Limit-NX feature on NYSE stocks kills volatility

[cashonly]

Originally posted by lescor


I know of one of extremely succesful trader who effectively 'paints the tape' using nx. By making the prints go off where he wants them (usually a new low or high), he can sometimes get momentum going and keep it going just by nx'ing the bid or offer with 100 lots. Obviously, this must drive the specialist crazy if he is trying to work a larger order.

Corey

That's an interesting strategy. When you get to a new high and the offer is x1, do you (your friend), notice what generally happens next? Does the specialist keep it down or does it take off?

It'd be interesting to see if there is any rhyme or reason.

I know that before NX, the offer could be sitting at a new high, you say I'll take it at that price, and get it for less... which was usually a sure sign that it wasn't going up. Because the specialist knew that if he filled it at the knew high, he'd have a bunch of stop orders go off. And if he didn't want them to go off, no one would get filled at that price.

 

[quicktrader12]

Originally posted by jem
For what its worth I think you made a great point ace. And yes I felt like there were times when the specialist would say hey all you traders here is a freebee I need to take this stock down because I want to do business two points lower. So here is a big offer you hit the bids with me and we will all cover with those Janus guys--- when you give your bid at 50 1/8 ( I'll probably even fill you at 50 because you played the game correctly). Now you are right we (me too) get a little impatient and screw up the specialist's plans by nxing the offer so the specialist doesn't even put up those free signals anymore.

However I am also sure rtharp is correct about the bear market problem too. How many people are talking about their big caps on the golf course and the Janus 20 or their index fund.

fyi - the specialist cant hit bids

 

[quicktrader12]

Originally posted by InyOutty
Ace,

You're right on the money about NYSE market shorts these days. But I'm not so sure it's completely due to NX. Brokers and specialists have grown wise to daytraders using bullets, mainly because tons more people are now using them.

Consider this, if you were an institution or specialist and knew people were short, wouldn't you use it to your advantage? If you're a specialist for example--and know traders will cover when they see an uptick--why not take the offer yourself if there's a buyer to lean against. Or if you are the institution offering, why not pull the offer altogether and get filled on the short-covering prints at a higher price?

Cakewalk trading methods like the one you mention are fast becoming rookie-league. Traders who buy (sell) because they see a big bid (offer) aren't doing anything an 80-year old grandmother couldn't do with a PC and trading account. Over the long-run, market efficiently expunges easy money like this.

On that note, here's a little prognostication. In 12-18 months I wouldn't be surprised if big bids and offers are few and far between on the NYSE, OR when they do appear, they'll be mostly fake (there to be hit or pulled). Instead, institutions will send smaller sized lots to lessen price impact, or use ECN reserve orders (Yes! ECNs will infiltrate listed territory as well).

What it all boils down to is adaptation. Tape reading, chart analysis, arbitrage, and other techniques will take on a much greater importance. In that environment, NX (or any auto-ex route) will be your best friend.

As for specialists not liking NX, you may be right in the short-run. But these are some extraordinarily resourceful individuals who WILL ADAPT NX TO THEIR ADVANTAGE. They already do now. Just look at the preponderance of 100 share bids and offers on the NYSE. Specialists use 1 lots to increasingly block NX trades. In many cases it's a disgrace in my opinion. 99% of the time there's no legitimate reason a specialist should be showing a 100 share bid or offer in a stock like IBM or CPQ when there is no imbalance. But that's life and now I'm getting off-track...

Trade well my friend.

fyi - specialist cant take offers

 

[InyOutty]

Originally posted by quicktrader12



fyi - specialist cant take offers

FYI - My good man, what you mean to say is that specialists cannot INITIATE the taking of offers. They can, AND DO, take offers once the stock is trading at the offer price.

 

[hotlanta]

Dear Ace,

I have read your posts and I am somewhat in accord and not. Having traded for several years, there is one thing that I have learned in the business which may help you take your trading to the next level.

Trading based on Bids and Offers are a thing of the past and for a small fish in the ocean. You what must do is read momentum of the market and the sector that your stocks are in. Trading for a few cents can lead you to live a nicely, but why only nicely? Last week was a excellent example about reading the tape and momentum.

Smart traders are loving it when you cover a short or long based on size. Thats when I will come in buy or short prior to your exit. I add on to my positions when the markets are in a good read. Take the brokers for example... Talk about a gift last week! By adding on last week say thursday, you could have been short any of the brokers and made some nice bucs $$$$$$

Try to give it a shot, cover based on the market itself. If its weak, why would you cover? Also, you should try to move into stocks that aren't that thin, with a bunch of other little fish out there, you aren't going to survive this game much longer when specialists are already killing your game. If a stock that is trading 3-5 million shares a day starts to move with the market, you need the liquidity and market players to assist you in market direction. As momentum traders, we jump on and try to get a few good traders out of it.. whether we have to press, cover half the position, then buy/sell again.

