Quote Rule
Market Microstructure glossary · Spread Economics & Liquidity Measurement
Definition
Within the Lee–Ready algorithm, the first-step classification: a trade above the prevailing midpoint is buyer-initiated; below the midpoint, seller-initiated.
Quote Rule in plain English
When you look at a completed trade, you often can't tell who started it — the eager buyer or the eager seller. The Quote Rule is a simple first guess: markets have a 'midpoint,' the middle price between the best buy offer and best sell offer, so if a trade happened ABOVE that midpoint the buyer was probably the eager one (they reached up to pay more), and if it happened BELOW, the seller was eager (they dropped their price to unload). It's step one of the Lee-Ready method, a standard recipe researchers use to label trades as buyer- or seller-driven.
Practice Quote Rule
Related Market Microstructure terms
Market Microstructure practice questions · Market Microstructure flashcards · Market Microstructure study guide