uptick rule and automated trading

[emk662]

I'm developing an automatic trading system. I am concerned about the uptick rule in short selling. Will I always have an unfavorable price? What can be taken to prevent any negative effect?

By the way, does uptick rule apply to limit order?

 

[Lobster]

Quote from emk662:

By the way, does uptick rule apply to limit order?

Only if the limit order is for an integer multiple of 700 shares.

 

[Lobster]

Quote from Lobster:



Only if the limit order is for an integer multiple of 700 shares.

Sorry, I just looked it up... It seems to apply to all limit orders.

 

[hans130]

Quote from emk662:

I'm developing an automatic trading system. I am concerned about the uptick rule in short selling. Will I always have an unfavorable price? What can be taken to prevent any negative effect?

By the way, does uptick rule apply to limit order?

Not always will you have an unfavorable price. When entering a market sell order and there is a downtick, your order will be quoted 1 penny above the bid. If you get hit then you have a good price entry.

To prevent any negative effect, you can use bullets to get immediate fills on a down tick.

Uptickrule only applies when you enter an order that is equal to or less than the current bid for nasdaq stocks, for nyse stocks, when the last sale is lower or equal to than the previous downtick sale. If you enter an order greater than that then the uptick rule does not apply.

 

[emk662]

Suppose my broker only takes market orders sent by my program, how will that affect?

 

[hans130]

Quote from emk662:

Suppose my broker only takes market orders sent by my program, how will that affect?

it depends, which broker you are using?

if a broker does support bullets, then you will get better and immediate fills. if not then you order fill follow the ask down until your order is filled.

 

[emk662]

The broker is Bear Stearns. They do support limit order, but the commission for the limit order will be substantially higher than market order. Therefore, market order may be the only viable way for us.

 

[hans130]

what type of commision structure do you have? how is your system programmed, in what code language?
which market will your system trade, nasdaq or nyse?
what type of trading are you going to do, liquidty or swing/trend?
what type of volume are you anticipating?

 

[def]

Quote from emk662:

The broker is Bear Stearns. They do support limit order, but the commission for the limit order will be substantially higher than market order. Therefore, market order may be the only viable way for us.

I'd be leary of any structure that provides an incentive for market orders as you state above. You'll probably end up giving up much more than you realize in the spread relative to the higher cost they charge for limit orders.

 

[emk662]

We will probably trade 1 mil shares a month. They offer $0.03 per share for limit order, but 0.004 per share for market order. Our system trades stock volatility, so it is high frequency trading. We will use FIX to send orders to Bear's desk.