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What is the common criteria used to count a quote or trade in reference to the quote/trade ratio?

Criteria:

  • If it beats the best bid or offer.

  • If it adds size to the best bid or offer.

  • What if the best bid or offer is removed? Does this count or not?

There may be some other criteria I am missing - please do include them if you find one.

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First define a quote: this is the bid and ask (price and volume). when any of them 4 change, it is said the quote changed. We all know what a trade is (nevertheless note if you send a liquidity consuming order of 100 on a queue made of 50+20+30, it generates 3 trades).

You can play with statistics (like order-to-trade ratio, not quote-to-trade), on te SEC's MIDAS web site:

enter image description here

Here is an example of QoT ratio over one day from the NANEX web site:

enter image description here

For more on all these indicators and their meaning, have a look at Market Microstructure in Practice.

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  • $\begingroup$ your definition of a quote is different from his. $\endgroup$ – LazyCat Apr 16 '15 at 2:50

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