Chasing the bid

Sky123987 · Nov 6, 2007

Okay say you want to get out of a stock.

You have 2 options either to hit the bid or place an offer and hope you get a fill.

A factor of this decision is where you are in line. If you can get to the first spot you might as well try to sell on the offer, however if you are dead last you probably wanna just hit the bid.

So say it is 20.25 * 20.26
Your automated program places a sell limit order @ .26, and as soon as the offer decreases say to .25 your automated program will cancel and replace a new sell limit order @ .25.

~so the guy whose program can do this the fastest has a very big edge.

Can I think that my compiled run automated trading system can shoot an order fast enough to be in the front of the line for it to be worth trying to sell on the offer or are the BIG instituations able to purchase THE FASTEST order routing systems that their orders will always be their first, and you'll be stuck at the back of the line?

speculatus · Nov 6, 2007

Quote from Sky123987:

Okay say you want to get out of a stock.

You have 2 options either to hit the bid or place an offer and hope you get a fill.

A factor of this decision is where you are in line. If you can get to the first spot you might as well try to sell on the offer, however if you are dead last you probably wanna just hit the bid.

So say it is 20.25 * 20.26
Your automated program places a sell limit order @ .26, and as soon as the offer decreases say to .25 your automated program will cancel and replace a new sell limit order @ .25.

~so the guy whose program can do this the fastest has a very big edge.

Can I think that my compiled run automated trading system can shoot an order fast enough to be in the front of the line for it to be worth trying to sell on the offer or are the BIG instituations able to purchase THE FASTEST order routing systems that their orders will always be their first, and you'll be stuck at the back of the line?

Big guys co-locate their TS right in the data centers. You'll always be behind unless you have $3K+ per month to pay just for the rack space, not mentioning other fees.

You'll face another problem - when stock starts tanking, autobots will pull out their bids, so good luck chasing the price

NYOBScalper · Nov 8, 2007

Quote from Sky123987:

Okay say you want to get out of a stock.

You have 2 options either to hit the bid or place an offer and hope you get a fill.

A factor of this decision is where you are in line. If you can get to the first spot you might as well try to sell on the offer, however if you are dead last you probably wanna just hit the bid.

So say it is 20.25 * 20.26
Your automated program places a sell limit order @ .26, and as soon as the offer decreases say to .25 your automated program will cancel and replace a new sell limit order @ .25.

~so the guy whose program can do this the fastest has a very big edge.

Can I think that my compiled run automated trading system can shoot an order fast enough to be in the front of the line for it to be worth trying to sell on the offer or are the BIG instituations able to purchase THE FASTEST order routing systems that their orders will always be their first, and you'll be stuck at the back of the line?

No. When you want to get out get out, and trade a system that lets you get out in the market and still make money... a system based off a real edge. All this theory on line waiting and chasing the bid down will not help you make money. I'm saying this to try to help you, not belittle you or condescend.

speculatus · Nov 8, 2007

Quote from NYOBScalper:

No. When you want to get out get out, and trade a system that lets you get out in the market and still make money... a system based off a real edge. All this theory on line waiting and chasing the bid down will not help you make money. I'm saying this to try to help you, not belittle you or condescend.

I'd second that. My system sends a marketable limit order to enter a position, and it sends a market order to close the position.

Sky123987 · Nov 8, 2007

See my systems are longer term, like 20 to 30 min.

People always say well get out when the market is falling, and you can see the prices are getting lower fast, however... I have NOT found an edge to know when it will continue to fall or when it will reverse... so

If I enter long all I know is that on average there will be a bias upward for the next 20 to 30 minutes. If the markets fall (notice not future tense) I still hang on because I have not found (because I only have 1 min data, I'd like Tick data) that if SP futures start to fall, then sell short my stock because it will fall IN THE FUTURE.

Therefore, if... we are 50/50 to go up or down, imagine 2 ways to get out.

(1) hit the bid
(2) chase the offer down AND ALWAYS BE THE LAST IN LINE AT ALL TIMES

Both (1) and (2) have the same EV(Expected Value) assuming it is 50/50

- and because I won't also be last in line, I'll have some edge if I try to exit at limit.

- if I had a signal that the conditions weren't 50/50 then I'll probably go @ market, but if you are just exiting "really to exit" then go limit

NYOBScalper · Nov 9, 2007

If you chase the bid you'll be giving money away. That's all. There is no line to take liquidity... being first in line and not getting filled isn't very useful, and if you are getting filled you might as well have gotten filled earlier on the bid. The trades you REALLY want to get out of, you will chase down and throw money down the drain. You don't want to wait in line - you want out. I make my living finding people who chase their offers down with the bid down instead of getting out at the bid.
unless you trade very fluid, liquid stocks, then disregard what i said before.

Sky123987 · Nov 9, 2007

Quote from NYOBScalper:

If you chase the bid you'll be giving money away.

This scenario has little to do with trading. This is a simple game theory equation. Do the math... being EXACTLY last in line to be filled and chasing the bid vs hitting the bid on a 50/50 chance it the stock is to rise vs fall the expected values of these scenario will be the same.

And yes it does matter where you are in line in terms of Expected Value

speculatus · Nov 9, 2007

Quote from Sky123987:

This scenario has little to do with trading. This is a simple game theory equation. Do the math... being EXACTLY last in line to be filled and chasing the bid vs hitting the bid on a 50/50 chance it the stock is to rise vs fall the expected values of these scenario will be the same.

And yes it does matter where you are in line in terms of Expected Value

Game theory does little with reality. You are long and want to get out. You place your offer on the book. The price tanks more. You trying to chase the price and finally give up hitting the bid. If you feel that the price will move higher (or see the offer being hit, but you are somewhere at the end of the queue), you probably want to keep the position, but you won't be able to cancel your offer quickly and get a fill. So where is 50/50?

PS: chasing the price (i.e. shooting cancel/replace) doesn't always come for free. Some brokers (IB for example) charge a fee for every order cancel/replace.

jimrockford · Nov 10, 2007

Quote from speculatus:

Game theory does little with reality. You are long and want to get out. You place your offer on the book. The price tanks more. You trying to chase the price and finally give up hitting the bid. If you feel that the price will move higher (or see the offer being hit, but you are somewhere at the end of the queue), you probably want to keep the position, but you won't be able to cancel your offer quickly and get a fill. So where is 50/50?

PS: chasing the price (i.e. shooting cancel/replace) doesn't always come for free. Some brokers (IB for example) charge a fee for every order cancel/replace.

No, IB does not charge a fee for every cancel/replace. IB charges only in certain situations. IB never charges for any cancel/replace of a stock order sent via IB's TWS (Trader Work Station). IB also never charges for any cancel/replace of a stock order sent through its API, provided the API order is sent using IB's smart router. IB charges for cancel/replace of some option orders, but order executions provide credits which can reduce or eliminate the cancel/replace charges.

jimrockford · Nov 10, 2007

Quote from damnit:

Yes there is a small order cancel fee for Smart routing stock and option order, read up on the site.

No, you are wrong. I read the site, and I trade through IB, and I know you are wrong from my own trading experience. Cancel fees apply only to some orders, not all orders. See my previous post in this thread.