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What is the max # of contracts to trade on 5min emini without influencing the market?


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What is the max # of contracts to trade on 5min emini without influencing the market?

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  #1 (permalink)
Sunnyvale CA
 
 
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I remembered I read some auto trading book which says that do not trade more than 0.3% of the volume otherwise you might influence the market. During low volume time in emini sp500 day sessions, the volume can be as low as 2k each bar. Does that mean entering a position with more than 6 contracts during those low volume bar is a bad idea?

I have not found a profitable auto trading strategy yet but I am just curious how many contracts can I trade at maximum without moving the market.

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  #2 (permalink)
Toronto, Canada
 
 
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Well what *if* you're actually able to move the market by yourself? Wouldn't that be profitable to you and your goals? Although, it is also illegal to do that as well?

Please enlighten. Thank you.

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  #3 (permalink)
Los Angels
 
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paulyoungmsw View Post
I remembered I read some auto trading book which says that do not trade more than 0.3% of the volume otherwise you might influence the market. During low volume time in emini sp500 day sessions, the volume can be as low as 2k each bar. Does that mean entering a position with more than 6 contracts during those low volume bar is a bad idea?

I have not found a profitable auto trading strategy yet but I am just curious how many contracts can I trade at maximum without moving the market.

Interesting question.

1) Tracking fills for 6 contracts while autotrading is a full time job (depending on how many autotrades happen per day).

2) Autotrading slippage and non-fills in a live market are substantially larger than expected. Please comment back if you have less than expected slippage and non-fills!

3) Using a strategy dependent on 6 contracts seems rough to me. The margin alone is quite high.

Lastly, I'm using a autotrading strategy live and could use some input from others. Looking forward to more opinions.

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  #4 (permalink)
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paulyoungmsw View Post
I remembered I read some auto trading book which says that do not trade more than 0.3% of the volume otherwise you might influence the market. During low volume time in emini sp500 day sessions, the volume can be as low as 2k each bar. Does that mean entering a position with more than 6 contracts during those low volume bar is a bad idea?

I have not found a profitable auto trading strategy yet but I am just curious how many contracts can I trade at maximum without moving the market.

Well, the average trade size in ES is just under 3 contracts, so your 6-contract trade will have about the same market-moving power as two average trades, which is basically zero. This might be different in a thinner market, but ES is not at all thin.

ES is very heavily traded. I don't know the answer to your question, and I imagine someone else does, but 6 contracts is not a large trade at all for ES. 60 probably would be, but I would be totally surprised if it turned out to be all that hard for ES to digest it smoothly either.

You might want to watch the DOM (Depth of Market) for a time, during both heavy and light periods, and see the size of the orders that are coming in and getting matched as price moves up and down.

But basically, your 6-contract trade would not quite be drop in a very large bucket. Probably very few traders trade large enough for their trades to matter in this way.... and if they do, they definitely know.

Bob.

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  #5 (permalink)
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lightsun47 View Post
Well what *if* you're actually able to move the market by yourself? Wouldn't that be profitable to you and your goals? Although, it is also illegal to do that as well?

Actually, no.

The issue is what happens if you throw in an order that is too large for the exchange to match it up to the existing resting limit orders (or new orders coming in,) or whether your matching price has to move up (for a buy) or down (for a sell) to find other orders to match it to. If it's too large to match at the current price, some part of it will be matched at that current price, then some more at a higher price (for a buy), and so on until it's all matched up.

This is not at all a good thing for you. It means that you get a lousy fill, higher (for a buy) or lower (for a sell) than you wanted and expected, which will eat into your profit, or of course add to your loss, because it will affect your starting price in a negative way.

This is not the same as somehow manipulating the market after your trade is in, which would be good for you, and not legal, but basically pushing the market in a direction as you are getting your trade in (actually, in order for you to get your trade in,) which is going to be bad for you.

This is called slippage, and is not a good thing.

It happens all the time, but the original question had to do with how large an order would have an extreme effect on the trade price. Slippage certainly happens, but we're generally talking about a tick or a few ticks or so. There is certainly going to be a size that is so large that it gets a truly lousy fill, but traders who handle that kind of size are going to be careful in how they parcel out their orders to keep this effect down as much as they can... breaking the trade up and handing out pieces as price fluctuates around their intended average price for example, or simply breaking it up in an iceberg order, all of which is part of what big traders often do.

This is definitely an effect that very big traders have to care about, but not traders such as most of us.

Bob.

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  #6 (permalink)
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^Bob I know what you mean, but because he had a question that his 6 contracts are moving the market, that's why I asked that.

I had a trader who traded on 100 contracts no problem WITHOUT moving the market because it was on ES. He had no trouble filling orders without slippage to most extent.

Because this guy said only 6 contracts move everything, that's why I asked that.

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  #7 (permalink)
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lightsun47 View Post
^Bob I know what you mean, but because he had a question that his 6 contracts are moving the market, that's why I asked that.

I had a trader who traded on 100 contracts no problem WITHOUT moving the market because it was on ES. He had no trouble filling orders without slippage to most extent.

Because this guy said only 6 contracts move everything, that's why I asked that.

Sent using the futures.io mobile app

Gotcha. I didn't understand.

I'll leave my post up, in case it helps someone else.

Bob.

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  #8 (permalink)
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Futures Trader 71 keeps track of large orders verses small traders on the ES. He does move the goal posts from time to time but somewhere in the 20+ is usually his cut off if I remember correctly. So the implication is you can be in that range without having problems, but you know the calendar has a lot to do with it also. Just try placing an order for 30 tomorrow afternoon (wed before turkey day) and you may move the market.

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  #9 (permalink)
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paulyoungmsw View Post
I remembered I read some auto trading book which says that do not trade more than 0.3% of the volume otherwise you might influence the market. During low volume time in emini sp500 day sessions, the volume can be as low as 2k each bar. Does that mean entering a position with more than 6 contracts during those low volume bar is a bad idea?

It all depends. How are you entering the position ? Limit order, Market Order, Stop order ?
That 0.3% might be a good rule of thumb. However, why trade with low volume then when price action is likely less favorable ?


paulyoungmsw View Post
I have not found a profitable auto trading strategy yet but I am just curious how many contracts can I trade at maximum without moving the market.

Work on getting a profitable strategy working first. Then betsizing becomes an afterthought.

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