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Resting bids above market or offers below market?

  #19 (permalink)

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

Thanks--yep you understand the question. I found there is a special "peg" order type for market makers too (correction, not sure if this is a CME order type or not cannot find it now). There is risk for being top in queue too. It is not just reward because you can be hit by aggressive market orders. However, the stop limit makes some sense as to the first orders that fill esp if these are traders who want to exit and thus want to get hit.

I think the question is who/if anyone gets priority when the new level is formed. We can imagine there might be (1) stop limits held by exchange and peg orders and (2) orders submitted by co-located HFT boxes.

One of my questions was who gets the priority. I guess you could ask the exchange. Please let us know what you find out. I suspect there is a lot more happening then we can see.

On second thought, it is possible the bid is filled by a large trader using market-limit order. Imagine a case where 50 are offered and a trader wants to buy 100 but not risk slippage, they submit a market-limit order and the first 50 are bought at market with the remaining 50 now resting as the new bid.

iantg View Post
Hi tpredictor,

I like where you are going with this... I think you are correct and I wanted to verify that I am understanding this the way you are presenting it.

If a new level is created above the current level, then we know where the resting ask volumes come from because there is already several levels of resting orders that can be observed on various DOMS, but you are bringing up the topic of the bid volumes. Where do they come from since you can't submit limit orders (Buy Bid above the market, and Sell Ask below the market). But these new levels get filled almost instantly once the level is created with these types of orders. So where do they come from?

One of the ideas that you mentioned was stop limit orders that are sent as conditional market orders and not triggered until the new level gets created. Once the new level is created and the threshold price is triggered, the stop limit orders become a regular limit order and work accordingly from there.

Now from my research (Spreadsheet enclosed) I suspect the stop limit orders being first, is the most likely way this new level is being filled. The reason I think this is that I see in the data when a new level is created up for example, the side that get's worked first is usually the bids. By contrast if a new level is created down, then the side that gets worked first is the asks. The data I am enclosing comes from NinjaTrader / ES and I ran the data using the OnMarketData event handler to try to get every change as granular as possible. I sequenced the events of every level between Last = bid and Last = Ask to get a sense of how it moves. I think I am likely missing some of the granularity though because I never see volume drop close to 0 on either side, but this is as granular as NT / Kinetic had it. But the pattern I see is that on new levels, the side that gets served first was typically (90% or more of the time) the side that was not resting on the DOM but came into the level seemingly at the last second. So if this side is being given priority and served first, then this is likely due to using a different order type such as a stop limit order which gets executed first.

Maybe I am off on how to interpret this, but I am throwing it out there. It looks like the data I have aligns with your theory about stop limits going first though. Have you gained any more insight into these mechanics since this original post?


Last edited by tpredictor; January 16th, 2018 at 12:15 AM.
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