Depths and Spreads in Futures Markets: Relationship with Order Execution, Submission and Cancellation

22 Pages Posted: 15 Mar 2019

See all articles by Alex Frino

Alex Frino

University of Wollongong

Ognjen Kovacevic

Macquarie University

Vito Mollica

Macquarie Graduate School of Management; Capital Markets CRC Limited (CMCRC); Macquarie University, Faculty of Business and Economics

Date Written: January 13, 2019

Abstract

This paper examines the relationship between limit order submissions and liquidity. We find that there is a negative relationship between the limit order arrival rate and depth at the best quotes (limit order queue length) and a positive relationship between submissions and bid-ask spreads. This is consistent with queuing theory predicting that an increase in the limit order arrival rate increases the queue length and therefore the time to execution of a limit order. Consequently, liquidity providers cover the increase in costs and risks associated with the increase in the time to execution of limit orders by increasing bid-ask spread.

Note: This research was funded under Corporations regulation 7.5.88 through the use of excess funds from the SFEFF.

Suggested Citation

Frino, Alex and Kovacevic, Ognjen and Mollica, Vito, Depths and Spreads in Futures Markets: Relationship with Order Execution, Submission and Cancellation (January 13, 2019). Available at SSRN: https://ssrn.com/abstract=3341280

Alex Frino

University of Wollongong ( email )

Northfields Avenue
Wollongong, New South Wales 2522
Australia

Ognjen Kovacevic (Contact Author)

Macquarie University ( email )

North Ryde
Sydney, New South Wales 2109
Australia
416232607 (Phone)

Vito Mollica

Macquarie Graduate School of Management ( email )

Capital Markets CRC Limited (CMCRC) ( email )

Level 3, 55 Harrington Street
Sydney, 2000
Australia

Macquarie University, Faculty of Business and Economics ( email )

Australia

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