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Resting bids above market or offers below market?

  #10 (permalink)

North Carolina
Trading Experience: Beginner
Platform: NinjaTrader, Tradestation
Favorite Futures: es
Posts: 644 since Nov 2011

I still have not heard the precise mechanics that matter. I'm sure this can vary from product to product and exchange to exchange but what we're trying to get at is precisely how a new level is filled.

There are a few possibilities

1. The exchange processes a resting dark limit order pool, the stop limits first in fifo order
2. Next the exchange processes any submitted orders, i.e. low latency

If (1) is the case, do we know if the HFT are stacking the "dark" book as well with orders? I think a stop limit will still be slower because remember after the depth is cleared then the market doesn't need to trade at a higher level before the depth is filled. So, I'm thinking there is truly not a queue for latent side buy/sell capacity. But, if there were then notice it would level the playing field.

Here is what I think happens in something like the es, the market is moving up.

1. The offers clear. The spread widens by 1 tick but we do not see this.
2. HFT traders will submit new limit orders to fill the book in microseconds perhaps using peg orders ? or just using HFT software.
3. A trade triggers on the ask side.
4. Stop limits are processed in FIFO order after the HFT traders have filled the book.

With something BTC/USD here is what happens:

1. The offer clears. The spread widens to multiple cents usually
2. Traders will start to fill the levels closest to the bid.
3. Other more aggressive HFT traders will see the new fills and start to fill levels in front of them.
4. The spread will narrow to the minimum spread of 1 cent in most cases within moments.

Last edited by tpredictor; October 28th, 2017 at 10:10 AM.
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