What is market microstructure?
Market microstructure examines how trading rules, orders and available liquidity produce transactions and prices. For an electronic futures market, it helps explain why a chart can move, why a fill differs from an expected price, and why a large number on the order book is not the same as a completed trade.
Start with three separate observations: prices at which participants are willing to trade, quantities currently displayed at those prices, and trades that actually occurred. Mixing them produces misleading claims about buying strength, selling pressure or guaranteed support.
The book and the spread
The best bid is the highest displayed buying price and the best ask is the lowest displayed selling price. Their difference is the bid-ask spread. Orders can be added, modified, cancelled or executed, changing the book. The CME Liquidity Tool methodology explains how its book-based measures are constructed.
Displayed depth is a snapshot of available interest under the feed's coverage. It is not a commitment that every visible order will still exist when your order arrives. Executed volume is a different record: it counts completed transactions, with a buyer and seller on each side of the match.
A synthetic sequence
Imagine a fictional book with twenty contracts offered at 100.25 and thirty at 100.50. The best bid is 100.00. A marketable buy for twenty-five contracts arrives while the displayed offers remain unchanged and executable. In this simplified example, twenty contracts fill at 100.25 and five at 100.50, giving an average fill of 100.30.
The screen's last price before the order might have been 100.00. That was not a promise to fill a buy at 100.00. The example assumes no competing orders, hidden quantity, cancellations, protection limits or latency. Real execution needs those complications considered; a static screenshot cannot reconstruct them all.
Now change one detail. Before the buy arrives, the twenty contracts at 100.25 are cancelled. The available path changes even though no sale occurred at that price. A falling displayed offer quantity therefore does not, by itself, show aggressive buying. Compare book changes with transactions.
Why the data format matters
An aggregated market-by-price feed combines quantities at a price. Market-by-order data provides individual anonymous order information, offering a more detailed view of the book. CME's Market by Order FAQ explains the distinction. Greater detail still does not reveal the beneficial owner's identity or complete motivation.
Matching priority also depends on the product's rules. Do not apply a simple first-in-first-out queue assumption to every market. Check the current exchange and platform documentation before claiming an exact fill probability or reconstructing where your order stood.
Aggression is not the same as success
Aggressive buying interacts with available offers; aggressive selling interacts with bids. Delta summarises a chosen classification of that activity. A positive reading can coexist with little upward progress when the available selling liquidity keeps meeting the buying. A negative reading can coexist with a market that refuses to move lower.
These observations invite competing explanations. They do not automatically identify a hidden institution, establish a reversal or validate a trade. Examine subsequent price response, the broader location and whether the evidence supports the decision rule you wrote beforehand.
An observation exercise
In replay, select a short interval around a planned reference. First record only displayed changes. Then add the transaction record. Finally add the price path. For each stage, write what you can observe directly and what remains an inference. Keep the interval short enough to inspect the sequence carefully.
Ask whether your interpretation changes when a large order disappears without trading, when many trades occur without price progress, or when price moves through sparse depth. These contrasts are more useful than memorising that one colour means buy and another means sell.
Limitations and next steps
Delayed feeds, bundled updates, missing depth, platform aggregation and connection latency can change what you see. Public data does not show every participant's intentions, positions or related-market activity. Do not use a colourful book as a substitute for a plan when its timing or coverage is uncertain.
Use the order-flow guide to connect observations to a question, and execution to understand the consequences for orders. The decision exercises let you examine these distinctions using fictional situations. They contain no live exchange data.