The potential yield of the instrument. - page 8
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liquidity using this formula: ( SUM(Ask[i]) / SUM(Bid[i]) - 1 ) ^ -1
i.e. it turns out the average spread minus the first degree
What are you doing? Oh my God!
By definition: Sp=Ask-Bid, respectively, the average spread is 1/n*SUM(Ask[i]-Bid[i]))=(SUM(Ask[i])/SUM(Bid[i])-1)*1/n*(SUM(Bid[i]), it would approximately give Bid[0]*(SUM(Ask[i])/SUM(Bid[i])-1).
It doesn't work out to be an average spread minus the first degree!
Oh, come on! Oh, for fuck's sake!
By definition: Sp=Ask-Bid,
and then where would you put a spread like that?
>> I didn't put the spread in quotes, I thought I'd be misunderstood.
We're comparing different instruments here (at least I am), so spreads should be brought to a common denominator!
О! Well, so write "relative spread".
Then, for it is true: SUM(Ask[i]) / SUM(Bid[i]) - 1
Without the minus of the first degree. And what you quoted is the inverse of that value.
О! Well, so write "relative spread".
Then, for it is true: SUM(Ask[i]) / SUM(Bid[i]) - 1
Without the minus of the first degree. And what you cited is the inverse of that value.
The bigger the spread, the less liquidity
the bigger the spread, the less liquidity
Now I've got it!
Actually, the assessment of an instrument's return, apart from its predictability, includes volatility, spread, stop levels and it's all connected in a rather tricky way.
from the point of view of instrument's yield it is interesting to see its walking qualities in relation to spread. I.e. Average ((High[i]-Low[i])/Spread) The bigger the value, the lesser the overhead for the trade. By the way, with increasing volatility (High-Low) many brokerage companies raised the spread to reduce the average potential profitability of clients to previous levels
all right, potential of the instrument is normalized to its spread
it was interesting to compare the potentials without considering the liquidity and look at the liquidity separately
the higher the spread, the lower the liquidity
right, hypothetically with zero spread the liquidity tends to infinity )
but as Neutron rightly pointed out this is an abstract model
If we ignore the predictability of the instrument, then in first approximation its yield is proportional to this value:
Sigma, is the volatility, H is the stop levels. If we assume that the stop levels are much larger than the spread and the volatility on the minutes is commensurate with the spread, then the expression becomes simplified:
We can see that the instrument outlook is roughly determined by the square of the commission-to-stop levels ratio and the square of the volatility-to-stop ratio.
If we neglect the predictability of the instrument, then in first approximation its yield is proportional to this value:
Sigma, is the volatility, H is the stop levels. If we assume that the stop levels are much larger than the spread and the volatility on the minutes is commensurate with the spread, then the expression becomes simplified:
We can see that the instrument outlook is roughly determined by the square of the commission-to-stop levels ratio and the square of the volatility-to-stop ratio.
From the mathematical point of view it is correct, but from the practical point of view it depends more on the luck factor. And this factor is much more important than many people think. There have been cases where a person has bought two lottery tickets and won two cars and some people have bought tickets all their lives and they have all been empty.
Zy. Randomness is stronger than maths....