Market Mechanics

How venues clear trades — order books, makers, takers, spreads, and adverse selection.

Adverse Selection

When your resting limit order gets filled instantly, the counterparty is often better-informed than you. Adverse selection is the systematic loss makers absorb on those picked-off fills.

Maker vs. Taker

A maker posts a resting limit order and provides liquidity; a taker crosses the spread to fill immediately and removes it. The distinction drives fees, fill quality, and who bears adverse selection.

Microprice

The microprice is a size-weighted fair value between the bid and ask, pulled toward the heavier side of the book. It estimates where price is really trading given standing liquidity.

Order Flow Imbalance (OFI)

OFI measures net buying-versus-selling pressure over a window, normalized to compare across markets. Cont, Kukanov & Stoikov (2014) tied it directly to short-horizon price moves.

VPIN

Volume-Synchronized Probability of Informed Trading — a real-time gauge of order-flow toxicity. When one side consistently absorbs the other, VPIN rises and market makers are at risk.