Table of contents:
- 1 The respective market page
- 1.1 Possibility of representing the market as an order book
- 1.2 With friendly permission of Trading Technologies
- 1.3 The Market Maker
- 1.4 What makes the market maker market so special / different now?
- 1.5 Which markets are better?
- 1.6 When do we use the different order types in the markets?
- 1.7 What does that mean now?
- 1.8 What does this mean now?
- 1.9 Stop Limit Order
- 1.10 Placement / execution of a limit / market order
- 1.11 Placing a Stop Buy Market Order
- 1.12 Placing a Stop-Limit-Buy Order
- 1.13 Placing a Stop-Sell-Market Order
- 1.14 Placing a Stop-Limit-Sell Order
- 1.15 Further order types
- 1.16 Reading the order book
- 1.17 What about the fake orders in the market?
- 1.18 The Times and Sales List
- 1.19 With friendly permission of Trading Technologies
What types of markets are there actually? What distinguishes a “free market” from a market maker market? What is an “If Touched” order and what information does the order book provide?
There are two types of markets in securities, futures and options trading: firstly, the “free markets”, within which suppliers and buyers meet in an uncoordinated manner and generate the turnover price through their executed trades, and secondly, the market maker market, but also the so-called designated sponsoring market, in which a player places binding supply and demand on the market permanently or on request. The latter principle is applied in markets which by nature are rather illiquid and are supplied with “artificial” liquidity by this practice.
The “free markets”, i.e. those in which prices are determined by the free interplay between supply and demand, generally include futures and currency markets and the absolute majority of stock markets, but also a not inconsiderable proportion of bond markets. Classical market maker markets are, first of all, all those trading products that a market participant purchases directly from the issuer (as regards some financial products tailored to the respective customer or target customer group). These usually include CFDs, but also some warrants or certificates, i.e. everything that does not have to be bought and / or sold freely on the stock exchange, but directly from the issuer / broker (which consequently fulfils the facts of an OTC transaction) . Classical market making is also found on the EUREX options exchange. Here the market maker creates constant liquidity so that at least in the underlying prices at or near the money, during the official trading hours, there is always a counterparty in the market.
Both “free” and “market maker” markets differ in a number of factors, but also exhibit large overlaps. In the following, I would like to deal with some basic aspects of market terminology and market conditions in order to establish a uniform starting point for the level of information.
The respective market page
In a functioning market, supply and demand must always meet and be able to generate an execution price through their interaction with each other. Supply and demand are thus practically opposed to each other; the distance between the highest demand price and the lowest offer price is called the spread. The term commonly used in the market for supply and demand is “bid” and “ask” or also “bid” and “ask”. These terms for the respective trading side date back to the earliest years of the stock exchange. The term “money” or “money side” stands for demand, i.e. the price at which one is prepared to buy the trading product. The actor therefore has “the money” and wants to become active. Consequently, the term “ask” or “ask side” stands for supply. The connection to the offer becomes more obvious, e.g. in the Austrian market, where one speaks of “commodity prices”. The seller has the goods which he wants to put on the market. The “letter” refers to the earlier commodity papers or commodity letters – over time this became synonymous with the term “letter” for an intention to sell. From now on, we will continue to use this terminology and only talk about the bid price if the buyer side is meant, the ask price stands for the seller’s side. The terms “bid” and “ask” come from the English language, but stand for the same trading direction, i.e. buying in the case of bid and selling in the case of ask.
The spread is therefore the distance between the highest bid or ask price and the lowest ask or ask price. This applies to both the “free markets” and the market maker markets. The only difference here is that a market maker (at least in a regulated market such as the Eurex options market is one) usually specifies a uniform spread, since it is financed by the difference between its bid and ask price. Some exchanges (such as the options segment of Eurex) define and allow a maximum for this spread, which can usually be reduced, but not increased at will.
