how/where can I trade in tenths of hundredths of a cent?

H

halberdianstahl

Hi. one of the requirements for automated trading to be successful is to be able to trade in tenths or hundredths of a cent.

You may see that the large/institutional trading companies purchase shares getting ahead of everyone else by posting bids/offers in the following amounts, I.e.

$5.051, $10.5111, $7.9999

And this is the key for these traders to get ahead of retail customers who are forced to buy using only full cent prices, since the NBBO will pick up first the "best" prices and these variations will always get ahead of the more "expensive" full cent offers/bids.

Hence, I'd like to know how/where can a retail trader, access one company or trading seat where I can trade accessing this pricing/bid/offer system?

One would think that this is good for traders who are interested only in earning rebates and automating large blocks of trading, since the repetitive nature of this type of trading and the very small earnings involved on each operation would require necessarily trading very small blocks of shares per operation, say i.e. 100 - 200 shares per trade.

Any ideas? if you need clarification let me know. Maybe the answers are elsewhere? I'm new, so please kindly point me at the answer if it's already been responded.

Thanks,

Hal
 
Unless something's changed recently, neither retail nor institution can enter orders on a book at these prices -- they are side-effects of various phenomena, the details of which I've long forgotten. It's all searchable via Google, if you want to take the time. (I wondered about such prints myself, a couple of years ago, and looked into the tedious details.)

Unless something's changed recently, the only prices for which you may enter orders at fractions of a cent are those below $1.00.

Quote from halberdianstahl:

Hi. one of the requirements for automated trading to be successful is to be able to trade in tenths or hundredths of a cent.

You may see that the large/institutional trading companies purchase shares getting ahead of everyone else by posting bids/offers in the following amounts, I.e.

$5.051, $10.5111, $7.9999

And this is the key for these traders to get ahead of retail customers who are forced to buy using only full cent prices, since the NBBO will pick up first the "best" prices and these variations will always get ahead of the more "expensive" full cent offers/bids.

Hence, I'd like to know how/where can a retail trader, access one company or trading seat where I can trade accessing this pricing/bid/offer system?

One would think that this is good for traders who are interested only in earning rebates and automating large blocks of trading, since the repetitive nature of this type of trading and the very small earnings involved on each operation would require necessarily trading very small blocks of shares per operation, say i.e. 100 - 200 shares per trade.

Any ideas? if you need clarification let me know. Maybe the answers are elsewhere? I'm new, so please kindly point me at the answer if it's already been responded.

Thanks,

Hal
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easier to sell option spreads and collect the leftovers thats What I do and just wait for expiration to start over. That automated scalping stuff sounds like too much effort.
 
I get many executions on NYSE listed securities that are SMART routed at something other than a whole cent per share. For example, yesterday I had a 100 shares limit order to purchase SO at 31.18 and it was executed at 31.1798. This was not 98 shares at 31.18 and 2 shares at 31.17 but rather someone front running other orders with a fractionally lower price.
 
Thank you all, I appreciate the replies.

It looks like I should examine the evidence more in detail and then figure out exactly what's going on. However, there are very big financial rewards for someone who could be pulling this off.

Namely:

No slippage = better prices
Gaining the spread = you make more profits whether you're buying or selling
First execution at limit prices = collecting all rebates from exchanges for liquidity, much faster,
Faster and preferred execution = facilitating the repetition of the transaction on a basis of at least 60 times per minute or more
Do this millions or billions of times a day if you pick hundreds of securities with high liquidity = hundreds of millions or billions of dollars a year in this very, very profitable activity.

My initial mathematical models reveal that with the following numbers alone:

portfolio of 1000 securities with sufficient liquidity and average trading of say over 100 million shares a day (include there BAC, C, etc)
liquidity rebates of .23 per hundred shares
and a simple .0089 profit per share,

And assuming that you could somehow obtain execution of those buys/sales first (which is what the NBBO would do for you if you exploit this mathematical fact that best price is chosen first by SMART routing) and therefore your order, improved by just 0.0001 or 0.0011 would be better than another purchased by the whole cent, and therefore executed first, giving you infinite repeatability, as far as your computer and the exchange will go (which explains why the US financial trading activities has increased exponentially!!!!, by a factor of three to six--or so-- from years past, according to the articles published by respectable news agencies);

Given the fact that current computer systems can trade millions of shares per minute, just trading 100 - 1000 shares per execution, and you can automate that so that you can trade a very large portfolio based on simple trade rules,

and assuming that you were able to do only a 25% of those trades, you still would be talking of amounts of more than 400 million dollars a year!

Maybe this is why every single large institution out there has a 'fast trading operations team'?

I just wanted to know if anyone knew which company might be doing this so I could try to rent a desk there for trading, with this kind of advantage you are bound to double your money every single day, or at least gain a 50% increase during bracketed markets!

