Futures trading and huge orders

J

jedwards

I trade the DAX futures, and often I see behavior that puzzles me and I'm wondering what the logic is behind the behavior. (I'm sure that this behavior isn't limited to just the DAX.) This will likely be a dumb question, but hopefully someone can educate me on this.

Sometimes, I'll see the DAX futures jump by many points, like 5+ points in a split-second. I don't think it takes Sherlock Holmes to figure out that someone placed a huge order that wipes out the entire market depth and moves the markets in a particular direction.

Why would they do this? Is it really just a big trader who wants to get out of his position as quickly as possible, or is there some strategic reason to do this?

One of my guesses is that the trader wants to blow through and trigger as many stops as possible, but if that's the case, what do they gain from it? Don't they risk getting into a position where there isn't enough orders let them cover their positions? If they blew through 10+ ticks in a second, isn't it likely that there aren't any bidders that could fill them at a profit?

Or is their goal to they start covering into these market orders generated from the stops being hit? Or is there some other nefarious reason for doing this?
 
It is one of the things you really never know for sure what the real reason is, because ultimately it is in the mind of the person who made the order. What one should focus on instead is one's orders, because that is the only aspect that one can control.
 
Quote from jedwards:

I trade the DAX futures, and often I see behavior that puzzles me and I'm wondering what the logic is behind the behavior. (I'm sure that this behavior isn't limited to just the DAX.) This will likely be a dumb question, but hopefully someone can educate me on this.

Sometimes, I'll see the DAX futures jump by many points, like 5+ points in a split-second. I don't think it takes Sherlock Holmes to figure out that someone placed a huge order that wipes out the entire market depth and moves the markets in a particular direction.

Why would they do this? Is it really just a big trader who wants to get out of his position as quickly as possible, or is there some strategic reason to do this?

One of my guesses is that the trader wants to blow through and trigger as many stops as possible, but if that's the case, what do they gain from it? Don't they risk getting into a position where there isn't enough orders let them cover their positions? If they blew through 10+ ticks in a second, isn't it likely that there aren't any bidders that could fill them at a profit?

Or is their goal to they start covering into these market orders generated from the stops being hit? Or is there some other nefarious reason for doing this?
More...

Do a search for 'The Flipper' (Paul Rotter) - a few years ago there was a very lively discussion on this board and you should find some explanation.
 
I know someone that knows the Flipper. When people lose money they are always looking for someone to blame. The Government, the SEC, the PPT, bid traders, big spoofers etc etc anything that can be visibly quantified. Much of what is said about the Flipper is untrue. I mean what was the big deal? He placed big orders, so what? is someone an idiot to buy just because there are more bids than offers? The exchanges argument was that he provided liquidity and thats exactly what he did, it's not his fault no-one had the balls to call him on any of his alleged spoofs.

How can hitting market with a large order, even for half a second ever be considered nefarious? Yes there are mass manipulators in every market but if a guy is trading large you gotta let him trade right? Why can't he hit the market. I haven't traded the European markets for years but when I did i knew someone that used to hit spoofers all the time. Sometimes he got hurt, other times he made good money. Like I said they are just providing liquidity.

Front runners where systems can see things before everyone else and hence can never be hit on their spoofs are illegal and in essence insider trading. If you ever find a case of this then that person could be liable to a jail sentence. Any orders that are not 100% at risk are again illegal and again people should be investigated about this. HFT front runners needs to be stopped permanantly. Everything else, to me, is all good game.
 
Quote from Joovenile Jatt:

I know someone that knows the Flipper. When people lose money they are always looking for someone to blame. The Government, the SEC, the PPT, bid traders, big spoofers etc etc anything that can be visibly quantified. Much of what is said about the Flipper is untrue. I mean what was the big deal? He placed big orders, so what? is someone an idiot to buy just because there are more bids than offers? The exchanges argument was that he provided liquidity and thats exactly what he did, it's not his fault no-one had the balls to call him on any of his alleged spoofs.

