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The sharing/not sharing dilemma

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Trading Experience: Intermediate
Platform: Bookmap and Jigsaw DOM
Broker/Data: Stage 5 Trading
Favorite Futures: ZN
lax99's Avatar
Posts: 433 since Jun 2015
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tpredictor View Post

1. Okay, right so you shared the problem in your analysis. We'll also be offering out at the same prices: so we can't all get the exit. And we got in at random prices. Even if all the traders only moved the market 1 tick then that's a problem, it means you will be giving up at least 1/2 tick on average. It is 1/2 tick because 50% of time you will get in before the others and 50% after. On the exit, you can also expect -- even if it is 1 tick then that's another 50% or a total of 1 tick. There are very few specific scenarios where this can benefit you. The only real scenario is that if you can drive up the price enough to trigger stop losses or entice new buyers. I should point out that any trading designed with the intention to create a disruption is prohibited. But even if you trigger the stop losses, you only need enough buyers to trigger those stops. You don't need more. Why? Because there won't be but so many stops. It means you still have a constraining factor.

2. Look you can use a limit order or a market order. Both are constrained by scarcity in time/price.

3. It is very possible to develop a quantitative/systematic strategy in 6 months (even 1-3 months). The 50k is your time cost for the development of the strategy. My point is if you spend 6 months on a strategy at average ~20 hours per week at a professional rate, you have to make 25k-50k to cover your time cost. This is a real problem if you are an independent trader with limited capital. On the other hand if you can sell the strategy for $1k: you only need to sell 25-50 copies to recoup your time cost. More importantly, you did that without taking market risk.

Rather than say that either one of our analyses is problematic, let's just suppose that they differ in view.

You mention the only time it matters is when people drive up the price to trigger stop losses. This is what everybody's trying to do every single day in the market! Maybe there's a legitimate Corn farmer who puts on a couple of ZC to truly hedge his crop. But everybody else is trying to screw over everybody else!

I would absolutely love it if my 1 lot created such a disruption that somebody had to buy 10,000 in response. Because that means that I'm getting paid in a huge way! Spoofing goes on all the time too--it can be disruptive but it's part of playing the game.

It's not about competing for the fill. Maybe if you traded SI at 500 per clip then you'd have an issue with getting your fills. Let's suppose that some given market is very thin and that 500 lot trader Jim can only get on 20 of his 500 before everybody else sees him and front runs him. That's still a great position to be in! Now Jim has partial size on and he's getting paid for it almost immediately, because all of those other orders are helping push the market in his favor. Soon enough, there will be other people who join the side. This pushes it even more in his favor... And Jim is free to put on more size at any time to even further exacerbate the move.

Exiting the position is simply a matter of finding the point at which "the flush" happens. Assuming that Jim knows what he's doing, he will scatter orders throughout the market to exit as it pushes in his favor (again, if he's a large player in a thin market). When the market hits an inflection point, the losing side is going to have to exit. They'll bail right into Jim's orders to exit. In the extreme case in which an untold number of traders are watching over Jim's shoulder, and clicking along with him, there still isn't a huge issue. If Jim hits the market button to get in, everybody jumps on board with him, he's staring at an immediate winner, and the last guy to the party is on the hook for being slow. If he hits the market button to exit, he will still be out before the move comes back in his face.

But in a more realistic, thicker market, this issue really drops away.

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