big order effects

J

Javier

Trying to optimize filling, I would like to know the effect of a big order in the LOB. Lets asume a big order incomes lets say 4 ticks above price. It is suppose that that excess is only at that price. Why it could have any more impact in the price?

Tx
 
Javier said:
Trying to optimize filling, I would like to know the effect of a big order in the LOB. Lets asume a big order incomes lets say 4 ticks above price. It is suppose that that excess is only at that price. Why it could have any more impact in the price?

Tx
More...

Price impact would depend on the current liquidity and the routing strategy employed. If a large limit order is sent in 4 ticks above the current best offer, execution will occur at the current offer and up to 4 ticks higher, depending on how many shares are offered within those 4 ticks. If your order is big enough to "clear the books out" any unfilled remainder will be displayed 4 ticks higher and set the new best bid. Again, this will depend on your routing strategy (i.e whether it is fill-or-kill). If the order is a pass-through or intermarket sweep, this will not be the case. It can be hard to predict price impact, as undisplayed liquidity such as that of icebergs may exist. HFT can also be a factor, depending on what you're trading. In the worst case HFT scenario, your order will be gamed or front-run, lifting the current bids and offers and leaving you with only a partial execution and a price that is running away from you.

Best way to minimize price impact would be to employ a dark pool routing strategy or look into some of the more aggressive routing strategies that are offered by the exchanges and see if you have access to them in your execution platform.
 
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