Are GTC limit orders -EV?

[ScroogeMcDuck]

Due to a merger rumor or something, the fair value of any stock could intraday gap past your limit order and you could get past-posted (an analogy to placing a bet on roulette after the ball has landed). You could end up selling at your limit price, way below the new fair value.

OTOH, if the stock is randomly fluctuating within a range, and you have a limit sell near the high end of the range, that could be profitable as a mean reversion trade.

Are there any data on the relative profitability of different order types? Is there any theory for deciding how large bid-ask spreads OUGHT to be to compensate a liquidity provider for the risks he takes?

 

[Snuskpelle]

Limit orders in general open you up to adverse selection as other market participants are keen to fill you at a good time for them (which can be a bad time for you, especially considering HFT). I would only use them in backtested strategies where they have been shown to be helpful.

 

[systematictrader]

Due to a merger rumor or something, the fair value of any stock could intraday gap past your limit order and you could get past-posted (an analogy to placing a bet on roulette after the ball has landed). You could end up selling at your limit price, way below the new fair value.

OTOH, if the stock is randomly fluctuating within a range, and you have a limit sell near the high end of the range, that could be profitable as a mean reversion trade.

Are there any data on the relative profitability of different order types? Is there any theory for deciding how large bid-ask spreads OUGHT to be to compensate a liquidity provider for the risks he takes?

Use options

 

[ScroogeMcDuck]

Use options

So if you have 100 shares of CACC that you intend to sell at $400, then you should write a $400 strike call on CACC every month? Makes sense -- at least then you're collecting a premium for committing to sell at $400.

 

[systematictrader]

So if you have 100 shares of CACC that you intend to sell at $400, then you should write a $400 strike call on CACC every month? Makes sense -- at least then you're collecting a premium for committing to sell at $400.

no use calls to buy and puts to short so ur not worried too much about a limit order of ur stock