Regularities and Irregularities in Order Flow Data
This work provides insights into market microstructure for financial analysts and traders, but it is incremental as it extends existing research on order flow patterns without introducing new methods.
The study analyzed order flow data from NASDAQ stocks to identify statistical patterns in order placement relative to the spread, finding that limit order placement inside the spread is strongly influenced by spread dynamics, while most orders arrive outside the spread, with variations in placement strategies across stocks affecting market order impact.
We identify and analyze statistical regularities and irregularities in the recent order flow of different NASDAQ stocks, focusing on the positions where orders are placed in the orderbook. This includes limit orders being placed outside of the spread, inside the spread and (effective) market orders. We find that limit order placement inside the spread is strongly determined by the dynamics of the spread size. Most orders, however, arrive outside of the spread. While for some stocks order placement on or next to the quotes is dominating, deeper price levels are more important for other stocks. As market orders are usually adjusted to the quote volume, the impact of market orders depends on the orderbook structure, which we find to be quite diverse among the analyzed stocks as a result of the way limit order placement takes place.