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A trader is interested in selling Eurodollar futures. Table 2 shows the current state of the order book: Table 2: Initial order book status 150
A trader is interested in selling Eurodollar futures. Table 2 shows the current state of the order book: Table 2: Initial order book status 150 Bid @ 99.5 160 Offer @ 99.52 130 Bid @ 99.49 200 Bid @ 99.48 a. What is the current mid price? [1 mark] b. What average price will the trader pay for a market order of 100 contracts? Explain your answer. [2 marks] c. What average price will the trader pay for a market order of 400 contracts? Explain why this is different from you answer in part (b). [4 marks] d. Show the expected state of the order book immediately after a market order to sell 400 contracts has been filled. [3 marks] e. The trader decides to use a limit order instead of a market order. Show the state of the order book if the trader submits an offer to sell 400 contracts at the inside spread (assuming the initial state of the order book as shown in table 2). [2 marks] f. What are the advantages and disadvantages of using a limit order? [3 marks]
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