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Interpreting Crossed Forex Quotes in Fragmented Order Books

Article Quant Q&A · Author: Taimoor Choudhary
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Summary

The document discusses why bid and ask quotes in foreign exchange market data may appear crossed or locked. Unlike a centralized exchange, forex liquidity is distributed across venues, broker feeds, and market makers, so quote relationships observed across sources need not behave like a single consolidated order book. Crossed or locked quotes can therefore occur more often in forex data, particularly during active periods.

The responses stress that interpretation depends on the data source and the liquidity being shown. A feed may aggregate or broadcast book changes in a way that does not represent executable prices for every participant; apparent arbitrage opportunities may not be accessible when attempting to trade. The practical advice is to clarify with the broker or liquidity provider what liquidity the feed represents before filtering or acting on quotes. The discussion is brief and does not specify a universal filtering rule or describe the particular feed's semantics.

Key ideas

  • Forex lacks a single centralized order book, so quotes from separate liquidity sources may cross.
  • Observed crossed or locked quotes depend on the venue, feed, and aggregation method.
  • Apparent arbitrage in displayed prices may not be executable for a trader receiving the data.
  • Confirm with the liquidity provider what instruments, venues, and liquidity the feed represents.
  • The document offers no universal rule for filtering crossed quotes.

Tags

ForexMarket microstructureExecution
Full text
# Cross Bid and Ask prices for Forex trading


# Cross Bid and Ask prices for Forex trading












I am using ITCH protocol to get the Market Data information for Forex and trying to implement LOB on it and what i have noticed is that Bid and Ask prices are crossing very often. Should that be happening in the normal circumstances for Forex trading? or Raw data from the ITCH data stream has to be filtered first manually?

## Answer by Louis Marascio (score 3)

https://quant.stackexchange.com/a/3473

Where are you sourcing your data from? In the equities markets you will see crossed/locked markets at the NBBO if consuming direct feeds from each venue. You typically will not see it at a specific venue, however there are circumstances where you will (for example, NYSE pre-open or during LRP, etc).

For FOREX I'd assume crossed/locked markets would be significantly more common since there is no central exchange or book, but rather a collection of books and market makers.

As an aside you reference "ITCH" so I presume you're taking data from some FOREX broker who's using ITCH to broadcast book changes. When referring to ITCH 99.99% of the people in the world assume you mean NASDAQ markets.

## Answer by Ariel Silahian (score 1)

https://quant.stackexchange.com/a/27826

First, that's a common thing in active hours. Since you are dealing with fx, you should ask Hotspot representative what kind of liquidity are you getting. Usually, if you want to aggress on those crossing prices, you won't be able to. Imagine everybody trying to do arb on that. So, ask Hotspot what kind of liquidity they are sending you.

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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.