In a “free market” the spread is an indication of the liquidity of the market. The higher the liquidity, the tighter the spread. The narrower the spread, the more suitable a market is for trading. If a market were permanently characterised by a wide spread that is difficult to trade meaningfully, it would lose its attractiveness and the player would turn away from this market, which would lead to an even greater outflow of liquidity. For this reason, most official futures exchanges commission market makers to create liquidity and thus maintain the attractiveness of a market. In the case of an OTC market, which practically includes the CFD business, there are other motives for a market maker principle, which I will discuss in more detail later.
In summary, it should first be made clear: Spreads exist in every functioning market and they result from the distance between best bid and best ask and can ideally shrink to the smallest possible spread, which corresponds to one tick unit. The width of the spread is an indicator of the prevailing market liquidity and thus the attractiveness of the market.
Possibility of representing the market as an order book
All orders visibly placed in the “free market” form the order book. This only includes limit orders. Stop market, stop limit, if touch orders, etc., on the other hand, are held by the respective trading servers of the clearers or brokers and are only placed in the market when the trigger conditions for the respective order type are fulfilled in the market. Consequently, these cannot be seen in the order book in advance and therefore there is no way of knowing with certainty where in the order book and thus in the market these orders are located. I will explain this principle in the section on order types.
The most common form of order book display in trading is the so-called DOM (Depth of Market), on which the developer of X_Trader®, the US company Trading Technologies, has held various patents since 2004v. Here, supply and demand are vertically opposed to each other, which also gives the term “highest bid price” and “lowest ask price” a practical representation.
With friendly permission of Trading Technologies
In the standard setting of the most common order book displays, the price ladder runs in the middle, rising from below, to the left of which is the blue money bar (also counting up from below, with the highest demand at the top, the second highest demand below, etc.) and to the right of which is the red letter bar. This also counts upwards, with the cheapest offer at the bottom, followed by the next highest offers). Where the highest (not yet) traded bid price and the lowest ask price meet (without the possibility of an execution already having taken place) is where the spread is. If supply or demand withdraws without the opposite side moving in, the spread widens. A trade and therefore a price is concluded when the requesting quote meets the offering quote and both orders are executed against each other.
ch would like to add an insertion here. All underlyings, as well as securitised derivatives such as warrants, exist only in a limited quantity. This means that an infinite number of shares or warrants cannot be bought or sold. Even the shorting  of underlyings is not possible without restriction, but is limited to the amount of units that can be covered by the securities lending.
The market for unsecuritized derivatives, such as futures and options, is quite different. “Unsecuritised” means that there are no effective pieces, but rather that they come “out of nowhere” when the transaction is concluded (purchase or sale) and disappear again when the transaction is closed (position smoothing). If a buy order meets a sell order in a futures or options market, a contract is generated. This contract is displayed via the so-called open interest, a topic that we address more intensively in product theory.
The Market Maker
A market maker is a market participant who secures the liquidity (and thus continuous tradability) of securities or derivatives by continuously quoting bid and ask prices. In addition, the aim is to offset temporary imbalances between supply and demand in securities that are inherently low in liquidity. Market makers on the futures and options exchanges are salaried exchange traders who work in banks or large trading houses and are entrusted by their employers with the management of such securities.
In practice today, market making and designated sponsoring are often used synonymously. In fact, both activities are very similar, but they are nevertheless different.
A designated sponsor ensures liquidity on behalf of an issuer and receives financial compensation in return. This is intended, for example, to make illiquid shares liquid, which increases their tradability and thus their attractiveness.
The market maker, on the other hand, receives concessions for its activities, such as discounts on trading fees to be paid. Market makers who ensure the liquidity of a certain number of individual securities within the scope of their activities via Eurex are eligible for these benefits. For this purpose, market makers quote binding bid and ask prices, so-called quotes, for listed securities such as illiquid shares or less liquid options. In addition to increasing the attractiveness, market making should also increase the price quality of the securities under management and guarantee investors that they can buy or sell at reasonable prices during trading hours. For this purpose, Eurex specifies a maximum spread (difference between bid and ask price) to which the market maker is bound. When I was still active as a market maker, we ensured that the respective series were priced by manually entering the respective prices. Nowadays, the continuous quoting of prices is almost exclusively done by computer programs, the so-called quote machines.
