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Orders appearing out of nowhere


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Orders appearing out of nowhere

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  #1 (permalink)
adaseb
Canada
 
 
Posts: 58 since Aug 2010
Thanks: 2 given, 32 received

Im referring to the futures market.

From time to time when watching various currencies or commodities I notice that out of thin air large orders appear that don't show up on the Bids and Asks.

I am not referring to Iceberg orders. Those are easy to see.

For example, say I notice 5 orders of 10 lots each at the offers. The Asks will usually keep reloading so it makes sense its an iceberg order such as

For example it might be as such

11
1
13
3
15
5
18
8
22
11


^ As the offer is filled, it reloaded instantely showing an iceberg order. This might happen in a split second or over the span of a few minutes.


HOWEVER

From time to time, I see on the offer (or bid) very little liquidity such as

5
4
9
2
4
1
3

Then all of a sudden at that EXACT price there was a huge 100 lot order that just filled. It obviously wasn't a marker order or it would have spanned a few difficult price ticks.

Now I am wondering where this order came from. If some bot put a quick offer of 100 lots at the ask, and then another bot quickly took it out, it should of at least appeared on the Asks.

Why is there no transparency with these orders?

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  #3 (permalink)
 SMCJB 
Legendary Market Wizard
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There are all sorts of possible explanations. Some of them are a function of the trader (ie a programmed iceberg that shows quantities differently than you might expect) or even a function of the exchange matching engines themselves. For example most exchanges disseminate 1st order implies. but actually will match 2nd order implieds. Hence there could be a large 2nd order implied market that is executable but that isn't visible.

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  #4 (permalink)
adaseb
Canada
 
 
Posts: 58 since Aug 2010
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SMCJB View Post
There are all sorts of possible explanations. Some of them are a function of the trader (ie a programmed iceberg that shows quantities differently than you might expect) or even a function of the exchange matching engines themselves. For example most exchanges disseminate 1st order implies. but actually will match 2nd order implieds. Hence there could be a large 2nd order implied market that is executable but that isn't visible.

What do you mean exactly by 1st or 2nd order implied?

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  #5 (permalink)
 SMCJB 
Legendary Market Wizard
Houston, TX
 
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Imagine the following
Jan is 4300/4400
Jan/Feb spread is 40/50
Then the implied market in Feb is 4250/4350. We call this a first order implied order. Most exchanges we disseminate this (ie broadcast/show) all 1st order implied markets. Hence you would see the 4250/4350 in Feb. If you sell the 4250s in Feb, the exchange matching engine will sell the 4300s in Jan, and buy the 50s in Jan/Feb. So
Customer A buys Jan @ 4300 as thy desired
Customer B sells Jan/Feb @ 50 as they desired (Sell Jan 4300 buy Feb 4250)
You sell Feb @ 4250 as you desired
Now imagine that the market in Mar is 4200/4275. This would create a 1st order implied market in the Jan/Mar spread of 25/200. Again most exchanges will show this market. It would also create a 2nd order implied market in the Feb/Mar spread of -25/150. It is called a 2nd order implied because it is created by the combination of an outright order & a 1st order implied order. Most exchanges will NOT display this market but will match orders against it if possible. Hence the best 'visible' market in Feb/Mar may be -50/200 but if you enter a bid at +150 you WILL get filled instantly. This is a very very potential source of your 'phantom liquidity'.

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  #6 (permalink)
adaseb
Canada
 
 
Posts: 58 since Aug 2010
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Why are you talking about options? I was just talking about regular contracts not puts/call options

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  #7 (permalink)
 Jolew 
San Jose, CA
 
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Here is another way to think about this. Right now I am looking at Feb Gold , for example, and it has a bid/offer size of 8 and 6 contracts respectively, but at the same time Feb/Jun spread has 295 at bid and 86 at offer. So someone could buy or sell this spread and generate a large trade in both Feb and Jun contracts.

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  #8 (permalink)
 SMCJB 
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I believe that if it trades as a pure spread, ie buyer and seller both trading the spread, no separate legs, then the spread trades doe NOT report in the individual months as last done.

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  #9 (permalink)
adaseb
Canada
 
 
Posts: 58 since Aug 2010
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Is there a document anywhere on the CME website that states that its not reported?

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  #10 (permalink)
adaseb
Canada
 
 
Posts: 58 since Aug 2010
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For anybody interested

here it is


https://www.cmegroup.com/confluence/display/EPICSANDBOX/Implied+Orders+-+Second+Generation

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  #11 (permalink)
 SMCJB 
Legendary Market Wizard
Houston, TX
 
Experience: Advanced
Platform: Trading Technologies
Broker: Primary Advantage Futures. Also ED&F and Tradestation
Trading: Primarily Energy but also a little GE, GC, SI & Bitcoin
 
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Your not supposed to research things like that.
Next thing you'll be designing trading systems based upon this knowledge.
And then you'll be demonized for having an advantage over everybody else.

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