EconPapers    
Economics at your fingertips  
 

Limit Orders, Trading Activity, and Transactions Costs in Equity Futures in an Electronic Trading Environment

Lorne Switzer () and Haibo Fan
Additional contact information
Haibo Fan: Concordia University

International Econometric Review (IER), 2010, vol. 2, issue 1, 11-35

Abstract: The behaviour of limit order quotes and trading activity are studied using a unique and rich database that includes the identity of market participants from a fully automated derivatives market. The analysis is performed using transactions records for three aggregated trader types and three trade identifiers, with trades stamped in milliseconds for the SXF, the equity futures contract of the Montreal Exchange. The identifiers distinguish trades between principals; agency based trades, as well as transactions that are conducted for risk management as opposed to speculative purposes. Agency related trades are shown to represent the largest amount of trading activity relative to other account types. Over 90% of trades in this electronic market are limit orders. The limit order book, especially the depth 1 order, has a dominant role in providing liquidity and in explaining market participants’ trading behaviour. Participants in the SXF reference their trades to the best limit order depth. Hence, investors with large positions or investors who want to build a large position have to strategically split large orders to close/build their position, according to the depth of the best limit order, to ameliorate price impact and information leakage effects. In addition, the results show that traditionally measured spreads have no relationship with trading costs.

Keywords: Limit Orders; Trading Activity; Transactions Costs; Electronic Trading (search for similar items in EconPapers)
JEL-codes: G13 G14 G18 (search for similar items in EconPapers)
Date: 2010
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://www.era.org.tr/makaleler/2041051.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:erh:journl:v:2:y:2010:i:1:p:11-35

Access Statistics for this article

International Econometric Review (IER) is currently edited by Asad Zaman

More articles in International Econometric Review (IER) from Econometric Research Association Contact information at EDIRC.
Bibliographic data for series maintained by M. F. Cosar ().

 
Page updated 2021-05-15
Handle: RePEc:erh:journl:v:2:y:2010:i:1:p:11-35