Market making in the classic CFD markets is done by the respective issuing brokers. CFDs thus have OTC character, since CFDs can only be traded via their respective market maker (and only there). There is no “free market” for CFDs.
What makes the market maker market so special / different now?
Particularly with regard to option or CFD quotes, there are certain special features that must be taken into account: both options and CFDs are not inherently free values, but always refer to a reference value . This means that if you want to price/quote the price of an Option or CFD, you must be guided by the respective underlying asset, otherwise there would be a chance of arbitrage . This fact alone, i.e. the dependence of the derivative on the underlying asset, does not allow a one-to-one pricing of a derivative in relation to a reference or underlying asset. Rather, a market maker must orientate himself to the price development of the underlying instrument and align “his” market with it. The market maker controls how he orients himself to the underlying instrument for the pricing of his value to be managed in the interest of his own interests. These interests are defined as follows: (1) he wants to minimize his risk and (2) he must be able to refinance himself for his performance.
Let us first look at the risks that a market maker takes. His task is to ensure a functioning market, i.e. he must provide a binding bid and ask price as continuously as possible, but at least on request, at which another player can trade. While a trader usually enters into a position when he considers it appropriate and only in the trading direction in which he wishes to trade, a market maker must be prepared to trade for both sides. When a request is made “for a market” , it is usually not known in advance whether the requesting actor wishes to buy or sell. Especially in the case of a market that is to be set up permanently, one does not know when, which side could be served. This results in an obvious risk, namely to have pieces sent or taken off, exactly in the trading direction in which it hurts. In order to reduce this risk somewhat, a market maker prices more in one direction or the other, i.e. in a rising impulse, he tries, for example, to maintain his bid price at the last traded price of the underlying instrument, but the ask price above it, in order to have “air” to close the position if he is taken off. In a falling market, the spread of the market maker usually moves more “southward” in order to have room for manoeuvre in the minimum range if he is sent pieces in the downward movement. This procedure is particularly common when one market maker alone dominates the market (as in the CFD market).
The graphic above shows this effect stylistically. The middle price ladder represents the order book of the underlying instrument and thus of the “free market”. The spread currently available here is marked blue. The left price ladder shows a comparatively common behaviour of the market position of a market maker in a falling market compared to the traded price spread in the underlying or reference security. The spreraddle applicable here is lower than the traded market in the underlying instrument. The right price ladder represents the possible price position of the market maker in a rising market. In this case, the quotes deviate upwards. Since the market maker wants to (and must) use the price fluctuations of the underlying instrument to minimise risks and increase earnings opportunities, the total spread of “his spread” in this “managed” derivative fluctuates more markedly than in the underlying instrument.
Another risk is the position risk. As a rule, a market maker does not attempt to enter any position risk into the book. If a larger volume is tendered, he tries to place it in the real market, i.e. in the underlying instrument, as soon as possible. In the options market, position risks are usually neutralised by attempted or targeted arbitrage (e.g. by synthesising a page). In the CFD market, the position risk can sometimes be “neutralized” quite clumsily by executing the order only after hedging in the “free market”. However, the latter annoyance has decreased in recent years due to order pooling.
By contrast, refinancing on the spread is still a common practice today. A reduction of this effect is achieved when the market maker charges an execution fee, a procedure that is currently enforced by some CFD brokers.
Both described risks are passed on to the buyer or seller of the derivative. However, the more market makers are active in a common market, the greater the efficiency will naturally become. At Eurex, several market makers operate simultaneously in the respective options markets, which makes them fairer to a greater extent.
This situation not only allows a subdivision of the markets into “free markets” and market maker markets, but also forces a subdivision of the market maker markets into those where several market makers are involved in pricing (e.g. Eurex options market) and those where a single market maker assumes the pricing and thus dominates its market (e.g. in the CFD market).
Which markets are better?
