SMCJB 

This quickly becoming very technical. The way to think about this is that the exchange gives you a port at a location (Aurora IL for CME, Chicago IL for ICE, New Jersey I believe for most of the equities exchanges) and how quickly you communicate with that port dictates how fast you are. If we talk about CME specifically. If your running an automated trading system that is colocated at Aurora and you have DMA then that is about as fast as you can get. If your running a trading system on TT that is not much far behind. TT's algo engines are colocated at Aurora as well but their infrastructure will normally be slower than a DMA client. Now imagine you live in LA and your algo trading with somebody like Tradestation on your home computer. The data leaves Aurora, travels to NJ (where Tradestations data servers are) and then goes to you in LA. Your system then wants to send an order. That order goes from LA to Florida (where Tradestation performs a credit check) and then goes to Aurura. Things like 'smart order routing' are more equities (and equity option) specific and not something I know as much about (compared with futtres). Really fast DMA can change orders thousands of times per second. Something like TT is probably capable of doing it several hundreds of times per second. Tradestation on a desktop in LA... who knows! Don't know but would agree. Investment Management will be private client and their fund business. DMA access will have whatever controls that have been programmed into it. Could be everything. Could be nothing. As a rule the point of DMA is speed, hence as a rule I don't believe there are a lot of non-essential code as that would slow it down to much. Non-DMA software like TT has credit modules that your broker can access and set limits. They have communal data gateways. While still fast, every one of these additional steps creates software latency. Lessor software even has throttling limits built into the software. (In most cases the exchange itself has throttling limits that will slow you down if you go crazy.)

This is awesome information. I am very grateful you took the time to respond to me.

I'm curious if you know whether Smart order routing/algo routing is all that relevant for index options (SPX for example). This is mostly CBOE and they don't have many routes so I'm guessing no?

Also, I noticed CBOE isn't responsible for the vast majority of the value or volume of options trades. I assumed they were responsible for most of the index and equity/etf options. Looks like they are 'only' 60% and Nasdaq is roughly 20%, NYSE 10% (two other exchanges remaining 10%). So I'm curious if you know how that works. Are there AAPL options listed on CBOE and others that are listed on Nasdaq? If they were all CBOE it would simplify everything and I wouldn't have to worry about complicated algo routing stuff.

I'm not an equities (or equity options) trader so not sure. Unlike futures, equites trade on more than one exchange and have the NBBO (National Best Bid Offer). Which is where things like Robinhood selling order flow (completely legal as long as it's transacted inside the NBBO) and Michael Lewis's Flash Boys (sending orders to other exchanges to intercept orders that are travelling slower) come in. Plus different exchanges have different fee and rebate structures, so lifting the offer at one exchange may be cheaper than another even if the same price. It's a very different game to futures.

SMCJB 

I'm not an equities (or equity options) trader so not sure. Unlike futures, equites trade on more than one exchange and have the NBBO (National Best Bid Offer). Which is where things like Robinhood selling order flow (completely legal as long as it's transacted inside the NBBO) and Michael Lewis's Flash Boys (sending orders to other exchanges to intercept orders that are travelling slower) come in. Plus different exchanges have different fee and rebate structures, so lifting the offer at one exchange may be cheaper than another even if the same price. It's a very different game to futures.

For sure, was just wondering whether options are different from the underlying equities themselves.

Anyway, the futures side is pretty simple it seems, at least as it concerns all products the CME offers. Only one route and one exchange offering the same product so algo order routing isn't all that important.

@SMCJB do you need a programmer to use tt with dma? if you're placing thousands of lots i assume you send them through an iceberg order, right? when you get to an institution level with the amount of orders you place how do you prevent slippage when you're trading thousands of lots?

@MollieP what's the minimum account size you need to trade with jp morgan's institutional side? Also, do you need a hedge fund to trade with them? what certifications do you need to be able to trade with institutional order sizes?

by the way thanks @MollieP for starting this thread, and thanks @SMCJB for sharing your in-depth knowledge of institutional-grade trading

@SMCJB i sent a dm because i didnt want to detract from op's original post and go on a tangent. hope you dont mind

bulldogtrader88 

@SMCJB do you need a programmer to use tt with dma? if you're placing thousands of lots i assume you send them through an iceberg order, right? when you get to an institution level with the amount of orders you place how do you prevent slippage when you're trading thousands of lots?

• TT is not DMA
• TT basically has 3 offerings. Basic, Advanced which is Basic plus all the automoation (ADL, Autospreader & Autotrader) and API ("XTAPI"). Autospreader is easy to learn. If your good at Math ADL is pretty easy as well as its very logical but technically it is programming. If your using the API then you will need to program whatever software is using the API.
• Never done it but I assume if you enter an order to buy 1000 lots at market you will experience slippage. A lot of what I do involves autospreaders and ADL which has a concept of 'clip size' and 'reload' which is basically the same functionality as an Iceberg. So I might say leg 100 of these spreaders but only ever expose yourself to 5 lots at a time.

bulldogtrader88 

what certifications do you need to be able to trade with institutional order sizes?

In most cases you either need certification or to be registered with the CFTC or SEC to trade 'Other Peoples Money' ("OPM"), ie a CTA or Hedge Fund. There are 'Friends & Family' exceptions though. In terms of order size - it's not about retail vs institutional it's about how much money is in your account!

MollieP 

For sure, was just wondering whether options are different from the underlying equities themselves.

As far as I know there are multiple exchanges that offer the same equity options so yes smart routing could be valuable for options as well.

MollieP 

Anyway, the futures side is pretty simple it seems, at least as it concerns all products the CME offers. Only one route and one exchange offering the same product so algo order routing isn't all that important.

There are a few examples in futures of identical products where you might be able to trade one at a better price than the other. On the CME since they have now launched so many Micro contracts I assume there could be situations where buying the Micros may be cheaper than the full size although I think those opportunities would be few and far between. Then in energy there are several products that trade on both ICE and CME/NYMEX. For example in crude ICE (old IPE) have always had the benchmark North Sea Brent Contract and NYMEX always had the benchmark US Light Sweet Crude / WTI contract. Now both of them have Brent and WTI contracts (and Brent-WTI spread contracts). In reality which one you want to trade will probably be dictated by margin requirements rather than a tick in price improvement. TT have functionality called an "aggregator" to take advantage of this, but I have never used it.

@MollieP what kind of corporation did you set up to broker with jp morgan's institutional side? as a self-directed trader i'm assuming your trading your own money and not for a client, right? do you need any licenses or certifications to be able to access institutional resources for your trading?

bulldogtrader88 

@MollieP what kind of corporation did you set up to broker with jp morgan's institutional side? as a self-directed trader i'm assuming your trading your own money and not for a client, right? do you need any licenses or certifications to be able to access institutional resources for your trading?

You don’t need anything other than a good amount of money and forming an entity.

SMCJB 

Really fast DMA can change orders thousands of times per second. Something like TT is probably capable of doing it several hundreds of times per second. Tradestation on a desktop in LA... who knows!

Two things:
1) With that kind of speed, how many DOM's can react and display the ladder properly ?
2) Isn't the CME monitoring this more closely now in light of all of the spoofing that was happening ?
I mean they should at least be throttling the number of cancel and replace orders per second.