Marketwatch Order changes rapidly during market fluctuations

General
1

Hello All,

I have been trading stock options from last few months and have question regarding how bid/ask prices got changes so rapidly when some sudden price movement in spot price.

E.g Reliance is trading at 1550 and 1580 CE price let say 40.

Situation#1:
Spot: 1550
CE option: 40
Bid: 39.85, 39.8, 39.75
Ask: 40.1, 40.15, 40.2
LTP: 40
LTT: 10:30

Now suppose one upmove comes and fall into situation#2:

Situation#2:
Spot: 1550.5
CE option: 40
Bid: 40.05, 40.00, 39.95
Ask: 40.25, 40.3, 40.35
LTP: 40
LTT: 10:30

Here, LTP and LTT remains the same but all ask and bid price got changed so fast by all orders.

Actually this rapid price change (From 1550 to 1550.5), get easily execute at exchange but take some delay to reflect on Marketwatch/chart. Still operator/traders manage to change bid/ask in advance.

How? Is it all algo trade?

I would all interested to know if any other hidden reason is also there beyond algo trade.

3

Hi @Gautam,

Thank you for this wonderful reply. After your reply, I have scrapped some information from web to understand whole this concept.

After this understanding few more questions arised from me.

  1. Is it legal to do HFT trading? Or is it controlled by SEBI or exchange directly or indirectly?

  2. How such accounts got taxed? Is there any specific enquiry for such kind of accounts.

Although this question is not posted in taxation section, still wanted to know curiously.

Thanks.