In reference to the link, under Market Microstructure Signals, the so called "Trade Impulse" signal was mentioned .

  1. In the example, the -0.25 that was used - should that be the tick size of the security or the difference between the best bid and 2nd best bid?

  2. What is this denominator referring to exactly? It mentions "but with the average bid and offer quantity in the denominator instead of the current quantity".


1 Answer 1

  1. No, this is the spread in price units. You can checksum that this is what the author intended from the later statement, which shows that book pressure and trade impulse are in price units in order for it to match the other side of the equation, i.e. theoretical price is not dimensionless here:

Theoretical price is = book pressure + trade impulse = (99.001 + 98.755)/(1+5) + -0.25*9/15 = 98.79167 – 0.15 = $98.64167!

  1. Average here means averaged over a lookback time window.
  • $\begingroup$ Thanks! For qn 2, I meant to ask if its like say the average bid and ask size order of at top of book? $\endgroup$ Nov 16, 2023 at 11:45
  • $\begingroup$ @emptydoubleu Yes. $\endgroup$
    – databento
    Nov 20, 2023 at 5:17

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