So this is a VERY profitable activity. I will verify what someone said, and if it is as it seems to be, then there is no doubt that these companies would not be interested in this anomaly to be known to the public. Hence, people do not realize that trading a tenth or a hundredth of a penny accumulates whenever you trade 10k shares and you make 100 dollars per transaction in just the spread, and additional 23 dollars in the rebates.

Now multiply this by 60 minutes (1 round-trip transaction per minute), and that by 6.5 hours. that, by your capital in multiples of 10k. if you have a direct trading connection, then actually the factor is not 60, but more like 600.

Even at the lowest numbers, isn't that, like, 39k a day just being grossly conservative, using a 100k margined account and not even using automation?

Food for thought.

Best wishes and thanks to all for your thoughts and ideas.

Best,

Hal
 
Well I took the time to investigate further the numbers, after review of the answers I got here, and my numbers were good as a very low estimate of what each player in the game is making. I was short by about 53% of my conservative estimate PER PLAYER.

It's a 21 BILLION DOLLARS a year business --so far--. And yes, it's all a part of Front Running as someone else accurately replied.

As you can read in this interesting article by Zero Hedge, http://seekingalpha.com/article/153...uld-crash-this-fall?source=article_sb_popular

It turns out that although there is not even a need to do what I can see happening, and although it is happening. HFT takes care of that need by simply Front Running the stock and collecting rebates + 1 penny profit per HFT sale.

So people are overpaying for their transactions, and Goldman Sachs has a 21-22% of all such transactions. Interesting article! it kind of responded to my question in some way, and it's fun that I decided to write about this barely a few days before Tyler Durden decided to mention this, although the topic has been touched by other sources tangentially.

Maybe he reads ET too :) although I would never claim to have the time nor the data to do what he does, which I really admire. it's a funny thing that he decided to mention this in Seeking Alpha a few days after I posed a question that is directly related to this matter at hand (the ideas are thrown to the universe at the same time), although he denounces it as what it is: Front Running.

And great call on the poster who clarified for me what was really going on, thanks. Being new here, I can only be grateful for these superb nuggets of info that help me clarify what's really going on in this business.

It's no wonder why 70% of all transactions are all HFT originated.

So all I have to do, is to find a company that lets me do HFT, and I will get rich in no time by front running, too. Are there any brokerages who might let me know where should I apply for a job joining them in this very profitable activity? I have some brilliant profitable ideas of my own, too :)

Have a good day,

Hal.
 
I just verified this morning that what I posted here originally is EXACTLY the case. I observed blocks of trades as small as 100 shares, being traded at prices like:

3.735, 37399, 3.732, 3.734, 3.7482 (citibank)
16.8221, 16.8888,16.8801 (Bank of America)
21.3382 (oracle)
18.8204 (intel)
41.2699 (jpm)

for 100 shares alone it doesn't seem like that order would be broken down into blocks of say, 12 shares each. Besides, you would not be able to obtain a price such as 41.2699 when totaling the averages of those shares, which is mathematically obvious.

To mention just five representative stocks. Go ahead and check them out yourself.

The practice that I disclosed here is obviously cheating the rules in the market that say that you can't place orders using hundredths of a cent.

So that this means, folks, that the larger companies have a HUGE advantage over you by doing this.

My final conclusion is:

Can anyone tell me which company would rent me a desk/connection/platform where I can place those kinds of trades from their trading platform? I seriously need to join in this unbelievably profitable business. Wow!
 
I see and experience this all the time. Think you can do it with midpoint matching but not sure as I am at IB and not sure if they offer it. I think it is front running pure and simple and do not know if it is a bypass of the rules or the breaking of them or if they changed the rules to allow it.
 
I have traded with a LOT of people and trading companies. IB does not offer this to retail customers, unless anyone can show otherwise how it's done and if they do, I want to know what do I need to do in order to go rent my desk with them or whatever.

Scottrade, for example, acknowledges they CAN put such orders, but one must do so via BROKER and by phone call which totally defeats the purpose of automating these trades since the trades are over 30something dollars or something like that the last time I checked. Thus, no HFT speed trading would be possible and while they acknowledge that they CAN put orders in hundredths of a cent, and therefore if Scottrade can do it, and they are not the best brokerage out there, it seems likely that everyone knows how to do it,

Simply that they put intentional blocks or safeguards in their trading software so such trading is not allowed, but it COULD be allowed if the software did allow it.

And of course it's frontrunning. The brokers or the trading companies are getting their shares at the price you ordered, and resell to you at a higher price. A 21 BILLION dollar business, as far as it is KNOWN so far to the people who are into researching this (see Zero Hedge article I posted), but who says the number is in reality not higher?

Bump! anyone knows where can I rent a desk or open an account at a company where I can trade in hundredths of a cent? I want my part of those 21 billion dollars!

Thanks for the reply!
 
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