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Trying To Understand How ES Futures Ladder & Volume Works


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Trying To Understand How ES Futures Ladder & Volume Works

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  #1 (permalink)
rhp1999
San Diego, CA, USA
 
 
Posts: 1 since Jun 2022
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I'm somewhat new to futures and am trying to understand how orders are processed on ES Futures. When I look at the ladder in real time, often the the next tick down has around 20-30 limit orders resting there. And when I'm watching in real time I see the ladder refreshing and updating faster than I can even see, let alone process.

Yet despite there only being 20-30 limit orders resting at the next tick, when I load up a trading view 1 second chart, when looking at volume during the NY session there's often 200 orders a second flowing through the market...

Can someone explain to me what is going on here? My understanding would these 200 orders per second are all market orders be someone smashing market buy and taking liquidity. But how are these orders processed when the orders there's only 20-30 orders resting at the next tick down?

Are these orders simply being filled several ticks down the ladder? So if the current ES is $4300, someone clicking market order long for 200 contracts is being filled at like $4306, for example?

OR are there simply more orders available on the ladder than I can see, because they're being refreshed quickly by bots and altos etc?

I have a pretty solid scalping strategy that's been netting 40-50 points most days on 1 ES contract. I'm trying to understand... if the strategy continues to perform... if in the future (when capital allows for it) if I'll be able to market order in for 100 contracts, using the same strategy, or if I'll get massive slippage on entry and exit. Thank you!!

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  #2 (permalink)
 shokunin 
Manchester, United Kingdom
 
Experience: Advanced
Platform: Sierra Chart
Broker: Optimus Futures, Rithmic, Denali
Trading: ES
 
Posts: 71 since Jul 2020
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If you look at a footprint chart it will show you every contract traded. If 100 contracts are traded at a price but you only saw 20 orders in the DOM, it means more orders are being reloaded quicker than your DOM/human eye can see.

These could be CME icebergs, synthetic icebergs, or just general market participants joining the bid/ask.

Bookmap, or another product that can display historical Level 2 depth data at a fine timescale, will show you this happening.

In the future, executing 100 ES contracts at market will require you to consider slippage and work that into your strategy.

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  #3 (permalink)
 matthew28 
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Wiltshire, United Kingdom
 
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rhp1999 View Post
I have a pretty solid scalping strategy that's been netting 40-50 points most days on 1 ES contract. I'm trying to understand... if the strategy continues to perform... if in the future (when capital allows for it) if I'll be able to market order in for 100 contracts, using the same strategy, or if I'll get massive slippage on entry and exit. Thank you!!

So you are currently making $2,000-2,500 most days on 1 ES contract?
Considering lots of brokers offer $500 day margins for the ES scaling up when your capital allows is hardly going to be a problem.

Or perhaps you mean on sim. In that case once satisfied with your sim trial results you start with one contract real money and see how it goes. If that works for a reasonable sample size of trades to see that the results roughly correspond with your sim results, then you increase to 2 lots, and so on until slippage becomes an issue relative to the size of your expected profits or your exits on unprofitable trades.

Markets change over time and will gradually increase order book liquidity and decrease in volatility and ATR and size that can be traded easily by market order will increase. Or if you want to cap potential slippage use limit orders, buy with a limit at the offer rather than a market order and then cancel what hasn't filled after price moves away and have an automated exit order so the size matches what was filled. Or whatever other appropriate method fits the way the product is being traded by you.

My points is, I wouldn't worry now about whether your product will be liquid enough for you when you are trading large size, consider it in the future when/if you have actually gradually increased your size through profitable trading and have reached a point where liquidity is starting to become a problem.

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