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What's with the extreme liquidity in ZT?
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Created: by El Danno Attachments:1

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What's with the extreme liquidity in ZT?

  #1 (permalink)
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Tendoy
 
Futures Experience: Advanced
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What's with the extreme liquidity in ZT?

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Last edited by El Danno; June 22nd, 2017 at 05:50 PM. Reason: my account number was in the screenshot ooops
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  #2 (permalink)
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  #3 (permalink)
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Well, nobody responded to my post so I will respond to it myself...


There is clearly MASSIVE manipulation in the form of SPOOFING going on in ZT. Orders for 10,000 to 100,000+ contracts are being placed and canceled rapidly. It appears to me that they're only doing this during RTH, but who knows for sure.

I thought they were cracking down on this stuff, but clearly they're not. I've never seen anything like this on this scale.

I'm certain that it's spoofing because orders for 100,000+ contracts come and go like wildfire, but the actual number of contracts traded at those price levels are only moving by dozens or hundreds of contracts at the most.

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  #4 (permalink)
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Hey El Danno,

I don't watch this stuff or trade it. Do you keep track of what happens following these 100k 'spoofers'? I got curious and took a look back at the price action on a 5m chart (doesn't provide much detail but interesting nonetheless). I think there's a chance that this isn't cut and dry spoofing but rather a price sensitive trader trying to get filled.

The 2yr futures' order matching algo allots a percentage of contracts from the aggressor to the largest resting order, before matching the rest using FIFO (i could be missing details but im 99% sure that at least the algo rewards size). I would have liked to have seen the bid/offer movement after this but it looks like there was some edge there for the locals that took it. Plenty of time/stable pricing to trade out of it before the sell off on the 27th (in hindsight). Hope that ramble made sense but overall I think this is someone that had to sell size and didn't want to hit so they 'over-quoted' to ensure they got filled (taking advantage of the order matching algo), and the traders that lifted that order received the potential for reward.

Also I could be totally wrong. Another thought is that this could have been someone trying to put on a curve trade.

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  #5 (permalink)
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Woah! Mind blown!


conorcoen View Post
Hey El Danno,

I don't watch this stuff or trade it. Do you keep track of what happens following these 100k 'spoofers'? I got curious and took a look back at the price action on a 5m chart (doesn't provide much detail but interesting nonetheless). I think there's a chance that this isn't cut and dry spoofing but rather a price sensitive trader trying to get filled.

The 2yr futures' order matching algo allots a percentage of contracts from the aggressor to the largest resting order, before matching the rest using FIFO (i could be missing details but im 99% sure that at least the algo rewards size). I would have liked to have seen the bid/offer movement after this but it looks like there was some edge there for the locals that took it. Plenty of time/stable pricing to trade out of it before the sell off on the 27th (in hindsight). Hope that ramble made sense but overall I think this is someone that had to sell size and didn't want to hit so they 'over-quoted' to ensure they got filled (taking advantage of the order matching algo), and the traders that lifted that order received the potential for reward.

Also I could be totally wrong. Another thought is that this could have been someone trying to put on a curve trade.


Woah! My mind is blown by your response! It just goes to show that you can't be 100% certain about many things!

This is the first time I've ever heard of orders being filled based on any criteria other than FIFO!!!!

You can see what I mean by my comment that I posted this morning at the bottom of this great article:
https://www.finextra.com/blogposting/13551/understanding-futures-transaction-flow---basic-introduction

Thank you for the response! At least I have a much better idea of the dynamics I'm dealing with now! It seems that I rarely get filled before it actually goes through to the next price level and now I know why. The big boys have a serious advantage!!!

PS: Did you look at the price action in a DOM where the top 10 bids/asks are visible at one time? I believe it's close to the end of the open outcry session (2pm CT) that you will see this phenomenon the most.

Dan

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  #6 (permalink)
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Hey dan here's a breakdown of the various order matching aglos that CME group uses

https://www.cmegroup.com/confluence/display/EPICSANDBOX/Matching+Algorithms

and here you can find a link to the Product Reference sheets that tell you which algo various products use

https://www.cmegroup.com/confluence/display/EPICSANDBOX/GCC+Product+Resources#GCCProductResources-CMEGlobexReferenceSheet

Pretty inconsequential for most people on this forum but it's nice to see under the skin of your products and it might give some insight into the quirks and quarks of whatever DOM you're looking at.

Also if these big orders are happening right near the end of RTH that makes a lot more sense as people try to rebalance before settlement and/or take some off before the close.

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  #7 (permalink)
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El Danno View Post
The big boys have a serious advantage!!!

Sure they get a better fill but they're still taking a risk by over-quoting. If you have large resting order that you only want a partial fill on, you're betting that somebody doesn't come in and take the whole level and you're stuck holding the bag. I think it's better for a market to reward passive size over somebody fast resting a pile of 1 lots.

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  #8 (permalink)
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I definitely feel better now that I understand it better.. I'm glad I posted about it!

Thanks again for the help/info.

FUN FACT: The 2-year (ZT) has the lowest of all futures margins (that I can find, anyways!) so this makes it much easier to put in huge orders! It's very difficult to get filled at anything but market price, though, and the price action is just slightly faster than drying paint!


Last edited by El Danno; July 13th, 2017 at 12:56 AM. Reason: added a point
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  #9 (permalink)
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How does Eurodollar Dec '17 look by comparison? I've seen some pretty massive liquidity on the inside bid/ask on that thing.

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