Effective to quoted spread (ETQ)

ETQ is a widely-used metric for small order instantaneous price impact. It is essentially an easier-to-interpret Effective Spread that (when aggregated) normalizes for the usual spread differences between instruments. ETQ is based on the regulatory Effective Spread Value, though ETQ is not itself a regulator-mandated metric. Like Effective Spread, ETQ is meaningful only for aggressive orders that execute immediately.

Formula to get ETQ

ETQ := (VWAP - Mid_Price) * 2 * Direction / (Ask_Price - Bid_Price)

To calculate the Effective to Quoted Spread Ratio (ETQ) for every order, we need to determine the VWAP, Mid_Price, Ask_Price, Bid_Price, and the direction of each order. The ETQ is then calculated using the provided formula. Here’s the onetick.py code to do this:

import onetick.py as otp

# Define the symbol, orders database, quotes database, and date
symbol = 'TSLA'
orders_db = 'ORDERS_DB'
quotes_db = 'NYSE_TAQ'
date = otp.dt(2022, 3, 2)

# Load orders and quotes data
orders = otp.DataSource(orders_db, tick_type='ORDER', symbol=symbol)
quotes = otp.DataSource(quotes_db, tick_type='QTE', symbol=symbol)

# Filter for new (arrival) orders and get other orders
arrival_orders, other_orders = orders[(orders['STATE'] == 'N')]

# Join arrival orders with quotes based on timestamp
arrival_orders_with_quotes = otp.join_by_time([arrival_orders, quotes])

# Merge all ticks back to apply aggregation properly
merged_orders = arrival_orders_with_quotes + other_orders

# Aggregate to carry forward ask and bid prices, along with VWAP, 'SIDE' field, and mid-price
orders_agg = merged_orders.agg({
    'ASK_PRICE': otp.agg.first('ASK_PRICE'),
    'BID_PRICE': otp.agg.first('BID_PRICE'),
    'SIDE': otp.agg.first('SIDE'),
    'VWAP': otp.agg.vwap('PRICE_FILLED', 'QTY_FILLED')
}, group_by='ID')

# Calculate Mid_Price
orders_agg['MID_PRICE'] = (orders_agg['ASK_PRICE'] + orders_agg['BID_PRICE']) / 2

# Calculate Direction (1 for BUY, -1 for SELL)
orders_agg['DIRECTION'] = orders_agg.apply(lambda tick: 1 if tick['SIDE'] == 'BUY' else -1)

# Calculate ETQ
orders_agg['ETQ'] = (orders_agg['VWAP'] - orders_agg['MID_PRICE']) * 2 * orders_agg['DIRECTION'] / (orders_agg['ASK_PRICE'] - orders_agg['BID_PRICE'])

# Select relevant fields
orders_with_etq = orders_agg[['ID', 'ETQ']]

# Run the query for the specified date
df = otp.run(orders_with_etq, date=date)