Decimals have been great... losses are much lower but stocks are still moving. Haven't we seen tyc, dyn, mer get wacked last week? You can't tell me that they aren't moving. What is great about the smaller spreads in my opinion is that I am actually able to add more shares to my positions at a better cost average and make more than before. The advantage now is that when we do get a nice movement in the market, my additional shares help out quite a bit and add alot more profits. I guess you can say that I have moved my trading up a notch in terms of profitability and efficiency.

Hope this helps! NX is just a tool for the little traders. If you want to beat the game, then you have to know how to beat it. Here is a clue... if you are trying to get in on a move, and lets say they are taking an offer at new highs, you might be trying to buy 500-1000 shares... and still no fill you... cause everyone is trying to buy the same shares. So the specialist takes a few seconds to gather the orders...you don;t get a fill. Learn the rules, and ask yourself this.... Doesn't it make sense that a specialist would fill a order to buy 3-5000 shares before a 500 or 1000 share order if they come in right around the same miliseconds? Specialist dont care if you are making a few dimes on the trade. specialists aren't always taking 30,000 share positions for themselves. If you can try to move away from trying to make a few pennies to the bigger picture, you might be able to shake off the annoying things that bother. Try to move up slowly with your size as you will see its a different game.

Welcome to the big league!

 

[Trade_Cents]

Originally posted by InyOutty





FYI - My good man, what you mean to say is that specialists cannot INITIATE the taking of offers. They can, AND DO, take offers once the stock is trading at the offer price.

My good man - specialists can only take offers to liquidate positions not INITIATE positions. This does not mean that once a stock is trading at the offer price the specialist can take an offer, unless he is liquidating a position.

Rule 104 - Dealings by Specialists

(A) The specialist may liquidate a position by selling stock on a direct minus tick or by purchasing stock on a direct plus tick only if such transactions are reasonably necessary in relation to the specialist's overall position in the stocks in which he is registered; and the specialist has obtained the prior approval of a Floor Official;

 

[Don Bright]

This is simply a quick fill tool, and can be played as it was intended..and ECN for listed fills.

A big percentage of our trades are now NX trades, and our pairs experts depend on the "guarnteed" nx trades. Since I like to get "price improvement" (and do quite often), I will only use NX when I really think the market is moving against me. Like so many aspects of trading, as long as you undertand the tool, you should be fine.

 

[lescor]

Originally posted by cashonly


That's an interesting strategy. When you get to a new high and the offer is x1, do you (your friend), notice what generally happens next? Does the specialist keep it down or does it take off?

It'd be interesting to see if there is any rhyme or reason.

I know that before NX, the offer could be sitting at a new high, you say I'll take it at that price, and get it for less... which was usually a sure sign that it wasn't going up. Because the specialist knew that if he filled it at the knew high, he'd have a bunch of stop orders go off. And if he didn't want them to go off, no one would get filled at that price.

Depends on the stock. I think he mostly trades thinner stocks and will try to get some bids or offers to chase him so he can turn around and unload his position on them. Sometimes supply keeps coming in and sometimes there's nothing overhead and it's clear sailing. I've tried it and it's not for me because if you can't get anyone else to play, then you are left with high-priced stock and a wide spread.

One thing I have noticed about NX though is that some (quite a few) specialists ignore it. I get price improvement on NX orders fairly regularly, which can be good or bad depending on what you are trying to achieve. But if it's supposed to be electronic and instant, then in this situation the specialist is still involved, which is wrong.

 

[cashonly]

Originally posted by lescor
One thing I have noticed about NX though is that some (quite a few) specialists ignore it. I get price improvement on NX orders fairly regularly, which can be good or bad depending on what you are trying to achieve. But if it's supposed to be electronic and instant, then in this situation the specialist is still involved, which is wrong.

Maybe that's a situation where someone else is NX'ng from the other side at the same time and the NX system crosses the orders in the middle.

 

[hotlanta]

you are right.... when you cannot get filled at a large offer, its the specialst who works with the floor traders who get that stock and advantage! Somedays, I wish I was on the floor working with that specialist!

I still think that if you are trading pairs which I do at times, the NX just makes you trade less shares... I tend to default my shares to a larger amount and to not let this feature change my trading style. I get a ton of price improvements, dont know much about the NX since I do use it at times in scenarios that are crucial.

Prop traders should be trading more than 1000, otherwise, why trade prop? I also feel that new traders that use this will only get spoiled to quick moves, and eventually not learn to take their trading to the next level, and learn to trade in all markets. If you trade 1000 shares or smaller, why not trade 2,000 or more? since you are pair trading! Gotta have some guts to make a real living, and its too bad that I see some many people that fail cause they dont!