Can OTO orders be used to earn the bid-ask spread?

T

TSLexi

Can OTO orders be used to move prices?

Like let's say XYZ is trading at $9.99x100-$10.00x75. Let's say I place a buy limit at $10.05x300 that triggers a sell limit order of $10.06x300.

My bid would be the highest bid, so it would have to be displayed. This would stimulate a bunch of buying, and the MM would have to increase the ask to maintain an balanced market.

I know MMs often make NITBB/NITSO orders, but would I get in trouble with the exchange for doing this?
 
No.

You'll get a fill somewhere between 10.00 and 10.05. Probably at 10.00 and then you'll just have a limit order sitting their waiting to sell at 10.06.
 
You buy limit order (assuming FOK) will execute a buy at 10.00. Assuming there is no iceburg orders sitting across 10-10.05, and your x300 will sweep the market at 10.00, possibly higher handles as well. MM may increase the spread by not submitting a lower priced sell order - which puts your sell order closer to the front of the queue at 10.06 (if your execution system is fast enough - likely not).

If your objective is to sweep the market by executing a low volume order and get filled at the next price level with equal or higher volume (rebate game), you are likely not going to win this game.

From exchange perspective, why would you think you would get in trouble?
 
Is there anyway I can make a limit order that can ONLY be filled at the specified price, and not any higher or lower?
 
You're effectively trying to eat the lunches of market makers here. The issue is, is that you need enough capital to blow through multiple levels of the offer. Then you have to get the MMs to be willing to quote enough size for you to offload your inventory.

Fairly similar to what these guys did:

http://www.ft.com/cms/s/0/9a4aa5b8-d7bd-11df-b478-00144feabdc0.html#axzz2jsZjBHMF

FWIW I think if these traders were stateside, nothing would have come of it. Fairly standard microstructure game.

If you do enough googling, the full strategy was published back around 05-06 by bank who held an algorithmic trading competition.
 
Quote from slickpick:

You're effectively trying to eat the lunches of market makers here. The issue is, is that you need enough capital to blow through multiple levels of the offer. Then you have to get the MMs to be willing to quote enough size for you to offload your inventory.

Fairly similar to what these guys did:

http://www.ft.com/cms/s/0/9a4aa5b8-d7bd-11df-b478-00144feabdc0.html#axzz2jsZjBHMF

If you do enough googling, the full strategy was published back around 05-06 by bank who held an algorithmic trading competition.
More...

I think it is extremely poor judgement who pronounced these two manual traders guilty. Every HFT firm does it using computers.

Btw, can you help me find the published version of that strategy? Couldn't locate the doc from googling. Thanks.
 
Quote from TSLexi:

Is there anyway I can make a limit order that can ONLY be filled at the specified price, and not any higher or lower?
More...

Missed this question, but the answer is that it depends on which venue you're trading on, but off the top of my head.

ARCA - Post No Preference Blind
DirectEdge - Hide Not Slide
BATS - Display-Price Sliding

That way you'll be able to maintain order priority and not get hit for taking liquidity. You'll just have to tactically submit the orders obviously.
 
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