It is less a question of the advantages and disadvantages of the two types of market. It is more a question of the alternatives. Market makers are an indispensable necessity when it comes to making or keeping otherwise illiquid markets tradable. An OTC transaction such as the CFD transaction would be unthinkable without market makers. And the Eurex options market would also be less attractive if it had to do without the liquidity-providing market makers. And these advantages have their price.
But what we can certainly identify qualitative differences is whether we are talking about “monopolistic” market maker markets or markets in which several market makers ensure greater efficiency in pricing.
The question of the better market also arises, however, when it comes to the preferred trading style. In other words, the longer the planned movement distance of a position and the longer the planned positioning period, the less important it is whether one moves in the “free market” or in a market maker market. However, the shorter the positioning period becomes and the smaller the price ranges that the trader wants to exploit (e.g. in scalping), the more a market maker becomes a “brakeman” and a cost factor. Even though I don’t want to slow anyone down in their involvement in the market, one should already assess that a market maker market is not a suitable scalping market. Here, highly liquid “free markets” have a clear advantage.
When do we use the different order types in the markets?
All order types used in the market can be reduced to three basic forms: market, limit and stop orders. Any order type that goes beyond these three basic forms is a modification, extension or addition to one of them.
Eurex only accepts the three order placement options mentioned above, so all orders beyond these three types will be held in the respective clearer or broker servers. If the conditions in the market are then met, depending on the definition of the additional order type, the order is executed or placed, but then in one of the three basic forms mentioned above.
The correct allocation and thus also the exact use of order types is a basic requirement in futures trading in order to implement your trading ideas unerringly. Since there are always misunderstandings and uncertainties in this context, I would like to discuss the most important order types in the following.
Practical note: the three basic forms of order placement are the so-called standards, which every trader must be able to master absolutely and without error – there is no way around them. Meanwhile almost all trading interfaces offer the possibility to link order types with each other, so that an order execution automatically results in another order placement. This of course makes trading much easier and increases its speed. But this should not be taken as an opportunity to not master the setting and handling of the three basic types manually. A professional trader in the training phase is only allowed to use Algos once he has mastered trading in the basic form. Anyone can do mental arithmetic before receiving the calculator. Anyone who works with automatic stop course and target course placement in advance is practically like a career changer who simply skips learning these manual skills, which (as in any other profession) results in a less stable foundation for his daily work.
Let us start with the basic concepts:
A market order is a type of order that requires immediate execution of the order. If a buy order is given “market”, it is executed immediately at the next possible ask price. The same applies to a sell order placed “market”. If you compare this to the vocabulary on the stock exchange, it would correspond to a “cheapest” (buy) order or a “best” (sell) order. If you want to buy “market”, your priority is that you want to enter the market “in any case”, whereby the execution price is of secondary importance. The only restriction would therefore be that he buys as cheaply as possible, but still at the next possible price. If you want to sell “market”, your priority is that you want to execute a sell order “in any case”, whereby the execution price is also secondary. The only restriction would therefore be to sell as well as possible (i.e. “at best”), but still at the next possible price.
“Market” therefore means: “EXECUTE THE ORDERS NOW – NO MATTERS AS – AS TO THE NEXT POSSIBLE PRICE”. Market orders therefore always have a slippage risk.
As the name suggests, a Limit Order is a LIMITED ORDER. It limits something, it restricts. And this is the execution price. A buy limit order therefore limits the possible execution price on the top. For example, if we limit a buy order in FDAX to 11,700, then for the trading system it means: “I am ready to buy up to a MAXIMUM price of 11,700 points”.
This means: the buyer is ready to buy at ANY price as long as it is NOT higher than 11,700 points, but lower execution prices are accepted.
A limited sell order limits the possible execution price on the bottom. For example, if we limit a sell order in FDAX to 11.701, then for the trading system this means: “I am willing to sell up to a MINIMUM price of 11.701 points”.
This means: the seller is ready to sell at ANY price as long as it is NOT lower than 11.701 points, but higher execution prices are accepted.
