Why High-Frequency Trade Prices Can Fall Between Quoted Ticks
Summary
This post explains why a trade record in high-frequency equity data can show a price with more decimal places than the displayed quote tick. The answer describes a market order that executes against multiple resting price levels: part of the quantity trades at one quoted price and the rest at another. The reported trade price can then be the size-weighted average execution price, which may lie between the two prices in the order book.
The example uses a sell order that consumes two bid levels and produces an average price between them. This offers one interpretation of fractional-tick trade prices in the data. The explanation is brief and does not establish that every such record is an average; interpreting a specific TAQ field may also require checking the dataset’s reporting conventions and trade conditions.
Key ideas
- A single order can execute against multiple price levels in the book.
- A reported trade price may represent the size-weighted average of those executions.
- An average execution price can fall between quoted tick prices.
- The post gives one explanation and does not verify that it applies to every fractional-tick record.
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Full text
# Trade price in high-frequency TAQ data # Trade price in high-frequency TAQ data I am looking at AAPL TAQ high-frequency trade data from NYSE and I have noticed that at several places the trade price (defined in Daily TAQ Client Specification as: "The Trade Price is the monetary value of an individual share of security at the time of the trade.") is quoted with three decimal digits. However, the TAQ quote data file does not contain quotes with three decimal digits, only two are present (as the minimal tick value for AAPL is 0.01$). Therefore, I am perplexed how to interpret the trades represented by three decimal digits, as there are no corresponding quotes at those prices. My question is, what is the reason behing this discrepancy? EDIT: The sample trades can look like this: [time in nanoseconds, exchange, stock, ..., trade size, trade price, ...] 113750721732148 Y MSFT ... 100 60.55 ... 113750722078102 V MSFT ... 19 60.545 ... 113750746289535 K MSFT ... 100 60.55 ... And for example, at 113748385546534 there was a trade with trade price 60.54. So trades fluctuate between the best bid and best ask prices, but there is this trade that is within the spread. Source: NYSE TAQ trade sample data available here ftp://ftp.nyxdata.com/Historical%20Data%20Samples/Daily%20TAQ%20Sample/. I am talking about AAPL trades in a file EQY_US_ALL_TRADE_20161024 and AAPL quotes in a file SPLITS_US_ALL_BBO_A_20161024. ## Answer by Geoff Langenderfer (score 1) https://quant.stackexchange.com/a/39138 say you have this order book, where left column are bids and right offers: ``` 60.56 1 1 60.55 1 60.54 ``` if you send a market order to sell 2 contracts, your trade will be completed with one contract at 60.55 and one at 60.54. The average price for your order is 60.545. The trade with 3 decimal was completed at multiple prices, and it's giving you the average.
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