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Trade Markouts as Future Price Differences in High-Frequency Trading

Article Quant Q&A · Author: bloodynri
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Summary

The document defines a trade markout as the difference between a current trading price and a future reference price, often a midpoint or a more refined estimate of fair value. The future observation is taken after a chosen horizon, such as a number of seconds or quote updates. In some usage, the term refers to the future reference price itself rather than the difference.

Markouts are used as target values when fitting high-frequency trading models, allowing researchers to study how a trade performs relative to subsequent market prices. The excerpt does not specify a sign convention, whether the current price is a buy or sell execution, or how to choose the horizon and fair-value measure. Those choices matter when interpreting a markout, so the definition alone does not establish whether a trade or model is profitable.

Key ideas

  • A trade markout compares a current trade price with a price or fair-value estimate observed later.
  • The future reference may be a midpoint or a more sophisticated microprice estimate.
  • The horizon may be defined by elapsed time or by subsequent quote updates.
  • Markouts can serve as target values for fitting high-frequency models.
  • Interpretation depends on the chosen horizon, reference price, and sign convention.

Tags

High-frequency tradingMarket microstructureExecution
Full text
# What are trade markouts?


# What are trade markouts?












I have experience in trading but mostly in lower frequency quantitative trading. I've moved into HFT research and someone the other day mentioned markouts. I couldn't find anything online explaining what markouts are.

## Answer by Marc Shivers (score 5)

https://quant.stackexchange.com/a/41564

I've heard it more commonly called a "markup", but either way, it's the difference between a current price (e.g. a trade price) and some microprice (midpt, or some fancier fair-value estimate) at some time in the future, typically some number of seconds, or quote updates. Sometimes people refer to just this future micro-price as the markup. It's used at the target value for fitting high-frequency models.

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