Stop Market Order
A stop market order is practically a mixture of a limit order and a market order. Let us imagine that the price of the underlying asset (in this case the FDAX) is quoted at 11,985 points. In our example, we now assume that the FDAX could continue to rise, but could encounter potentially strong resistance at 12,000 points. We decide to enter the market only above the 12,000 points on the buy side, as we want to wait for the 12,000 points to be overcome. We place a stop-buy market order at 12.005.
What does that mean now?
Our placed order is held by the trading system, but not yet placed in the market. If a buy order with a “limit” of 12,005 would already be placed in the market when the price of the underlying asset is still quoted at 11,985 (or any other price below 12,005), the order would be executed immediately. Why? Because we would get a cheaper settlement / execution than that set at 12.005. Thus, for a “Stop Market Order”, the system “waits” until 12.005 is reached and then places the order directly in the market. When 12.005 is reached, the system converts the order originally “limited” to 12.005 into a valid market order. This means that if the 12.005 is reached, we trade at any price possible from then on, just like a classic market order, with the advantage of being in the market immediately, but with the disadvantage that our order could be executed with slippage.
Of course, this procedure also applies on the sell side. We place a stop-sell market order at 11,990 with a current FDAX price of 12,000 points.
What does this mean now?
Our placed order is held by the trading system, but not yet placed in the market. If a sell order with “limit” 11,985 would already be placed in the market when the price of the underlying asset is quoted at 12,000 points (or any other price above 12,000), the order would be executed immediately. Why? Because we would get a more favourable settlement / execution than that set at 11.985. Thus, for a “Stop Market Order”, the system “waits” until 11.985 is reached and then places the order directly in the market. However, when 11.985 is reached, the system converts the order originally “limited” to 11.985 into a valid market order. This means that when 11,985 is reached, we trade at any price possible from then on, just like a classic market order, with the advantage of being in the market immediately, but with the disadvantage that our order could be executed with slippage.
Stop Limit Order
A stop limit order is very similar to a classic limit order, except that it is lifted into the market as a limit order when the specified limit level is traded. We can state here, for both the buy and the sell side, that all the conditions and statements apply to this type of order, just like a stop market order. The only difference is that when the limited price level is reached, the system does not “market” the order, but places it in the market at the limited price.
This means that, unlike a stop-buy-market order, which aims to buy the market when the limited price level (e.g. 12.005) is reached, in this case the order is entered as a limit order. The advantage is that there is no slippage, since the order is a limit order when the market is entered. The disadvantage is also obvious: if the price continues to move without a reset, we will not be executed, as with a classically entered limit order.
Placement / execution of a limit / market order
Professional short term trading usually uses one type of order, namely limit orders, to work “fast”. With this basic setting we can place classic limit orders as well as trigger market orders. Let’s have a look at the DOM again in the stylistic representation.
We assume that the interface between bid and ask is at 11,999.50 (bid) and 12,000 (ask) and that this is shown in the graph above the blue line.
If we now click with the mouse in a blue field below the interface between bid and ask, i.e. below 12,000, a limit buy order is set (see “Limit Buy” in the chart). The order is placed because it means that we are willing to buy at the level clicked on (below the 12,000 bid price) and that this is practically limited in the upper part. For example, if we click on 11,995, it means that we are ready to buy at 11,995, and in no case more expensive.
However, if we now click in the blue column above the bid/ask interface (e.g. at 12.005), the order would immediately be executed at the next possible price, which in our case would be 12,000 (see “Market Buy” in the chart). Why? By clicking the 12.005, the system is told: “I am ready to buy now at 12.005 or cheaper, but not more expensive than 12.005.” The system now checks where the current lowest, and therefore cheapest, ask price is. This means that anything lower / cheaper than 12.005 is therefore eligible for immediate exercise. Since 12,000 is the lowest bid price in our example, the order is executed immediately at these 12,000 points.
If we click in the right red column above the bid/ask interface (e.g. at 12.005), a limit sell order is set (see “Limit sell” in the chart). The order is placed because it means that we are willing to sell at this level (above the 12.000 ask price) clicked. The order is thus practically limited at the bottom. For example, if we click on the 12.005, it means that we are ready to sell at 12.005, not lower / cheaper.
