Net vs imbalance

Can someone explain the difference between net amount and imbalance? I have an example in my notes (unfortunately I can’t remember where I got it from) but it looks like this:

Two orders:

Then it has:
Net amount = 60M
Imbalance = B 40M

That doesn’t look right to me. I would assume that the net balance would be 100M + (-60M) = 40M and the imbalance would be B 40M. It seems the net amount = the imbalance.

I am not sure if these are actual FX terms or wherever I got it from was using some custom terminology.

In any case, if someone can summarize the difference between net and imbalance when it comes to FX trading, that would be great :slight_smile:


It seems like your notes may have just been captured incorrectly. Simple math is all you need to really apply here, if you’re looking at a market where there are only two orders that exists.

When it comes to order flow, the essential concept to understand is how price is moving within liquidity zones.

Here’s a screenshot simple price action on the DOM for the US 10 Year which will help illustrate the above concept.

Both images are a before and after (taken about a minute within one another).
For the purposes of this convo, just focus on the innermost blue and red columns (market liquidity), and the two interior grey columns (executed market orders).

Notice how time is irrelevant when it comes to trading order flow (no need for “chart timeframe”). All we care about is volume, resting and executed orders.

First screenshot: The market is currently offered @ 20’s (you see 41 trades executed). Aka bid 15’s ask 20’s. There are 795 resting buy limit orders vs 575 resting sell limit orders. 795 people are waiting in line to get filled to go long. 575 people are waiting in line to get filled to go short. Yes, there are lines. :slight_smile: The only way those positions get filled is if someone enters a MARKET order. 1 contract is passed from 1 individual to another.

A sell market order hits the bid price. “Sellers are hitting the bid today hard”. Price go down.
A buy market order hits the offer. “Buyers are trying to lift the offer today hard”. Price go up.

The only way price changes levels, is when all resting orders are either executed, OR pulled.

The two numbers in the middle (62 v. 41): These are the executed market orders @ the bid and the ask.

Second screenshot: Now, the market has moved up and is currently bid 20’s. So, the first screenshot was bid 15 ask 20. The second is bid 20 ask 25. You can now see that 749 market orders were executed @ 20. If you look @ the first screenshot, you’ll see there were 575 resting @ 20, so some of those sellers may be getting trapped. Or, those could be longs covering.

This illustrates the imbalance between orders. What we really want to pay attention to is what actually is being executed, not so much where the limit orders are.

Hey Flack, let me know if you needed anything else and if you’re all good.