bid/ask bid volume/ask volume and tick data

Question

So far i've only traded some on plus500.

Here are my questions:

I don't really understand how things work in the background. I've understood that the ask price is the best sell offer available, the best one determines the ask price right? So let's say someone is selling 1000 of something for the best price which is 900 dollars each, now I decide to sell only 10 of the same thing for 899, a better price, now is that going to change the ask price to 899? Doesn't really make sense because I'm only selling 10.

Ok here is a line of eur/usd tickdata output from dukascopy:

Local time,Ask,Bid,AskVolume,BidVolume

01.01.2010 00:00:21.820,1.43228,1.43218,1.5000,2.3000

So ask is 1.43228 and ask volume is 1.5000, does that mean 1.5000 of that thing were offered for 1.43228, or was it actually sold?

How much is 1.5000? How am I supposed to know if it's thousands or millions.

Answer 1

Bid and ask are generically the best available limit orders currently on the book. On some exchanges there is a minimum lot size, so you might not be able to change the bid/ask price by putting out 1 unit, but you generally can change it but putting in an order that's inside the spread but at a lower quantity.

Usually when you get a quote, you get the bid and ask along with the number of shares available at those prices. If you're going to place an order for fewer shares, then this bid/ask is informative. If you're going to place an order for more, then you don't know what price you can get with just the bid/ask. On many markets it's possible to get the "order book" which will show you more than just the current best bid/ask - You'll also get information about limit orders on the book that are not currently the best available.

I cannot answer the question about the units on the specific quote line that you provided. Hopefully that's documented by the service that provided it to you.

Answer 2

Your question is about market microstructure; a relatively difficult topic. The bid and the ask are the last prices at which buy limits were filled by market sell orders, and sell limits were filled by market buy orders, respectively.

In the case of your example, if the ask is 900 and you enter a market sell order at 899, then this will interact with the best buy limit order on the book to be filled. If the bid was previously 898, then your transaction at 899 would move the bid to 899.

If, on the other hand, you were to place a sell limit order at 899, then you would be stepping in front of the ask price of 900, making your sell price the best one offered. As soon as a market buy order comes in, it will be crossed with your sell limit to fill at 899, making 899 the new ask.

This can all be rather difficult to visualize, and I suggest you maybe try looking at something like this article I published on limit orders, which contains a screenshot of an order entry matrix showing both bid and ask limit orders queued on the books of an exchange (or in your case a CFD provider). Once you have grasped this side of the puzzle, it is then much easier to understand how a marketable order such as a stop will interact with the book when it comes in.