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The swoop and squat...where slippage is your friend
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The swoop and squat...where slippage is your friend

  #1 (permalink)
Fortitudo et Honor
Austin, TX
 
Futures Experience: Advanced
Platform: TradeStation
Favorite Futures: Futures
 
Posts: 882 since Mar 2011
Thanks: 128 given, 703 received

The swoop and squat...where slippage is your friend

After watching crude for what seems like endless hours, even off hours before European open, I've always suspected that big money uses "swoop and squat" tactics, but I can never really prove it.

If you had a larger account (say $500k) and the ability to purchase tens of cars in crude.....then during off peak hours, when the market is relatively shallow, you would expect that you'll incur higher than average slippage yes?

So, what I've observed, is that sometimes, just randomly (although I'm sure it's deliberate) a large market order comes in and moves the market several ticks. Sometimes this is instantaneous, sometimes it's over the course of several minutes.

Essentially, an order of 10 cars, (at market) moves the market 10 ticks. The order, is filled at a dollar cost averaged position size.....

For instance, perfect scenario is that oil is at 100.00 and someone sees that the market is shallow, but evenly distributed on the DOM/second level.

They can place an order at 100.00 for 10 cars and if it averages a tick of slippage for every order, they're dollar cost averaged position is now at 100.06, but the current price is at 100.10 or 100.11.

Now they can "squat" and slide a limit order in just at or under price and rake the difference (minus commissions).

Given that typical commissions are roughly $5/RT (or .5 ticks)....then anything above 1/2 a tick is profit. So in my example, a cost averaged position of $100.06 with a limit order at $109.00 yields 2.5 ticks after the broker is paid. That's $250 for a single trade off hours.

Given that there's A) not a significant amount of activity, it's very unlikely that the counter move will be excessive enough to incur any "momentum slippage" where the broker's stop server lags behind the exchange server for the fill.

And there's always the chance that "dumb money" sees the jump as a breakout opportunity and buys the position even higher, at which point the squatter can move his limit order and rake even more profit.

Am I just way off base here? Because for the life of me, I just can't see any logic in the sudden "pops" that ocurr off hours sometimes and I've always suspected that large money uses tactics that large sports better use in order to move the line, then pounce at an advantageous spot.

Obviously, in sports betting, it's a little different, because the secondary pounce bet can be met with future matching orders. For the trade scheme to work, it only works with the equivalent amount of cars that were used to pump the action (unless of course you're anticipating a counter reaction all the way back to the start point, at which you could reverse).

"A dumb man never learns. A smart man learns from his own failure and success. But a wise man learns from the failure and success of others."
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  #3 (permalink)
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RM99 View Post
After watching crude for what seems like endless hours, even off hours before European open, I've always suspected that big money uses "swoop and squat" tactics, but I can never really prove it.

If you had a larger account (say $500k) and the ability to purchase tens of cars in crude.....then during off peak hours, when the market is relatively shallow, you would expect that you'll incur higher than average slippage yes?

So, what I've observed, is that sometimes, just randomly (although I'm sure it's deliberate) a large market order comes in and moves the market several ticks. Sometimes this is instantaneous, sometimes it's over the course of several minutes.

Essentially, an order of 10 cars, (at market) moves the market 10 ticks. The order, is filled at a dollar cost averaged position size.....

For instance, perfect scenario is that oil is at 100.00 and someone sees that the market is shallow, but evenly distributed on the DOM/second level.

They can place an order at 100.00 for 10 cars and if it averages a tick of slippage for every order, they're dollar cost averaged position is now at 100.06, but the current price is at 100.10 or 100.11.

Now they can "squat" and slide a limit order in just at or under price and rake the difference (minus commissions).

Given that typical commissions are roughly $5/RT (or .5 ticks)....then anything above 1/2 a tick is profit. So in my example, a cost averaged position of $100.06 with a limit order at $109.00 yields 2.5 ticks after the broker is paid. That's $250 for a single trade off hours.

Given that there's A) not a significant amount of activity, it's very unlikely that the counter move will be excessive enough to incur any "momentum slippage" where the broker's stop server lags behind the exchange server for the fill.

And there's always the chance that "dumb money" sees the jump as a breakout opportunity and buys the position even higher, at which point the squatter can move his limit order and rake even more profit.

Am I just way off base here? Because for the life of me, I just can't see any logic in the sudden "pops" that ocurr off hours sometimes and I've always suspected that large money uses tactics that large sports better use in order to move the line, then pounce at an advantageous spot.

Obviously, in sports betting, it's a little different, because the secondary pounce bet can be met with future matching orders. For the trade scheme to work, it only works with the equivalent amount of cars that were used to pump the action (unless of course you're anticipating a counter reaction all the way back to the start point, at which you could reverse).

The thing is that the markets move together , go ahead and try it, bet it doesn't budge and your trade lights up the counter trade on a computer 1000 times the cost of yours with just enough to swoop your cash ...JMO

don't trade illiquid market unless it's trending or you are going with the moves that are occuring, just my 2 cents

but yes there are designs to run stops and rack up commissions especially in summer where they have to keep the money flowing

I was reading where they flag traders accounts who have not been doing well and start to trade more frequently which is a sure sign they will blow up their account , so they start trading against - which they can do and do do

tough business jmo

"Successful trading is one long journey, not a destination" Peter Borish Former Head of Research for Paul Tudor Jones speaking on conversations with John F. Carter
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  #4 (permalink)
Fortitudo et Honor
Austin, TX
 
Futures Experience: Advanced
Platform: TradeStation
Favorite Futures: Futures
 
Posts: 882 since Mar 2011
Thanks: 128 given, 703 received


GridKing View Post
The thing is that the markets move together , go ahead and try it, bet it doesn't budge and your trade lights up the counter trade on a computer 1000 times the cost of yours with just enough to swoop your cash ...JMO

don't trade illiquid market unless it's trending or you are going with the moves that are occuring, just my 2 cents

but yes there are designs to run stops and rack up commissions especially in summer where they have to keep the money flowing

I was reading where they flag traders accounts who have not been doing well and start to trade more frequently which is a sure sign they will blow up their account , so they start trading against - which they can do and do do

tough business jmo

I've seen it happen to me personally trading off hours using just 4 or 5 cars. With market orders, in illiquid situations, the market moves, even with just a few orders. It never ocurred to me to try this sort of manipulation, as 4 or 5 cars isn't enough to make it worthwhile, but if you start talking about 10+ cars in CL, then once a day isn't bad with even 3 or 4 ticks. I'm not advocating this strategy, as much as just discussing it.

"A dumb man never learns. A smart man learns from his own failure and success. But a wise man learns from the failure and success of others."
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