If we click on the right-hand column below the bid/ask interface (in our case on prices below 12,000 points), the order would be executed immediately at the next possible price, which in our case would be 11,999.50 (see “Market Sale” in the chart). Why? For example, when you click on 11.990, the system will tell you: “I am ready to sell now at 11.990 or better / more expensive, but not cheaper than 11.990.” The system will now check where the current highest, and therefore best, bid price is. In our example, this would be 11,999.50. This means that anything higher / more expensive than 11,990 is therefore eligible for immediate exercise. Since 11,999.50 is the highest bid price in our example, the order is executed immediately at these 11,999.50 points.
Placing a Stop Buy Market Order
Before we can place a stop buy market order, we must define a price that we want to buy when we reach it. This price is derived from a trigger line or a puncture high . We assume that this would be the 12,006.50.
If a Stop-Buy-Market Order with 12.006,50 is intended, we first activate the corresponding button in the DOM, which tells the system that this type of order should now be placed and then click on the blue column in the amount of 12.006,50. As long as this level is not traded, this order will not be executed. Only when the 12.006,50 is reached will the order type be activated and placed in the market as a “market order”.
Placing a Stop-Limit-Buy Order
Again, before we can place a stop limit buy order, we need to define a price that we want to buy when it is reached. This price is also derived from a trigger line (when used as a guard) or from a puncture high. We again assume that this would be the 12,006.50.
If a Stop-Limit-Buy Order with 12.006,50 is intended, we first activate the corresponding button in the DOM, which tells the system that this type of order should now be placed and then click on the blue column in the amount of 12.006,50. As long as this level is not traded, this order will not be executed. Only when the 12.006,50 is reached will the order type be activated and placed in the market as a “limit order”.
Placing a Stop-Sell-Market Order
Before we can place a Stop-Sell-Market order, we must define a price that we want to sell when it is reached. As in the buy examples, this price is derived from a trigger line or a puncture low. We assume that this would be the 11,996.50.
If a Stop-Sell-Market Order with 11,996.50 is intended, we first activate the corresponding button in the DOM, which tells the system that this type of order is to be placed and then click on the red column in the amount of 11,996.50. As long as this level is not traded, this order will not be executed. Only when 11,996.50 is reached will the order type be activated and placed in the market as a “market order”.
Placing a Stop-Limit-Sell Order
Again, before we can place a stop-limit sell order, we must define a price that we want to sell when it is reached. This price is derived from a trigger line (as explained above) or from a puncture low. We again assume that this would be 11,996.50.
If a Stop-Limit-Sell order at 11,996.50 is intended, we first activate the corresponding button in the DOM, which tells the system that this type of order is to be placed and then click on the red column at the level of 11,996.50. As long as this level is not traded, this order will not be executed. Only when 11,996.50 is reached will the order type be activated and placed in the market as a “limit order”.
Further order types
Order types going beyond this are combinations of the basic forms discussed above, whereby strictly speaking the stop limit order must also already be considered a combination order. The special thing about combination orders is that they always wait for a condition to occur in the market before setting a standard order type.
Probably the best known form of a combination order is the so-called bracket order. Here, the trader pursues the goal of securing his position by means of a stop price as soon as the position is opened (and only then) and to place a target price. In technical terms, this means: “an order is flanked by two further orders of the same quality as the original order, placed opposite each other”. This means that after opening a buy position, the system automatically places a predefined stop-sell order and a target order (as a limit sell order) in the market. In the case of an original sell order, the subsequent order placement would be the other way round, but comparable in principle.
Stop and Limit orders are also automatically linked as OCO orders , so that one order is deleted when the other order is executed. The stop price is deleted if the target price is reached and executed and vice versa.
