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Limits of Broker Displayed FX Volume for Order Flow Analysis

Article Quant Q&A · Author: 4pie0
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Summary

The document explains why volume and time-and-sales information displayed by a broker such as Interactive Brokers may not represent comprehensive foreign-exchange order flow. In decentralized FX, a broker’s display can reflect only the quotes or activity available through its particular data sources, rather than a consolidated view of all market participants and venues.

The answer distinguishes ordinary broker feeds from feeds supplied by an electronic communications network. Unless the data comes from an FX ECN, displayed volume and ticks may be quotes rather than completed trades, so they do not support the same order-flow inferences traders might make for centralized instruments. The document offers no quantitative evidence about broker coverage or the share of market activity captured. Its guidance is a caveat about data interpretation: verify what the feed measures before applying volume-based strategies or treating it as representative of the FX market.

Key ideas

  • A broker’s FX depth display does not necessarily represent the whole foreign-exchange market.
  • Displayed volume and ticks on many broker feeds may describe quotes rather than executed trades.
  • FX ECN data can provide a different basis for interpreting volume than a typical broker feed.
  • Order-flow strategies should account for the specific venue and data source represented.

Tags

ForexMarket microstructureExecution
Full text
# Does DOM trading using broker data make any sense?


# Does DOM trading using broker data make any sense?












Can I use DOM information from Interactive Brokers? Does it make sense? I assume that it makes sense to apply some volume based algorithms only then when you know this order book, that you can get info about is really market book. If it represents the main part of the market, otherwise this information is negligible in front of all big names doing trading and in light of their orders which you are not aware of.

What information gives me volume info from IB? Can I make assumption about FX order flow based on their data feed?

We can see here that IB covers all important exchanges, but what is their volume? The sum of the all noticed volumes on exchanges? Please could you clarify this issue a little as it was always confusing to me.

## Answer by bluelou (score 1)

https://quant.stackexchange.com/a/7464

Assuming your question is about using the FX 'volume' you see in a broker's DOM or T&S window, you probably can't infer much about order flow in the way you can with other instrument types. FX volume and tick data are not equivalent to what you will see for other instruments. That is, unless the feed is coming from a FX ECN like HotSpot or Currenex, the volume and ticks you're seeing are just quotes, not completed trades.

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

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