How a Trade Is Born

In the previous lesson, we learned that the aggressor moves the price. But how exactly does the exchange connect the aggressor with a passive order? Let us look at this process from the inside.

The Matching Engine: Step by Step

A trader sends a market order to buy 10 ES contracts. The order book at that moment:

Order book BEFORE:
5525.50  | 10 contracts
5525.25  |  7 contracts
5525.00  |  5 contracts    <- best ask

A market order does not wait. It consumes liquidity starting from the best price:

Step 1. 5 contracts execute at 5525.00. Best ask is empty. 5 more to buy.

Step 2. Next best ask is 5525.25 with 7 contracts. Takes 5 of them. Order filled.

Order book AFTER:
5525.25  |  2 contracts     <- new best ask (was 7, took 5)
5525.50  | 10 contracts

Price moved from 5525.00 to 5525.25. One tick up. One aggressive buyer consumed the liquidity at best ask and pushed the price.

Here is what the matching engine (the order-matching system) recorded:

Price	Sold (at bid)	Bought (at ask)
5525.25	0	5
5525.00	0	5

This is the foundation of a footprint candle. Each row is a price level. Each number is aggressively executed contracts. The footprint records not what was sitting in the order book, but what actually happened: every meeting of aggressor with passive order.

Below you can "play through" this scenario and watch how the order book changes in real time, what appears in the tape, and what shows up in the footprint.

Absorption: When the Seller Refuses to Leave

Back to the fruit market. The buyer took all 5 kg from the seller at 100. Counter empty. The buyer is about to move to the next stall, but the seller pulls out another 5 kg from under the counter and puts them up at the same price -- 100. The buyer takes them. The seller pulls out more. The buyer takes them. The seller pulls out more again. Massive turnover, but the price does not budge.

On the exchange, this is called absorption. An aggressive buyer attacks a level, but a passive seller absorbs the entire flow. In the footprint -- enormous volume at one price level while price stands still.

ES, best ask at 5520.25. Over 30 seconds, a series of aggressive market buys totaling 140 contracts. Normally, this kind of flow moves price 2-3 ticks. But price does not move a single tick: a passive limit seller at 5520.25 absorbs everything. Buyers consume his volume -- he replenishes. They consume again -- he replenishes again.

The footprint tells a clear story: at the 5520.25 level, 140 contracts accumulate on the ask side (aggressive buys). Enormous turnover at a single price level, zero movement. This means a hidden seller is present in the market.

The Market Maker: The Middleman

One more character at the fruit market -- the middleman. He buys apples at 100 from one seller and immediately puts them up at 101 at the next stall. His profit is 1 per kilo. He does not care if apples go to 150. His business is that 1 on every transaction.

On the exchange, this is the market maker (MM). He simultaneously places limit orders on both the bid and the ask. The spread is his profit. On ES, one tick = $12.50 per contract. The MM buys at the bid and sells at the ask -- pocketing that tick. Tens of thousands of times a day.

Best conditions for the MM: price goes sideways. Worst: the market rockets. Before major news releases (NFP, CPI, FOMC), market makers pull their orders from the book. The book becomes thin, and the first seconds after the release produce wild candles: market orders slice through the empty book 5-10 levels in an instant.