Another popular order combination is the If-Touched Order. This type of order can be linked to both a buy and a sell order. An order of this type is placed when the order to be actually executed is to be placed in the market only when a predefined price level with turnover is reached, or when the ask or bid price arrives at that predefined level. For example, the order algorithm could be called: “when the price XY is reached (If Touched), place a buy/sell order in the market at this or that level, as this or that type of order”, which in turn can be linked as an OCO bracket order. The advantage is that this type of order is also not visible in the order book, and behind it is actually a whole algorithm sequence.
Reading the order book
Let us now return to the order book, which I have already mentioned in the presentation on the DOM. Reading the order book can quickly be overestimated in its actual importance as a source of information. In fact, it does not say as much as is readily interpreted into it. Nevertheless, some interesting aspects can be derived from the order book, which at least inform us about how the dominant players in each case assess the market, what influences their trading and placement behaviour.
I would like to begin my further remarks with the following statement: (1) we see only placed limit orders in the order book and (2) the fuller sides are traded preferentially (which is confirmed by exceptions to this rule). Stop orders or other types of orders are not shown in the order book and are therefore not visible to third parties.
As described in the section on order types, limit orders are passive orders that are placed in the book and can be “averaged”. They practically stand in their place in the order book and wait to be “picked up”. This passive character makes this type of order not very attractive for the short-term trading (KFH), which usually dominates for long stretches of the day. Most scalping traders trade predominantly on the market – i.e. they always trade at the current best bid or ask price – and are thus actively on the move. At least when opening a position, they work almost constantly on the market, whereby the positions are usually secured by a stop price (automatically placed by an algorithm) (which is not visible in the order book). The background is deliberate speed and flexibility, which is lost as soon as the placement of entry orders comes into play. This also applies to the more sedate commission trader, who also places only a part of his orders as a limit if he receives an order that needs to be actively processed. Thus, the orders we see are those that are specifically placed by customers or traders as passive limit orders, and are therefore only a small part of the orders that are traded in the market.
Since the active side is therefore not usually visible in the order book, this side is usually thinner than the side that is more passive at the time. The conclusion is quickly drawn: the fuller side should be the passive side in the majority of cases and thus be given preference.
Since the KFH is the most dominant player in the market during most of the day, I would like to briefly outline how it operates (I will give a more detailed description in the section on “Tracking”). An average good trader in professional trading, usually leads futures positions in the range of 50 to 100 pieces, some trade 150, a few traders work with larger trading positions. These position sizes cannot be built up sensibly in one piece, but must be taken in portions into your own book. In doing so, the trader “mixes” himself into the position – the same happens when reducing the position. Here the pieces are usually not closed out in a block, but in slices. The aim of this procedure is to have a more favourable entry price (mixed price) in the position than the (mixed) exit price is shown. This means that the trader does not depend on the individual execution, but on the entire package. Even if the average selling price is only behind the decimal point above the average buying price, the goal of the trade is achieved – the masses do it. This approach does not allow for lengthy order placement, but rather rapid execution and flexible reaction in the market. When you see professional trading interfaces, you will notice that the mixed price of positions is usually calculated here. The price differences between individual contract purchases and sales, on the other hand, are usually not taken into account because they are unimportant in relation to the total volume traded.
If the KFH, which usually dominates the day, is “on the move” in the market in this way, we see it almost not in the order book, but only recognize it in the overall chart during the development of a candle in the minute time window or in the Times & Sales list (whereby a trained eye is required for this, because the turnover here usually races through very quickly). If the market is considered by the more trading-oriented players within the scalping time window to be “uncertain” with regard to the direction to be expected, “uncertain” with regard to the expectation of third party orders or as highly volatile or little “predictable”, the management of the trading position usually remains in the hands of the trader, i.e. he trades entries and exits manually (i.e. market) and we do not see him in the order book.
Things are somewhat different when there are conspicuous interim consolidations and KFH also estimates that the trader is “among themselves” and the price could remain within the consolidation range. Then the procedure of some traders changes from time to time. Positions are still opened manually, but in order to close the position, it is better to try to close it by positioning limits close to possible impulse reversal points (limits of the consolidation range) in order to optimize the overall result of the current overall position. The first thing we notice in these phases is that limit orders suddenly build up in the order book on the respective opposite side of the current movement impulse near the expected impulse inflection points. What do we conclude from this?
