Nanex ~ 21-Aug-2012 ~

Sub-penny for your thought

The image below was created by taking all trades that have prices requiring 3 or 4 decimals places and grouping them into 99 bins by using the last 2 digits of the price. For example, a trade with a price 27.6501 goes in bin 1, and a trade with a price 62.5463 goes in bin 63.

Then for each minute, sum up the share volume of all trades in each of the 99 bins. Finally subtract the one minute total of bin 1 from bin 99 and plot as a red line, then subtract bin 2 from bin 98 and plot as a (less red, more violet) line, bin 3 from bin 97 and so on until you end with subtracting bin 49 from bin 51 and plotting as a dark purple line.

Each day is a separate image comprised of 48 lines drawn from market open (9:30 EDT) to market close (16:00). Most of these lines draw over the top of each other. The lines that stand out in most of the images: 1/99 bin difference (red), 10/90 bin difference (green), and occasionally 20/80 bin difference (blue). Finally, the images are combined into one animated image which covers each trading day between January 2007 and August 20, 2012.

A few observations.

  • The sum of any of the lines (difference between bin 1 and bin 99 for example) over the course of the entire day will almost always balance to zero. See this animation.
  • The stocks involved don't matter. An abundance of prices at 1/100 will come from many different stocks, and will balance out with different stocks priced at 99/100.
  • We believe a line deviates from zero when there is an order imbalance at a particular internalizer (wholesaler). The imbalance never seems to go outside a certain range no matter how active or quiet the trading day (with few exceptions).
  • A line deviating above zero, is likely from retail buying demand, while a deviation below zero is from net retail selling.

A related animation can be found here

Nanex Research