The market price and last traded price of a futures contract are often confused with one another. However, both have completely different meanings that are important for all traders to understand. If a trader doesn’t understand the difference between the last traded price and the market price, the trade may be fulfilled at an undesired price.
Perhaps for novice traders, it would seem only logical that market price and last traded price imply the same value. However, market volatility, inconsistent standards, and variations in liquidity create a clear distinction between the meaning of last price and market price.
The last traded price is simply the last price at which a trade occurred in a futures contract. The quote for the last traded price can be found under the “last” column or on a depth of market.
Depending on the liquidity of a market, the last traded price could have occurred one second ago or one day ago. For example, in an illiquid market, such as deferred month oats, trades will occur very infrequently and will trade in wide price ranges. This often results in the market price (bid and ask) being far from the last traded price.
Unlike the last traded price, the market price is the price that a futures contract is either offered for (known as the “ask”) or the price someone is willing to buy a futures contract (known as the “bid”). The quotes for these can be found under the “bid” and “ask” quote columns or highlighted in green (bid) and red (ask) on a depth of market. (See below.)
If a trader is buying a futures contract, the market price is the asking price. If a trader is selling a futures contract, the market price is the bid price.
As one will see in the depth of market below for the Sept. 14 oats contract, the bid is 3.36 (in green), the ask is 3.44 (in red), and the last traded price is 3.40 (in bold black). This picture illustrates not only the difference between the last traded price, the bid, and the ask but also shows the lack of liquidity and how different the three prices are.
Any trades are educational examples only. They do not include commissions and fees.
Each bid and ask (market price) has a certain size as well. The quotes for the bid size and ask size are listed under “bid size” and “ask size” in the quote columns or can be found on a depth of market, as seen in the picture above.
Depending on the liquidity of a market, the bid size and ask size can vary greatly. For instance, in an illiquid market, such as the Sept. 14 oats shown above, one will notice that the bid size of four and the ask size of two is very small. Due to the lack of liquidity at the market prices, fills on multiple contracts—when placing market orders—can occur at the same price (if liquid), or completely different prices (if illiquid).
As an additional example, if one were to place a market order to sell seven Sept. 14 oats contracts, that trader would be filled on four contracts at 3.36, two contracts at 3.3525, and one contract at 3.3425. This illustrates how market orders in illiquid markets can drastically change the prices if one is filled on multiple contracts.
Ultimately, every product or service has a bid price, asking price, and last traded price. There is always a price that a buyer is willing to pay (bid), a price that a seller is willing to sell (ask), and a price at which the trade occurs (traded price).
Using a house as an example, the last traded price is whatever price at which the house was last purchased and sold for. After the house is purchased and sold (last traded price), however, the market price is whatever price the owner is willing to take to sell the house (asking price) and whatever price a buyer is willing to pay for it (bid). Ultimately, until a bid meets the asking price, the next trade for that house won’t occur. The same is true for a futures contract.
Although sometimes the case, often, the last traded price isn’t the same as the market price. With a clear understanding of the difference between trade price and market price, traders can refine their futures trading strategies to account for significant or sudden changes in the market.