Depth and Spreads in Futures Markets: Relationship With Limit Order Submissions
21 Pages Posted: 7 Jan 2019
Date Written: January 15, 2018
Abstract
This paper examines how limit order submissions affect liquidity measures, in light of queuing order and waiting cost theory. We find empirical support of an adverse impact of higher number of submissions on liquidity due to lengthening of the queue. This leads to wider spreads and less depth at best quotes. Executions reduce the average waiting times and lead to lower charges in terms of bid-ask spread and higher liquidity immediately available for trade at best quotes. We find evidence of cancellations having similar impact as executions – narrowing the spreads and increasing depth volumes available at best quotes.
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