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making 2 sided markets

  #12 (permalink)

New York, NY
Posts: 3 since May 2017
Thanks: 0 given, 1 received

The specs for the datafeeds available to HFTs are typically available on the web. For example the CME direct feed is MDP 3 and the section of documentation relevant to order book feeds can be found as the first google response to "mdp3 book management" (I'd post a link but I don't have enough posts on this forum to be allowed to). If you look through that, you'll see that stop orders are nowhere there. In fact, not only are stop orders not there but even some limit orders ("Iceberg" or "reserve" orders are hidden in all dataefeds as well).

I suspect that in reality, nobody is actually hunting your stops but rather, they are either picking up on statistical signals or even more likely, you are attributing malice to random movements of the market. What I mean by picking up by statistical signals is that a pattern of "When a size X order, submitted at a latency insensitive time (so probably not by an algo) trades and the price moves Y against it, there's a Z % chance to see an aggressive size-X order reversing the position" isn't exactly rocket science. Even then, those indicators typically go into a predictive model as to what the "fair price" is, so if the market starts falling for other reason's, the algo trader will know that there's a hidden sell order coming soon and will adjust its fair valuation accordingly; I don't believe people are aggressively moving markets in order to induce stop orders but rather just moving their fair-value valuations to adjust for the information.

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