on this diagram from the Market Mechanics article:
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