The system we had will never come about again. I suppose i can share it now since its a dead strategy, and it makes for an interesting story.
When dark books first started coming out there was a dark book called Millenium, that would not show up on Level 2. Big customers would send in orders to millenium and just say that they wanted to pick up as many shares as they could through them, throughout the day.
At first these guys at millenium were incredibly sloppy with their algorithms, so they would send a market order for 100,000 shares or something like that through millenium. So no one could see the millenium order there, but it would follow the stock around.
Now these millenium orders wouldnt hit the bids or offers, all that they would do was follow the stock around, and constantly eat any number of shares you would put through them.
So what we used to do is send basket orders to 100 different stocks at a time for 500 shares through millenium, and just see which stocks had a millenium order on it. Then you would buy a couple thousand shares and put it through millenium, trying to test whether or not the order was legitimate, and whether or not the order would follow the stock around.
Once you would find one that you thought would eat a large number of shares, you could load up on 10-20 thousand shares of something and then just start aggressively buying the stock up, and buying it up through every single level, for 20-30 ticks, and testing the millenium order with a couple hundred shares every couple ticks to make sure it was still following you. Then once you got to the top of where the millenium order would go, you could pump 20,000-50,000 shares through it, and get rid of your entire position, and flip short, and watch the stock collapse to where it was before you pushed it up.
Basically it gave us the opportunity to be market makers, and push the stocks anywhere we wanted to, and then unload our entire position into millenium, and no one even knew that it was there. Eventually they learned what we were doing, because we were constantly filling their orders at the very top of their ranges, and as soon as the order left, the stock would collapse.
The other thing you could do was take a stock like Ford at the time, which only had like a 5-6 tick ADR, and if there was a millenium bid crossed to the offer price, you could simply stack 100k shares on every single ECN, and as you got hit, you could simply sell it instantly at the offer. It doesnt seem like much, but if you put 500k shares through a stock for 1 penny all day thats a quick 5 grand.
Its funny cause still 4 years later Brass has been riding my ass about a comment i made about making thousands of trades per day, which only goes to show that his knowledge of trading is incredibly limited. I doubt he will acknowledge he was wrong now that he knws the strategy, and the reason for the statement. Due to the fact that there was a limited number of millenium orders on the market, i wasnt about to explain the reason why at the time.
There was days at that time when i would make over 5000 trades, because we were constantly pinging millenium, on every single stock on the market trying to find these orders. It was pretty intense, almost like playing a video game, you were constantly pressing keys and punching shares all over the market all day, in order to find and test these millenium order, and when you found a good one it was free money.
Of course since these were dark book orders we never knew exactly how many shares they would eat, we were only hoping they would eat everything we fed them, so it would get dicey when you ended up having a 30 thousand share position, and you went to sell after you drove a stock up 30 ticks, and all of a sudden, the order would only eat 2 thousand, and you were stuck trying to figure out a way to get out of 28000 shares on a stock that only has about 500 shares on the bid every couple ticks..... That was why you had to have a lot of money/pain tolerance for it to work, the worst hit i ever took on a trade was for 75k, when i had 50,000 shares, and the order left on me, on a stock that had only traded 150k all day, so i was left trying to piece out, all day, and i ended up being a quarter of the volume on it. The time when you really needed skill was when the orders fucked off and you were stuck trying to get out of 20-30k shares on an illiquid stock.
Anyways thats the arbitrage story, it was good times while it lasted, but they got wise to it, and started fragmenting their orders, and got more complex algorithms, so that strategy is dead. I doubt anything like that will ever come about again.
Quote from RCG Trader:
Max, these things come once every decade or so, don't sweat it. In the meantime, stack those pennies, and it is very good to see that some here do actually trade.
