E-mini slippage

[Alexandre]

Sucre Estave, Nononsense,

I actually do not believe it's frontrunning by the broker nor some tricks played on me, it's actually the result of market makers/arbitrageurs that will systematically place limit orders both on the bid and the offer at all the prices.

Depending on market action (where the equilibrium price X is at time t) and potential arbitrages or traded customer flows, these sophisticated investors will either leave their orders or cancel them.

Placing orders systematically ensures that you will be the first to trade so you will always get best execution. If your systems are good, you can cancel your orders if the market starts moving and no arbitrage can be locked in (either through customer flow, SP future hedging or programme trading). It's all about speed and identifying arbitrage relationships instantaneously.

You then realize that you get executed when market makers lift their orders. This is problematic because the market will have a tendency to exhibit positive autocorrelation under these circumstances and therefore move against you.

On the other hand, if market makers do not cancel their orders, you will be the last to be executed. The problem is, market makers will leave their orders when markets exhibit negative autocorrelation. The fact therefore that market makers' orders get executed increase your chances of not being executed.

To sum it up, the presence of market makers will result in your orders always being the last to be/not to be executed depending on the nature of the autocorrelation at the time of execution.

That's the negative edge non systematic discretionary traders have to live with.

 

[FaderTrader]

Quote from Alexandre:

Sucre Estave, Nononsense,

I actually do not believe it's frontrunning by the broker nor some tricks played on me, it's actually the result of market makers/arbitrageurs that will systematically place limit orders both on the bid and the offer at all the prices.

Depending on market action (where the equilibrium price X is at time t) and potential arbitrages or traded customer flows, these sophisticated investors will either leave their orders or cancel them.

Placing orders systematically ensures that you will be the first to trade so you will always get best execution. If your systems are good, you can cancel your orders if the market starts moving and no arbitrage can be locked in (either through customer flow, SP future hedging or programme trading). It's all about speed and identifying arbitrage relationships instantaneously.

You then realize that you get executed when market makers lift their orders. This is problematic because the market will have a tendency to exhibit positive autocorrelation under these circumstances and therefore move against you.

On the other hand, if market makers do not cancel their orders, you will be the last to be executed. The problem is, market makers will leave their orders when markets exhibit negative autocorrelation. The fact therefore that market makers' orders get executed increase your chances of not being executed.

To sum it up, the presence of market makers will result in your orders always being the last to be/not to be executed depending on the nature of the autocorrelation at the time of execution.

That's the negative edge non systematic discretionary traders have to live with.

Sounds like you've been getting your butt kicked.

Please tell me how a MM sitting on the offer (bid) at every price is advantageous to him during a rally (selloff)?

Perhaps I'm missing something here.

 

[illiquid]

He's saying if he's always behind a large bid or offer, he will only get filled when it's disadvantageous to him (for the moment).

 

[romik]

i still don't understand the purpose, you are not going to create any waves with 100 lots, so why not simply use a market order and get priority over limits. So you would get slippage of 1/4 point, not a big deal unless you're targeting a couple ticks only, and you are trading 100 lots, are you not?

 

[jim c]

I dont really think this true. I work for a MM firm and trade strictly es futures. (and some yms) I am mainly hedging option trades and speculating a little. I think it could look that way if thats what you wanted to see. There is a lot of spoofing ect...but it is what it is. The liquidity is there no doubt. I have pumped 500 minis in to the offer and the mkt just sets there like..."is that all ya got". there are alot of conspiracy theories out there..i even try and spoof myself sometimes (sometimes it works...sometimes i get em stuffed down my throat..hehe). I dont really think that there are pure es market makers out there. just my 2 cents. jim

 

[jim c]

if youve got 100 to buy..throw 100 on the bid and get ready to bang out the offer if it starts to go. this sounds easier than it is of course. It seems like if ther are 250 or 300 left on the offer and you come in and scoop 100 of em you can sometimes get the market to go bid with you. im sure alot of people are trying to do this but with 100 or 200 es sometimes you can give it a little push. jim

 

[Alexandre]

Quote from FaderTrader:

Sounds like you've been getting your butt kicked.

Please tell me how a MM sitting on the offer (bid) at every price is advantageous to him during a rally (selloff)?

Perhaps I'm missing something here.

no butt kicked, up more than 100% in 5 months on a 6 figure account so no worry.

During a rally or sell off this does not apply as one of my assumptions is market at equilibrium.

 

[Alexandre]

Quote from illiquid:

He's saying if he's always behind a large bid or offer, he will only get filled when it's disadvantageous to him (for the moment).

no, I'm saying that the market maker will cancel his order if the market is trending (on whatever scale) and your limit order will get filled against the trend (if you have a sell limit at 1295.5, market is 1295.25-1295.50 and you get filled, chances are market will move 1295.50 bid - 1295.75 offer).

conversely, if the market is not trending, the market maker will keep his orders and will have more chances to get filled than you, especially so because the market will tend to mean revert.

The root of the problem is that your orders will always stand behing the market makers' orders and they have the option to cancel their orders. When they cancel orders, it's because they know markets are trending, when they don't it's because they trade the noise/mean reversion.

 

[Alexandre]

Quote from romik:

i still don't understand the purpose, you are not going to create any waves with 100 lots, so why not simply use a market order and get priority over limits. So you would get slippage of 1/4 point, not a big deal unless you're targeting a couple ticks only, and you are trading 100 lots, are you not?

in your case, slippage is for sure 0.25 point, but in my example it maybe 0.25 point but not always. You are right, I'm not causing waves with 100 lots, we are just discussing another type of slippage for limit orders (not the specific subject of the poll).

Just some members asked me why I felt my limit orders were always the last to be executed.

0.25 point on 100 lots is $1250.

 

[40Deuce]

you keep referring to "market maker" in ES . . . do you mean this in a figurative sense?

i do not believe there are many "real" market makers in es

Quote from Alexandre:

no, I'm saying that the market maker will cancel his order if the market is trending (on whatever scale) and your limit order will get filled against the trend (if you have a sell limit at 1295.5, market is 1295.25-1295.50 and you get filled, chances are market will move 1295.50 bid - 1295.75 offer).

conversely, if the market is not trending, the market maker will keep his orders and will have more chances to get filled than you, especially so because the market will tend to mean revert.

The root of the problem is that your orders will always stand behing the market makers' orders and they have the option to cancel their orders. When they cancel orders, it's because they know markets are trending, when they don't it's because they trade the noise/mean reversion.