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2005issue C121

Read the tape, name the liquidity job, then route for price

A historical execution classroom: treat a lone top-of-book quote as incomplete tape, name whether the work is providing liquidity or seeking disparities, and rank price improvement above speed except around news and official government numbers.

  • A single top-of-book quote is incomplete tape input until book depth and the fair-value-gap are in view.
  • Do not place an order a penny or two in front of large displayed-size, because price is described as moving to that size and often through it.
  • Name the job first: providing-liquidity, sometimes on both sides of the same name, or seeking-disparities with a same-sector pair or offset.
  • Order-routing prefers the specialist path when a better price is the goal and the exchange electronic path when a quicker fill is required; price-improvement ranks above speed except around news and official numbers.
Entries in this reading3 entries
Liquidity-seeking execution4 readingsCurrent trackTape reading21 readingsOrder routing65 readings

An editorial classroom drill

TradersWeek editorial: the archive workflow is taught here as a three-step classroom drill. First, refuse a naked top-of-book quote. Second, name whether the intent is providing-liquidity or seeking-disparities. Third, choose order-routing for price-improvement unless news or official government numbers make speed the scarce resource.

The archive frames tape-reading as an encompassing skill. It is spoken aloud until directional tape and anticipated large prints are recognized without stepwise checking.

Read displayed size with the quote

Tape-reading is reading displayed-size, prints, and quote context together instead of acting on a single top-of-book snapshot. Book depth and the fair-value-gap, the live quote's premium or discount to estimated fair value, are required context before a side is chosen.

Placing an order a penny or two in front of a large displayed order is rejected. Displayed-size is the visible quantity at the bid or offer. Price is described as moving to that size and often through it.

Name providing liquidity or seeking disparities

Trading activity is reduced to two jobs: providing-liquidity and seeking-disparities. Liquidity-seeking is posting or taking liquidity to stabilize a two-sided market or to capture a valuation or relative-price gap.

Providing-liquidity means resting bids and offers, sometimes on both sides of the same name, to earn the spread rather than chase it. Two-sided bids and offers in the same names are described as a way to keep prices more stable and to collect a reward for supplying liquidity.

Seeking-disparities means pairing or offsetting names when valuations or relative moves look out of line inside a sector. Relative-value setups pair a better-valued name against a weaker same-sector peer and offset a name that has moved too far versus those peers.

Route for price unless news makes speed scarce

Order-routing is choosing among specialist, electronic, and other paths according to whether the fill should optimize price or speed. For listed scalping, the specialist path is preferred when a better price is the goal. An exchange electronic path is reserved for cases that need a quicker fill.

Except around news items and official government numbers, price-improvement is ranked above execution speed. Price-improvement is a better fill than the visible quote and is treated as the default goal except around news and official numbers.

Educational research material, not investment advice. Historical source context does not establish present-day performance.
11 of 20 in the Tape reading track
20061-1 pp.Next on Tape readingFill entitlement, hybrid routing, and pairs sequencingTime-priority generally allocates competing interest at the same price by arrival time first.
All readings on this track · 20 readings
  1. 1986Open outcry hand signals as order routing
  2. 1989Finishing a market order in a first index-pit session
  3. 2001Ticket charges, internalization, and hidden size on the tape
  4. 2003Opening auction indications, premium and print size
  5. 2003Listed open order routing and the short-sale tape
  6. 2003Opening indication, one-sided envelope, and the sector tape check
  7. 2003Opening auction fills and the post-print tape
  8. 2004Specialist prints, opening exits and live tape filters
  9. 2005A tape-reading case study of support, resistance, and breakout confirmation
  10. 2005Tape flips versus idle capital: a process critique
  11. 2005Read the tape, name the liquidity job, then route for price
  12. 2006Fill entitlement, hybrid routing, and pairs sequencing
  13. 2006Alerts over resting stops, with tape-reading at the exit
  14. 2006When crowd levels diverge from Fibonacci support
  15. 2008Perfect prints before the chart
  16. 2008Hidden size, tape delay, and pairs shorts belong in the trade rule
  17. 2010Inside the spread: why OHLC bars hide the buy-sell shift
  18. 2010Specialist pair books sized for dividends and tape
  19. 2016Tape reading as judgment under distraction
  20. 2018Tape-reading breakouts with increment stops
By fieldLiquidity and costs155 readingsBy year2005167 readings
All 21 readings tagged Tape reading
Also on Tape reading5 readings
2014Order routing, pass-through rebates, and liquidity choiceLiquidity-seeking execution2011When to raise participation without blocking the tapeLiquidity-seeking execution2012Broken quotes as liquidity eventsLiquidity-seeking execution1986Open outcry hand signals as order routing1989Finishing a market order in a first index-pit session