Volume - absolute and relative

G

Grant

Please look at the figures below.

A)
Bid volume = 2000
Ask volume = 1000
bid/ask ratio = 2:1


B)
Bid volume = 4000
Ask volume = 2000
bid/ask ratio = 2:1

Both ratios are equal but the volume for B) is double that in A). How could I distinguish the two in terms of a ratio or an alternative?

Thank you.

Grant.
 
You could maybe add a variable called spread?

bid/ask 1 = 2
spread 1 = 1000

bid/ask 2 = 2
spread 2 = 2000

Does your answer have to have a result with only one parameter?

Another possibility is to take the log of each number, then look at the ratio of logs.

1) log bid/log ask = 1.100343
2) log bid/log ask = 1.091193

You get a 10% incremental gain for each doubling that happens relative to 1,000 shares bid. But if the reference is no longer 1,000, the gain will drop proportionally.

i.e. 1000/2000 = 10%
2000/4000 = 9.12%
3000/6000 = 8.66%


or 1000/4000 = 20% (doubled twice)
2000/8000 -= 18.24%
3000/12,0000 = 17.31%
4000/15,000 = 16.71%

notice this tell you about doubling magnitudes and gives you an incremental difference the magnitude of the original quantities moves up.
 
Dtrader98,

Thank you for the reply. Being mathematically backward this was a difficult one for me.

As you pointed out the problem will be if the reference it’s constantly changing, which it is.

However, I reckon I’ve found a solution:

Originally

A)
Bid volume = 2000
Ask volume = 1000
bid/ask ratio = 2:1

Solution
Bid vol = 2000
log(2000) = 3.301
log(3.301) = 0.519

Ask vol = 1000
log(1000) = 3.000
log(3.000) = 0.477
0.519 + 0.477 = 0.996

B)
Bid vol = 4000
Ask vol = 2000
= 1.075

Extreme example:

Bid vol = 15,000
Ask vol = 1000
= 1.098


Grant.
 
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