Next Generation Electronic Simulators for London SETS (NGETS)


Price Trends and Liquidity Dynamics in Limit Order Book

Malik and Markose (2014) focuses on the London SETS electronic order book market, which is fully rebuilt and is the basis of a simulator to design and build algo strategies in real time. Detailed analysis of the structure and statistical properties of the orderbook are possible.


We introduce the concept of Notional Volume Weighted Average Price (NVWAP) to construct liquidity supply and demand curves using full depth of a limit order book. Using data from the London Stock Exchange’s SETS platform, we find consistent observable patterns in NVWAP curves during periods of upward and downward price trends. we define four statistics that measure the change in the shape of NVWAP curves on bid and ask side of the limit order book and identify market trend. These statistics correctly identify prevailing market conditions for 88% to 97% of the observations. The NVWAP curves and change in the behaviour of liquidity supply and demand can be used in a high frequency algorithmic trading system on a real-time basis as a market trend indicator.

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