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Execution quality in open‐outcry futures markets
Author(s) -
Kurov Alexander
Publication year - 2005
Publication title -
journal of futures markets
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.88
H-Index - 55
eISSN - 1096-9934
pISSN - 0270-7314
DOI - 10.1002/fut.20176
Subject(s) - market liquidity , futures contract , equity (law) , high frequency trading , order (exchange) , business , futures market , order book , volatility (finance) , financial economics , limit (mathematics) , price discovery , economics , adverse selection , market maker , monetary economics , actuarial science , finance , mathematics , mathematical analysis , paleontology , horse , political science , law , stock market , biology
This study examines the composition of customer order .flow and the execution quality for different types of customer orders in six futures pits of the Chicago Mercantile Exchange (CME). It is shown that off‐exchange customers frequently provide liquidity to other traders by submitting limit orders. The determinants of customers' choice between limit and market orders are examined, and it is found that higher bid—ask spreads increase the limit‐order submission frequency, and increased price volatility makes limit‐order submission less likely. Effective spreads, trading revenues, and turnaround times for customer liquidity‐demanding and limit orders are also documented. Consistent with evidence from equity markets, the results show that limit‐order traders receive better executions than traders using liquidity‐demanding orders, but incur adverse selection costs. © 2005 Wiley Periodicals, Inc. Jrl Fut Mark 25:1067–1092, 2005