How can hitting market with a large order, even for half a second ever be considered nefarious? Yes there are mass manipulators in every market but if a guy is trading large you gotta let him trade right? Why can't he hit the market. I haven't traded the European markets for years but when I did i knew someone that used to hit spoofers all the time. Sometimes he got hurt, other times he made good money. Like I said they are just providing liquidity.

Front runners where systems can see things before everyone else and hence can never be hit on their spoofs are illegal and in essence insider trading. If you ever find a case of this then that person could be liable to a jail sentence. Any orders that are not 100% at risk are again illegal and again people should be investigated about this. HFT front runners needs to be stopped permanantly. Everything else, to me, is all good game.
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I fully, wholeheartedly, agree.

If spoofers are such a problem, why not just whack them instead of bitch about it? Because it's usually not so obvious.
 
It's microstructure manipulation, but I use the term lightly. He's got orders on both sides of the market or he wouldn't beat the queue. Flash 4000 to sell and the offer drops two ticks. He's trying to make a market upstairs as though he's in a ring.

The problem lies with having working orders on both sides of the market. Is that legal on Eurex? I know some markets require you to be an RMM, at least in options.
 
Yeah it appears to be flipper like behaviour but I'm pretty sure there are other large trading groups that have adopted the flippers approach to make money.

If you happy to make 3 or 4 points on a 1000 contract position, its a great technique.

To be honest, big traders have been painting the book since electronic markets began. It's nothing new. People are just figuring out new and exciting ways to profit from it.

These guys are essentially using their size to create a head fake, so they can profit from it.

Runningbear
 
Quote from Joovenile Jatt:

I know someone that knows the Flipper. When people lose money they are always looking for someone to blame. The Government, the SEC, the PPT, bid traders, big spoofers etc etc anything that can be visibly quantified. Much of what is said about the Flipper is untrue. I mean what was the big deal? He placed big orders, so what? is someone an idiot to buy just because there are more bids than offers? The exchanges argument was that he provided liquidity and thats exactly what he did, it's not his fault no-one had the balls to call him on any of his alleged spoofs.

How can hitting market with a large order, even for half a second ever be considered nefarious? Yes there are mass manipulators in every market but if a guy is trading large you gotta let him trade right? Why can't he hit the market. I haven't traded the European markets for years but when I did i knew someone that used to hit spoofers all the time. Sometimes he got hurt, other times he made good money. Like I said they are just providing liquidity.

Front runners where systems can see things before everyone else and hence can never be hit on their spoofs are illegal and in essence insider trading. If you ever find a case of this then that person could be liable to a jail sentence. Any orders that are not 100% at risk are again illegal and again people should be investigated about this. HFT front runners needs to be stopped permanantly. Everything else, to me, is all good game.
More...

I was actually being tongue-in-cheek when I used the term "nefarious", but I guess it didn't come through in my tone.

I believe that anything goes in the stock market, even illegal things like insider trading. After 2008-2009, I'm convinced that all the stock markets are essentially controlled by the crooked big money (ie, the golden rule: he who owns the gold makes the rules) and the exchanges don't care as long as they are trading.

That being said, no one is forcing me to play around in it. I look at myself asthat tiny fish underneath the sharks trying to take whatever morsels I can that are too small for the sharks. When I lose money, I don't blame anyone, unless I make a stupid trade.

I am just trying to understand the underlying strategy for those big types of moves, not to blame them, but so that I can try to react to them, etc.
 
Quote from H2O:

Do a search for 'The Flipper' (Paul Rotter) - a few years ago there was a very lively discussion on this board and you should find some explanation.
More...

Thanks, I'll look into this!
 
Quote from tradingjournals:

It is one of the things you really never know for sure what the real reason is, because ultimately it is in the mind of the person who made the order. What one should focus on instead is one's orders, because that is the only aspect that one can control.
More...

Right, never worry about what the other guys is doing , just focus on what you do since you are the only thing that counts.
 
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