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Why FX Depth Aggregation Depends on Quote Tradability and Validity

Article Quant Q&A · Author: xyzt
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Summary

The document asks how to combine bid and ask depth from several FX liquidity providers into one aggregated book. Simply sorting bids from highest to lowest and asks from lowest to highest can produce a crossed displayed market, where the best bid exceeds the best ask. The response does not prescribe a sorting or consolidation algorithm; instead, it questions what the incoming prices represent and what accompanying data are available.

Its central point is that aggregation depends on whether quotes are executable or merely indicative, whether feeds come from different platforms, and what size and validity period apply to each level. Indicative prices may describe market conditions without supporting a trade, so treating them as firm depth can make the combined book misleading. The post provides a useful data-quality caveat for market-depth construction, but no worked example, rules for resolving crossed prices, or empirical evidence about provider feeds.

Key ideas

  • Sorting provider bids and asks independently can result in a displayed crossed market.
  • Quote tradability affects whether price levels can be combined as executable depth.
  • Available size and quote validity are relevant inputs to aggregation.
  • Indicative feeds may support only a rough market indication, making direct analysis potentially misleading.
  • The response identifies required context but does not give a consolidation algorithm.

Tags

ForexMarket microstructureExecution
Full text
# FX Price aggregation method


# FX Price aggregation method












Lets say we are receiving tradable FX market depth(bid/ask prices and amounts for each level) from several Liquidity Providers and we want to aggregate the market depths in to a single bigger market depth. It is possible to sort the bid prices descending and ask prices ascending to give the best price for each but in this case, max(bid) > min(ask) situation can occur. Sorting the price lists as above seemed trivial to me. Can you suggest another method? Thanks

## Answer by Phil H (score 3)

https://quant.stackexchange.com/a/32365

Are these tradeable prices or indicative feeds from brokers? Or on different e-platforms? If they are tradeable, what other information do you have, like available size, period of validity...

All of that information is needed to tell you what those numbers mean. From indicative numbers you may only be able to get an indication, so significant analysis might be misleading.

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.