Market depth of the ES e-mini futures contract

heywally · Jul 13, 2013

Quote from JohnHar:

This instrument is very liquid and speculative. most players works intraday. As usual stop loss is 4-6 ticks. if you want trade the instrument, you should look to other strategies with less timeframe.

Thanks JohnHar - my main concern is with the amount of standing bid orders from the range of 20-50 points down from the current market price in a situation where some event closes the markets down within a very short period of time - minutes. So, are there enough bids 50 points below to fill my disaster stop loss order on say, a 5 contract lot of the ES? I know that I would be fine 4-6 ticks away.

I don't like close-in stops.

In other words, I am being overly paranoid but do not want to get wiped out in the unlikely event that something like this happens. I could go to a short only trading method but how hard is that? Very.

heywally · Jul 13, 2013

Quote from gmst:

It is my opinion that there is nothing to worry here if you have 5-10 contracts. However, it is just an opinion and I haven't tested this.

Few months ago, there was a twitter news saying obama dies in a terrorist attack. ES dropped 15 points or so within a minute or two. Go, find that date and get tick data for that date and analyse the trading for those 2-3 minutes. It will answer your questions.

There is actually another instance which was even more worse. It happened in Dec 2012 or Jan 2013. There was a flash crash, ES went down 40 points in a splash during Globex hours. Get tick data for 2-3 minutes on that day and analyse.

Also, talk to real people on how much slippage they got if they had resting stop orders on those 2 days. For sure, there must be swing traders with 5-10-20 contracts during these events who had resting orders and who must have got slipped and filled. The challenge for you is just to find those guys so that you can talk to them.

This exercise will answer all your question for both Globex and RTH. It will be nice if you can share your findings here on the thread or through PM.

Some good ideas gmst, thanks.

No political comment intended but Obama getting killed in a terrorist attack is relatively trivial compared to some of the stuff that could happen now. Thankfully unlikely though. Yes, I was watching the market when the White House being invaded rumor came across; it was a quick drop that stabilized very quickly too.

I was on the road when the flash crash happened but had I been watching the market when it did, I would have assumed a nuclear strike on some major city since it was so radically quick. I will try and find some tick data for that -- don't have it myself -- and see if there were orders at every price level and/or if there were air pockets. It's frankly amazing that anyone/any entity would put standing bids far below market price and risk buying into something truly disastrous.

JohnHar · Jul 15, 2013

Quote from heywally:

Thanks JohnHar - my main concern is with the amount of standing bid orders from the range of 20-50 points down from the current market price in a situation where some event closes the markets down within a very short period of time - minutes. So, are there enough bids 50 points below to fill my disaster stop loss order on say, a 5 contract lot of the ES? I know that I would be fine 4-6 ticks away. I don't like close-in stops.

In other words, I am being overly paranoid but do not want to get wiped out in the unlikely event that something like this happens. I could go to a short only trading method but how hard is that? Very.

Hi heywally, it will be just my IMHO, but trading is not about that. the ES market practicakky has no such situation with fast spikes. it can kill you by slow grinding in on way.. this situation will not be accaptable for your account. try to find strategies with low risk... they exist for liquid markets...

heywally · Jul 15, 2013

Quote from JohnHar:

Hi heywally, it will be just my IMHO, but trading is not about that. the ES market practicakky has no such situation with fast spikes. it can kill you by slow grinding in on way.. this situation will not be accaptable for your account. try to find strategies with low risk... they exist for liquid markets...

Thanks JohnHar - I'm talking strictly about a situation -- that I won't even discuss here; fill in your own scenario -- where something happens that will shut the markets down within minutes. People would probably have a chance to start pulling their below market bids before stuff shut down -- if they were right there and watching -- but it would all happen pretty quickly. What I do not know is, how much is there in the way of existing orders from 20-50 points down below the market price, that would give me a chance to leave someone else 'holding the bag' via my stop order that was that far down.

In this bad scenario, when the markets do reopen, there would be a huge gap down, there would be few buyers and we would have a series of limit down days.

Highly unlikely but I'd like to account for it none-the-less.

I would be comforted being able to see those standing buy orders 20-50 points down below the market price, in the ES.

gmst · Jul 15, 2013

heywally,

Frankly, thats some extreme planning you are doing there.
Sill, i don't think you considered following scenario:

Some big bad news happen say a nuke strike or whatever and ES sells off 80 points and they shut down the market. Your stop is 100 points down, so your stop doesn't get hit. Market opens 10/20/30 days later 500 points down.

