Algorithmic Trading - Why?

S

Szeven

As most of you probably know, institutions use a variety of dark books, crossing networks, hidden liquidity pools etc to move large blocks of shares. I assume this is to not impact the market price of the given stock, and to obtain a better/faster fill.

As many of you also know, hundreds of traders have made it their entire strategy to arb these gateways, and are doing it with incredible success. You've probably seen the Pipeline commercials claiming leak proof block trading, but i've seen and personally done arb on those orders, so their claim is BS.

What im wondering, is why such networks/dark books even exist? Is 3, 5, 10, 20 million dollars a month just such a small amount that it doesnt matter that these traders are scalping the crap out of them? Certain gateways are worse than others of course, but overall i just dont get it. Does it cost more to employ someone to fill you 50k shares of BNI, than to send a 50k buy order to a dark book algorithm and have 20 traders scalp you for 25,000 bucks?

Please help me add context to this.
 
Quote from Szeven:

As most of you probably know, institutions use a variety of dark books, crossing networks, hidden liquidity pools etc to move large blocks of shares. I assume this is to not impact the market price of the given stock, and to obtain a better/faster fill.

As many of you also know, hundreds of traders have made it their entire strategy to arb these gateways, and are doing it with incredible success. You've probably seen the Pipeline commercials claiming leak proof block trading, but i've seen and personally done arb on those orders, so their claim is BS.

What im wondering, is why such networks/dark books even exist? Is 3, 5, 10, 20 million dollars a month just such a small amount that it doesnt matter that these traders are scalping the crap out of them? Certain gateways are worse than others of course, but overall i just dont get it. Does it cost more to employ someone to fill you 50k shares of BNI, than to send a 50k buy order to a dark book algorithm and have 20 traders scalp you for 25,000 bucks?

Please help me add context to this.
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How does the arb to dark books work?
 
That's a good one, I think I will ARB the NYFIX book.

Slippery hedgefunds always have and always will run ahead of institutional flow.
 
Quote from Szeven:

What im wondering, is why such networks/dark books even exist? Is 3, 5, 10, 20 million dollars a month just such a small amount that it doesnt matter that these traders are scalping the crap out of them? Certain gateways are worse than others of course, but overall i just dont get it. Does it cost more to employ someone to fill you 50k shares of BNI, than to send a 50k buy order to a dark book algorithm and have 20 traders scalp you for 25,000 bucks?

Please help me add context to this. [/QUOTE

i have also given much thought to this question Szeven and the answer i have come up with is.......the people using the dark books to place their orders do not view it as being "scalped" for 25000 bucks at all.....they wish to have an order of 50k or 5 million shares filled and they have decided upon a price that they wish to be filled at and construct an alogorithm that will obtain the necessary amout of shares for them at the wanted price......so by the time their order gets filled...the average price for which they have recieved all their shares in the price in which they originally set out as acceptable.....so they are neither being ripped off or screwed out of money by the so called scalpers.......but in fact they are very happy that the people filled their order in a very short amount of time.

For example...a couple weeks ago there was a buyer on SWY that was using a dark book.....and he would eat any amount of shares you fed him under the $26 mark.....he would buy from the $25.00 all the way to the $25.99...and he was just as happy buying the $25.10's as he was buying the $25.90's.....why??? because by the time his order of at least 3-4 million was filled his average price was probably somewhere around $25.70.......now look at the stock.......

Dont kid yourself....nobody would be using dark books if they beleived they were getting the short end of the stick. Dark books are a very handy tool for large institutions to use to collect very large amount of shares in a very short amount of time and this type of trading isnt going anywhere soon and in fact there will be more companies offering more typed of dark books in the future.

Obviously the above is just my humble opinion and couple be totally wrong.......but i highly doubt it
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Quick Question about Dark Books and other Algo techniques...

On the blog about Dark Books... it reads...

<i>""Dark Books are liquidity pools that match buy and sell orders without publishing a quote""</i>

All the <b>volume eventually done</b> does have to be reported to the exchanges sooner or later or immediately?

i follow a lot of volume indicators - so what is the story of with the volume reporting on these trades - anybody know?

cj...

:confused:

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