Do people really let large limit orders sit on the books?

S

stephencrowley

I noticed an interesting thing when studying ARCA book depth for IWM offers.

I plotted the best price vs. the marginal price paid by consuming all shares up to and including the price 0.25% away from the best price.

Times are CST.

iwmBestAndDepth.png


At 10AM CST a large number of offers to buy showed up between the best and 0.25% away from the best, increasing the average price difference from 10 cents to 40 cents.

At 1PM the market moved up and either all the orders were filled or canceled and the relative spread decreased from 40 cents back to 10 cents.

Coincidence? Do large players really tip their hand by letting their orders test on the books, or do they cancel as the market moves towards them.
 
don't know if this is what you mean but- when i started trading (good old bullets...) it was common to see large order suddenly 'lifted' off the books on the NYSE- and for the price to suddenly swing the other way.

I certainly don't trust the books too much any more- even when you see a short stepping down there are too many people who know that they can simply do that, take out some support with a few shares, let the price drop as traders short ahead of that large order (still done today, even without bullets- and a way many new day traders cut their teeth, even if it isn't so profitable today...) then lift that short- creating a short squeeze, during which i assume they then buy.

Same goes for normal resistance - you will see a large order keeping prices down- then it suddenly gets lifted and the stock shoots up- either to immediately fall down as people short into the false breakout or keep going...

not a big fan of trading off the books too often now - too many traders trying to create false moves.
 
Right.. I understand exactly what you are saying about lifted orders. That is why I only pay attention within 1/4th of a percent away from the best.. the theory beign that anyway spoofing there runs a big risk of there order getting filled before it can be lifted. I don't have my amex data agreement yet but as soon as I do I'm going to analyze the prints to see if they were lifted or what.
 
Something that close in and large isn't messing around.

Likely an institution setting off a black box to buy all shares within' X price range of the futures they are likely buying.
This may just be a way to get the best price on the russel 2k, as they hit both the futures and the ETF. IWM orders either get filled or canceled depending on their futures fills.
-Just one of many explainations.
Also remember size attracts size at times, not repells it.

PS--Nice study on the spread. What data and software do you use for it?
 
Quote from stephencrowley:

Right.. I understand exactly what you are saying about lifted orders. That is why I only pay attention within 1/4th of a percent away from the best.. the theory beign that anyway spoofing there runs a big risk of there order getting filled before it can be lifted. I don't have my amex data agreement yet but as soon as I do I'm going to analyze the prints to see if they were lifted or what.
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Similar stuff happens when big orders get lifted, not just cancelled. For example, a thin stock has like 500 lots offered, its not infrequent to see those 50k shares either printed all at once or eaten away by DOT in a matter of seconds and then have ECNs instantly - even before the 50k is on the tape - bid the thing up 10, 20, even 30 cents, (depending on price, volatility, volume, other stuff in the book, etc.). Sometimes to keep going other times to fall back down.

Edit: in your post, regarding 1pm, don't you mean a large number of orders to SELL showed up in the book? also, I don't see what the big deal is, especially in an index-instrument that trades the kind of volume IWM does, some guy probably left a big sell order hanging at like 71.25 as opposed to marketing it
 
I'd be interested in seeing the results... I always thought it was interesting seeing how people trade the books. You would see a large short order stepping down until it hit a large buy order - then you would see people (using bullets at the time, or private placements as they do now) annexing that buy order, especially if it created a large gap that the short would presumably have to step down through.

I am trying to remember what happened more often - the short getting filled by people buying because of the large support (which would happen if there were a few large buy orders within at least 10 cents of each other- creating multiple support levels), the short lifting once it started getting bought up, or the buy order suddenly disapearing.

I will day that there are a ton of people who are reallly good at manipulating the books - I've seen people place those multiple buy orders as a team, creating the illusion of support beneath the top layer - then suddenly lifting all of them at once- creating a huge gap- then getting short ahead of the large short coming down (by annexing those bids of the large order- using programs similar to the way bullets worked)- forcing a huge (well, for intraday anyway) down tick. At that point it is easy to buy up all of that short and force an short squeeze of all the people who got in later than you. And then selling into the 10-20 cent squeeze!

This might not happen as often with human players now- there are a mess of black boxes out there that do just that- making this a strategy that doesn't produce wins as often anymore...

I still find it interesting to see how easily the markets are manipulated on at least a short term basis..
 
Yeah sorry, I meant a large offer to sell. The thing is the large offers were moving around in relation to the best.. I don't think they were static. I'd have to do some more analysis.

The study was done with my own custom developed software.. the data was exported and plotted in matlab, I'm too lazy/busy to write gui .code.


Quote from ig0r:

Similar stuff happens when big orders get lifted, not just cancelled. For example, a thin stock has like 500 lots offered, its not infrequent to see those 50k shares either printed all at once or eaten away by DOT in a matter of seconds and then have ECNs instantly - even before the 50k is on the tape - bid the thing up 10, 20, even 30 cents, (depending on price, volatility, volume, other stuff in the book, etc.). Sometimes to keep going other times to fall back down.

Edit: in your post, regarding 1pm, don't you mean a large number of orders to SELL showed up in the book? also, I don't see what the big deal is, especially in an index-instrument that trades the kind of volume IWM does, some guy probably left a big sell order hanging at like 71.25 as opposed to marketing it
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Quote from stephencrowley:

Yeah sorry, I meant a large offer to sell. The thing is the large offers were moving around in relation to the best.. I don't think they were static. I'd have to do some more analysis.
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Why do you say that?

It seems to me like there was some large sell orders above the 71.20 area, which ended up dragging the average up even as other smaller orders got placed/pulled during the time period. Around 1 when it rallied the sells got lifted out (or pulled).

Also, I'm a little confused as to your 0.25% number. Right around 1 when the marginal price gapped up (probably from the big order(s) being entered) I see the best price at like 70.80 and the marginal going up to like 71.15. However, 1.0025 * 70.80 is 70.98, why are you including orders greater than that? This should only be looking at like 18 cents deep both ways, the way you described the algo.
 
Well I screwed up and it's actually 2.5%. Same results still apply though.

You might be right though.. it appears the orders were static around 71.22..unfortunately I can't see the numbe rof seperate orders.. it would be nice to see if its 1 large order or several small ones.. I guess maybe it doesn't matter as you can fake it anyway.

It might be interesting to notice when people are faking offers though, because you can use it to your advantage.

Quote from ig0r:

Why do you say that?

It seems to me like there was some large sell orders above the 71.20 area, which ended up dragging the average up even as other smaller orders got placed/pulled during the time period. Around 1 when it rallied the sells got lifted out (or pulled).

Also, I'm a little confused as to your 0.25% number. Right around 1 when the marginal price gapped up (probably from the big order(s) being entered) I see the best price at like 70.80 and the marginal going up to like 71.15. However, 1.0025 * 70.80 is 70.98, why are you including orders greater than that? This should only be looking at like 18 cents deep both ways, the way you described the algo.
More...
 
2.5% makes quite a differance imho about fakes - most fakes, at least from what i noticed as a daytrader, were around 25 cents from the current prints- as they would usually be from daytraders themselves who aren't out to fake out longer term players- just other daytraders.

don't know about large size off the open though - other than fake shorts (which are prevalent off the open) I am not sure.
 
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