Market Analysis Interactive
Market Microstructure
Understand how betting markets work at the order level. Spreads, depth, price discovery, and the flow of information through prices.
📊 The Bid-Ask Spread
In a two-way market, there's always a gap between buy and sell prices. This spread compensates the market maker for risk and inventory.
- Bid: Price to buy (Back) = Fair - Spread/2
- Ask: Price to sell (Lay) = Fair + Spread/2
- Spread: Market maker's compensation
Current Market
Bid (buy at) -1.5
Fair Value 0.0
Ask (sell at) 1.5
Spread 3 pts
Market Parameters
1 10
5 80
10000 200000
📊 Market Quality
Quoted Spread 3 pts
Effective Spread 2.4 pts
Price Impact 2.00 bp/$K
Price Discovery Over Time
Higher sharp flow = faster convergence to fair value. Public noise adds volatility.
Market Structure Elements
Bid-Ask Spread
3 pts
Gap between buy/sell prices
Depth
$50K
Total $ at best prices
Sharp Flow
30%
% of volume from informed traders
Price Impact
2.00 bp/$K
Move per $ bet
📚 Key Concepts
Informed vs Uninformed Flow
- → Sharp flow: Moves market toward fair value
- → Public flow: Adds noise, creates opportunity
- → Market makers widen spreads when sharp flow is high
Price Impact
- → Large bets move the market against you
- → Split large bets across time/books
- → Thin markets = higher impact
R Code Equivalent
# Market microstructure simulation
simulate_price_discovery <- function(n_steps, sharp_frac, fair_value = 0) {
prices <- numeric(n_steps + 1)
prices[1] <- fair_value + rnorm(1, 0, 2)
for (s in 2:(n_steps + 1)) {
prev <- prices[s - 1]
# Sharp flow moves toward fair value
sharp_move <- (fair_value - prev) * sharp_frac * 0.3
# Public adds noise
public_noise <- rnorm(1, 0, (1 - sharp_frac) * 1.5)
prices[s] <- prev + sharp_move + public_noise
}
return(prices)
}
# Calculate effective spread
effective_spread <- function(executions, quotes) {
# 2 * |execution_price - midpoint|
mean(2 * abs(executions - (quotes$bid + quotes$ask) / 2))
}
prices <- simulate_price_discovery(20, 0.3)
plot(prices, type = "l", main = "Price Discovery")✅ Key Takeaways
- • Spread = market maker's compensation
- • Sharp flow drives price discovery
- • Liquidity determines price impact
- • Wide spreads when sharps are active
- • Split large bets to reduce impact
- • Markets converge to fair value over time