Crossed Market
A crossed market occurs when the bid price of a security exceeds its ask price, creating an anomalous pricing condition that violates normal market efficiency. This situation typically indicates either market disruption, data issues, or temporary market structure inefficiencies across multiple trading venues.
Understanding crossed markets
In normal market conditions, ask prices are always higher than bid prices, with the difference between them representing the bid-ask spread. However, when markets become crossed, this fundamental relationship breaks down, often due to:
- Latency differences between trading venues
- Market data synchronization issues
- Technical problems in trading systems
- Rapid market movements during high volatility periods
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QuestDB is an open-source time-series database optimized for market and heavy industry data. Built from scratch in Java and C++, it offers high-throughput ingestion and fast SQL queries with time-series extensions.
Market impact and significance
Crossed markets can significantly impact:
- Price discovery process
- Market efficiency
- Trading algorithm behavior
- Risk management systems
These conditions often trigger automated trading halts or circuit breakers to prevent disorderly trading and protect market integrity.
Detection and monitoring
Trading venues and market participants employ sophisticated monitoring systems to detect crossed markets:
- Real-time price validation checks
- Cross-venue price comparison
- Market data quality monitoring
- Automated alert systems
These systems help maintain market integrity and prevent trading on potentially erroneous prices.
Next generation time-series database
QuestDB is an open-source time-series database optimized for market and heavy industry data. Built from scratch in Java and C++, it offers high-throughput ingestion and fast SQL queries with time-series extensions.
Resolution mechanisms
Several mechanisms help resolve crossed markets:
Automated systems
- Trading halts
- Quote cancellation
- Price collar enforcement
- Smart Order Routing logic adjustments
Market participant actions
- Arbitrage trading
- Quote updates
- Order cancellations
- Trading venue notifications
Regulatory considerations
Regulators require market participants to:
- Maintain systems to prevent crossed markets
- Report significant crossing events
- Document resolution procedures
- Implement preventive controls
These requirements form part of broader market structure regulations designed to maintain orderly markets and protect investors.
Best practices for traders
Market participants should:
- Implement pre-trade controls
- Monitor for crossed conditions
- Have documented response procedures
- Maintain system capabilities to handle crossed markets
- Regular testing of detection and response systems
This helps ensure proper handling of crossed market conditions while managing associated risks.