Why Forex Trades Cannot Reveal Historical Bid and Ask Depth

Summary

The document asks whether transaction records and candlestick summaries can reveal the highest bid, lowest ask, or quote sizes in the foreign exchange market. The available data includes trade times, amounts, prices, and bar-level measures such as highs, lows, volumes, and trade counts. The author recognizes that historical market depth is unavailable.

The answer cautions that trades alone are not a reliable basis for reconstructing historical quotes, particularly in decentralized FX. Spreads vary by time and venue, and observed quotes and execution conditions depend on the broker. Conditions can also differ across dates, so a spread observed in one period may not represent another. It recommends studying spread variability and applying a conservative fixed spread in analysis. It states that order volumes cannot be inferred from these data. This is a rough backtesting safeguard, not a reconstruction method, and a fixed worst-case spread may still simplify venue- and time-specific execution.

Key ideas

• Trade prints and candlesticks do not provide historical quote depth or order sizes.
• FX spreads vary across time, venues, and brokers.
• The answer recommends measuring spread variability and using a conservative fixed spread in analysis.
• A fixed spread is only an approximation and does not reproduce changing market conditions.

Tags

# Inferring highest bid and lowest ask from forex trade data


# Inferring highest bid and lowest ask from forex trade data












I have historical trade data for every trade on a forex exchange, whcih includes the following data:

- Time the trade was made

- Amount, in currency A

- Price, in currency B

I have also used this to organize the data into candlestick data for periods, which includes:

- Volume in currency A

- Volume in currency B

- Low price

- Open price

- Close Price

- High price

- Number of trades

How will I be able to use the data I have to infer the highest bid or lowest ask at a certain point in time? Also, is there any way I will be able to guess the volume of the high bid/low ask orders?

This won't be a perfect solution because I don't have access to historical market depth.

## Answer by alpha (score 3, accepted)

https://quant.stackexchange.com/a/3151

what you are trying to do is not recommended; especially in FX market.

here is why: - The spread changes depending on time of day and trading venue. - FX market is based on quotes. What you see is not what you get. This also depends on the broker you are using. - FX market changes all the time; hence the spread today; may be different than same day last year.

I suggest you gather statistics on the spread variance; and use the worst case scenario as a fix spread for all your data.

You cannot infer the volume in FX market. It also depends on time of day; and all the stuff listed above.

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