A strategy that buys at the last observed price may be buying at a price nobody currently offers. Before estimating execution costs, a quant must reconstruct what prices and sizes were observable when the order decision was made. This lesson distinguishes transactions from quotes, defines a minimal executable market state, and builds a timeline that preserves the difference between when an event occurred and when the trading system learned about it.
Learning objectives. By the end of this note you should be able to:
- compute bid, ask, midpoint, spread and quote age;
- construct a causal trade-and-quote join;
- distinguish missing, stale, crossed and out-of-sequence observations;
- retain audit evidence when cleaning records;
- explain why a valid quote is not a guaranteed fill.
In this lesson
- A transaction is evidence of the past
- Two clocks and a sequence
- Quality flags carry economic information
- State is richer than a price
The full lesson, with worked examples and exercise solutions, is for members.
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