How much size is too much?

H

heech

Any rough metrics out there, as to when our size might get too large for a market, and fills are seriously affected?

Right now Im a goldfish, trading 0.01% of daily volume. Could I eventually put on trades that are roughly 2-5%, 10%, 20% of average daily volume all in the same direction, but spread out through out course of day... Without moving market too much?

I'm thinking of very liquid futures... Corn, nat gas, interest rates, etc.
 
I'm primarily intraday so the costs of liquid vs. illiquid execution can add up significantly. My personal rule of thumb is < 3% of the avg. 3 day dollar transaction amount.

So if a stock is at $10 with 500k in avg daily volume, that's approx. $5mil in daily transactions. $5mil x 0.03 = $150k max position size, or 15k max total shares.

My problem is that for certain strategies I have a fairly narrow window to enter, so time is an issue. I'd imagine that having a longer term horizon would make my 3% figure seem very conservative.
 
Quote from heech:

Any rough metrics out there, as to when our size might get too large for a market, and fills are seriously affected?

Right now Im a goldfish, trading 0.01% of daily volume. Could I eventually put on trades that are roughly 2-5%, 10%, 20% of average daily volume all in the same direction, but spread out through out course of day... Without moving market too much?

I'm thinking of very liquid futures... Corn, nat gas, interest rates, etc.
More...

You focus a lot too much IMHO on daily volume. What is more important for you is order book. Given a specific slip allowance (00, 1 or 2 ticks) - how much volume do you have a significant chance (95%) to fill. With more acceptable slippage this gets bigger.

Basically, daily volume is irrelevant - you want to get in and out without slippage, and that is waht you need to watch, which requires order book analysis.
 
Quote from heech:

Any rough metrics out there, as to when our size might get too large for a market, and fills are seriously affected?

Right now Im a goldfish, trading 0.01% of daily volume. Could I eventually put on trades that are roughly 2-5%, 10%, 20% of average daily volume all in the same direction, but spread out through out course of day... Without moving market too much?

I'm thinking of very liquid futures... Corn, nat gas, interest rates, etc.
More...
Up to 5% of daily volume.
Not more than 20% of total shares outstanding. Unless a takeover is intended, of course.
 
Quote from NetTecture:

You focus a lot too much IMHO on daily volume. What is more important for you is order book. Given a specific slip allowance (00, 1 or 2 ticks) - how much volume do you have a significant chance (95%) to fill. With more acceptable slippage this gets bigger.

Basically, daily volume is irrelevant - you want to get in and out without slippage, and that is waht you need to watch, which requires order book analysis.
More...
Thanks for all the feedback.

Just to be clear, I'm not HFT or scalping. I'm mostly ok distributing trades over time in most cases (flash crash aside). I'm more concerned about affecting price (versus what I'm seeing now) due to collective trade volume.

This is all just hypothetical fun thinking anyways. Now I know my capacity is as high as $1 billion! Whee.
 
Quote from heech:
----when our size might get too large for a market, and fills are seriously affected?
----.......Without moving market too much?

I'm thinking of very liquid futures... Corn, nat gas, interest rates, etc.
More...
1) Try not to be distracted by something that may never happen nor be a legitimate concern.
2) There can be an advantage in trading larger size that "moves the market your way". :cool:
 
Quote from flamadiddle:

that's what she said!
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That's along the lines of what I was thinking too. Ha. See what trading has done to us? :D Those emails they send us don't ask that though. They're more along the lines of, "Hey, bud. What do you plan to do with that tiny pecker of yours? We can help." :D
 
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