(1) First of all, it can be confirmed that the current market dominance is the responsibility of KFH.
(2) We further conclude that the majority of traders assume that the market will continue its consolidation trend and that no further third party orders from the final  side are to be expected at the moment.
(3) We can see from the piling up limit orders in which trading direction the books of the traders are positioned, since the limit orders then visible in the order book are intended to close out the positions.
(4) We can also see that at least at that particular moment a certain calm and continuity in the consolidation movement is assumed, since the KFH, at least in the phase of position closing, gives up the active scepter and places it on the limit order (which does not prevent it from manually closing positions at any time, if the market does not seem to reach the set limits and/or the short-term market assessment changes).
(5) We then also know that the order sizes seen as limits (at least these – usually the KFH have more of them in the book) market will come into the market if the limits are not picked up.
But why should a trader show his pieces in the market? Wouldn’t it be better to leave the market in the dark about its position (partial) sizes? Not necessarily. A potential final client (and here I am referring to arbitrage traders as well) prefers to react to larger visible position pieces, as they can take them out of the market without moving the price noticeably. Thus, showing volume makes sense to signal to the final side: “You are looking for material? Here I offer it to you.”
What about the fake orders in the market?
A fake order is an order placement visible in the order book, which sometimes signals large order volume willing to trade without actually executing the order. In practice, volume and trading intention are faked without a real transaction being intended. Fake orders are set with the aim of influencing price movements, at least in the smallest time unit, since a wrong order situation is signalled in the order book. If the traded price approaches this fake order, it is deleted. Fake orders, if they occur in masses, are a nuisance, but they are not prohibited.
The Times and Sales List
The so-called Times and Salers listing provides a detailed insight into market events. Time and Sales is a chronological list of the total market activity of a security / futures. Each transaction that has taken place on the exchange is listed here line by line. With coloured update effects and price or turnover filters, Time and Sales is an interesting instrument for observing the market. We can see which market side is dominant in buying or selling, we can see which trading side was active and which side was passive at the time or even period of time.
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In practice, each trader will filter out the information that is important to him individually from the multitude of information provided. Order book and T&S are interesting information tools, but one should focus on what they actually provide. But without understanding which players are active in the market and without knowing how they work and what their goals and motives are, it is hardly possible to extract and evaluate the really important information from the order book and T&S in a meaningful way. This shows that learning how to track the market is by far the highest priority.
 Off-exchange trading, also known as OTC trading, direct or OTC trading, refers to financial transactions between market participants that are not settled on the stock exchange. OTC stands for “Over The Counter”, which can be translated as “over the counter”. OTC trading is called telephone trading in German, even though today it is mainly carried out electronically. Source Wikipedia
 “Shortening” (also known as short selling) is the sale of commercial products which one does not own at the time of the sale. If underlyings such as shares, bonds and similar products are shorted, these must be borrowed on the market, because in this case there is an effective delivery of the units after the transaction has been concluded.
 The reference or underlying is a tradable financial product to which derivatives refer or from which they are derived. Reference or underlying values can be: shares, bonds, indices, currencies, commodities, precious metals.
 Arbitrage is the process of correcting market imbalances. Arbitrage is very important in the markets as a provider of liquidity, so we will look at the topic of arbitrage in more detail.
 “Setting a market” is the term used to describe the fact that a market maker sets binding bid/ask prices at any time or on request, at an acceptable spread and with an acceptable volume. Market makers for options on Eurex have maximum spreads and minimum volumes set by the Exchange, which they must adhere to in order to meet their obligation of market position.
 We discuss how to find these chart marks in the section of the trading rules and regulations
 OCO = One Cancels Others
8] The term “final side” or “final customer” refers to market players who enter the market with a longer-term perspective, i.e. who take items out of the market or put them in without closing a position shortly afterwards. They thus act as final customers. Among the usual final clients are funds, insurance companies, pension funds, institutional investors, strictly speaking also arbitrage (be it index or options arbitrage).