Pegged-to-midpoint?
- Thread starter d08
- Start date
How would a relative order work if it was displayed?
Relative orders don't get re-routed, not to my knowledge. Why would they trade through me without being hit? Obviously I'm only getting hit on the exchange I route to, that's why I target the most liquid exchanges for this type.
Rebates are the least of my concerns as I'm looking for a quick fill. This is options so when the spread is 3.00x5.00, I'm not going to hit the market.
I've found lit limits to generally be a horrible idea if you're actually looking to fill at that price. Showing your hand is almost guaranteed an adverse fill. Of course fragmenting orders helps but if speed is also a priority, it's not a solution.
Lots of variables at play I think. Size being the critical. Whenever I send lit with significant size, I move several ticks. The HFT bots are just waiting for dumb orders like those. Trickling it slowly works. Even hidden/midpoint isn't safe of course, I'm being found out with 1 or 10 share pings.
It's refreshing to hear from someone that has a clue about this. If you trade daily the quality of your fills is very important. I'd love to hear more of your ideas on order entry algorithms you have created.
Are you only trading options? How often are you getting filled inside NBBO? When your order goes in are you usually finding hidden liquidity or are you waiting for an order fill? Do you suspect most of your order fills come when the market moves and market making algos hit your price, or do you think you are getting filled by someone else coming in and looking for liquidity?
I don't have much of a clue, I just try things out because it's not like people outside the banking/fund industry discuss it openly.
I'm mostly trading equities, only now trading options and I'm a novice. I aim to get filled inside the spread and if I'm patient then I usually do, at least half or more of my position. Hidden liquidity really depends on the time of day and how the market is, there's no fixed rule. Typically it's there during quiet markets when the spread is contracting.
I'm mostly trading equities, only now trading options and I'm a novice. I aim to get filled inside the spread and if I'm patient then I usually do, at least half or more of my position. Hidden liquidity really depends on the time of day and how the market is, there's no fixed rule. Typically it's there during quiet markets when the spread is contracting.
You can write software to do IOC (Immediate or Cancel) across the spread. This causes you to grab whatever hidden liquidity is there and then have your order cancelled. Your order won't go on the order book and you keep your intentions hidden. You can then repeat until you are filled.
This isn't as juicy as it might first appear, however. Lots of testing has made it clear to me that the advantage is almost zero. As you put some thought into this it will start to make sense. If you go look at academic papers on market making algorithms things become even more clear. All the easy money is already taken. There is no single order entry algorithm that solves these problems.
Except one: Trade very, very slowly. This does achieve better results at the expense of added volatility. Example: Price is $10 and you want out now. You can get out pretty close to $10 with the available liquidity but at the expense of a little slippage. But your volatility is super low. You got out very near $10. If you take liquidity very, very slowly you may get out with less slippage but now your volatility has sky rocketed because the price will drift as you are waiting to get fully filled.
None of this is a secret. There are people playing against you.
Not a bad idea, I've never bothered with IOC before because getting filled is my main priority.
That's also my experience. Be <1% of volume, slowly trickle orders. It's also important to randomise time and size, I do this lazily however. But there are instances like this where I want a fill ASAP but not at any price due to the large spread.