My point is - if something like this happens, nothing will save you. Your only savior would be Jesus or deep deep out of the money puts

heywally · Jul 15, 2013

Quote from gmst:

heywally,

Frankly, thats some extreme planning you are doing there.
Sill, i don't think you considered following scenario:

Some big bad news happen say a nuke strike or whatever and ES sells off 80 points and they shut down the market. Your stop is 100 points down, so your stop doesn't get hit. Market opens 10/20/30 days later 500 points down.

My point is - if something like this happens, nothing will save you. Your only savior would be Jesus or deep deep out of the money puts

Thanks gmst - That is extreme and I don't expect it to happen at all. Still, would rather not get wiped out if it does - it just seems a little too possible to me.

But, my disaster stop is 50 points down and that is kind of my threshold for whether or not there are typically any standing bids down there. Frankly, I don't know why anyone would have buy orders sitting that far down from the market price because that seems so dangerous. You'd/I'd want to know the 'why' of a drop like that before buying. But that's me.

RedDuke · Jul 16, 2013

Quote from heywally:

Thanks gmst - That is extreme and I don't expect it to happen at all. Still, would rather not get wiped out if it does - it just seems a little too possible to me.

But, my disaster stop is 50 points down and that is kind of my threshold for whether or not there are typically any standing bids down there. Frankly, I don't know why anyone would have buy orders sitting that far down from the market price because that seems so dangerous. You'd/I'd want to know the 'why' of a drop like that before buying. But that's me.

You just need to realize that in case of such catastrophic event, nothing will really help. All hell will break loose. Markets will be locked /closed and you won't get filled for days. Most likely all small investors will be wiped out. Do not comfort yourself with deep OTM puts.

It is very unlikely, but it can happen. Same can be said about anyone crossing the street and getting hit by a car, but it does not mean you should stay home 24/7.

heywally · Jul 16, 2013

Quote from RedDuke:

You just need to realize that in case of such catastrophic event, nothing will really help. All hell will break loose. Markets will be locked /closed and you won't get filled for days. Most likely all small investors will be wiped out. Do not comfort yourself with deep OTM puts.

It is very unlikely, but it can happen. Same can be said about anyone crossing the street and getting hit by a car, but it does not mean you should stay home 24/7.

Thanks RedDuke. Nope, not staying home!

Yes, not sure about the puts and I'm not a real options fan anyway.

Yes, my premise in the worst-case scenario is that the markets would close within minutes, would not reopen for quite a while and when they did reopen, there would be a huge gap down, with few buyers and a series of limit down days.

Thus, me wanting to get out of any long futures positions within minutes of 'the event'. I just don't know how far down sitting/standing buy orders typically go on the ES.

So with this very remote possibility in mind, I now trade the futures as if I have their full index cash value at risk, which from a selectivity viewpoint, might not be such a bad thing.

JohnHar · Jul 16, 2013

Quote from heywally:

Thanks JohnHar - I'm talking strictly about a situation -- that I won't even discuss here; fill in your own scenario -- where something happens that will shut the markets down within minutes.

Hi heywally, I checked your messages next...
Buddy, it seems you are preparing for Doomsday.. Come on, 2012 passed away and everything is ok...
But if you DONT want to hope for your stop, in case of some income, you just drawdown it and hold at your account min nessesarry amount. IT will be your stop...
But you did not answer... if the market will slowly grind to one diretion at 60 points without spikes, what should you do???
Which actual stop loss are you going to use?

heywally · Jul 16, 2013

Quote from JohnHar:

Hi heywally, I checked your messages next...
Buddy, it seems you are preparing for Doomsday.. Come on, 2012 passed away and everything is ok...
But if you DONT want to hope for your stop, in case of some income, you just drawdown it and hold at your account min nessesarry amount. IT will be your stop...
But you did not answer... if the market will slowly grind to one diretion at 60 points without spikes, what should you do???
Which actual stop loss are you going to use?

Not concerned about grind downs, just the doomsday that won't be happening. I tend to manage risk with very conservative position sizing and not close-in stops - my trading tactics are a hybrid of day/medium term. The grind down I would view as more of a buying op at some point unless I already was full up in stock inventory.

I use primarily the TNA and UPRO ETF's and then pull out the bigger guns -- ES -- after heavier selling has happened and 'apparently' subsided.

And on this:

"But if you DONT want to hope for your stop, in case of some income, you just drawdown it and hold at your account min nessesarry amount. IT will be your stop..."

It seems like in the case of futures I was holding that didn't get stopped out and then we gapped down big eventually, I would owe the brokerage the $$$, unless they were able to close my positions when I could not or, the exchanges broke trades.