Market Data And Feeds

When you backtest a strategy and it “works” on paper, do you know whether your code replayed the same information the market actually sent? If your pipeline mixes up trades and quotes, you can invent fills that never existed - or miss fills you should have captured.

Ticks and quotes look similar in a chart, but they carry different meanings at the feed level. A tick stream can represent trades, quotes, or both; a quote update can arrive without a trade happening; and a trade can reference a price level that your latest quote snapshot no longer matches. This chapter maps the market microstructure terms you see in research and order logic to the concrete message types you receive from real feeds, then ties those definitions directly to downstream correctness.

After this chapter, you will be able to (1) classify incoming feed messages as “trade-like” or “quote-like” using strict rules, (2) build a consistent in-memory state that separates last traded price from best bid/ask, and (3) wire your trading logic so it consumes the right timestamp, the right fields, and the right ordering guarantees. You will also get a practical scenario - using Riya Patel’s typical buy-side developer workflow - to show how a single mis-definition cascades into broken fills and incorrect risk.

Why This Matters: Definitions decide what your system thinks happened

A trade means execution. A quote means a displayed market state. That distinction sounds obvious until you hit real feed plumbing: providers send “tick” messages, “quote” messages, and sometimes “update” messages that bundle multiple concepts. If your code treats a quote update as if it were a trade, you will update your position and P&L from a state change that never executed. If your code treats a trade as if it were a quote snapshot, you will overwrite your best bid/ask with stale or incomplete context.

The failure mode gets worse when you add event time and ordering. Feeds usually include multiple timestamps (for example, exchange time and receive time). If you compare “last trade” to “current best bid/ask” using inconsistent clocks, you will compute spreads and slippage from mismatched horizons. A backtest can still look smooth, because your logic stays internally consistent, but it becomes wrong relative to the actual sequence of information the market published.

This is where the Tick-Quote Taxonomy Map earns its keep. You will use it as a vocabulary bridge: map each microstructure term to the exact feed message class that can represent it, then enforce the mapping in your parser and state manager. When you do that, your downstream logic stops guessing. It stops making “reasonable assumptions” and instead follows rules you can test with replay logs.

Concrete example: suppose your strategy triggers when the “price crosses the bid.” If you read “price” as “last traded price” but your feed parser occasionally labels quote updates as trades, your trigger fires at quote refresh boundaries. You then place orders and measure fills against the wrong reference price. That turns a crossing rule into a timer-driven rule. You might not notice until you compare your fills to an exchange-level audit trail.

How It Works: The Tick-Quote Taxonomy Map for real feed messages

The core technique is simple: you define a strict classification for every incoming message, then you maintain two separate state objects - one for executions (trades) and one for market display (quotes). The Tick-Quote Taxonomy Map gives you the mapping rules from common microstructure terms to feed message types.

Use these classification rules in your parser. Treat them as hard gates, not “best effort” guesses.

1. Classify “trade-like” messages as executions

• A “trade” (or “last trade”) updates execution state: executed price, executed size, and trade direction (if provided).
• In the feed, you typically recognize these by fields like `price` + `size` (or `quantity`) that represent an actual match, along with a trade identifier or execution sequence number.
• Expected outcome: your execution state updates only when you receive a message that asserts a match occurred.

2. Classify “quote-like” messages as displayed order book state

• A “quote” (or “best bid/ask”) updates display state: bid price/size and ask price/size at a specific level, usually top-of-book for “best.”
• In the feed, you typically recognize these by fields like `bid_price`/`bid_size` and `ask_price`/`ask_size`, or a `side` plus `price`/`size` that explicitly denotes quote changes rather than executions.
• Expected outcome: your best bid/ask state updates only when you receive a message that describes order book display, not a match.

3....