Classifying Trades In FX And Crypto

The Trade Signing And The Lee-Ready Rule method — comparing a trade price to the prevailing quote midpoint, and falling back to the tick rule when a trade sits exactly on the midpoint — was built for a world with one clearly defined national best bid and offer. FX and crypto markets do not have that: FX trading is fragmented across many bilateral dealer venues and ECNs with no single consolidated quote, and crypto trading is split across dozens of exchanges, each publishing its own order book with no obligation to be consistent with any other. A trade classified as buyer-initiated on one venue's quotes might look seller-initiated against another venue's simultaneous quotes.

Practitioners adapt by classifying trades venue by venue, against that venue's own best bid/offer at the time, and then aggregating signed volume across venues rather than pretending there is one universal tape. The tick rule (comparing a trade to the previous trade price on the same venue) remains reliable, since it only needs data from a single continuous stream, but it degrades when trading is thin enough that the "previous trade" is stale. In practice, many crypto trading venues also publish an explicit taker-side flag with every trade — whether the aggressor lifted an ask or hit a bid — which sidesteps trade classification entirely and is preferred whenever it is available, since it is a fact reported by the exchange rather than an inference.