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Large Traders
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Large Traders

  #1 (permalink)
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Large Traders

Does anyone know whether large traders/funds tend to use limit or market orders to do their business?


Thanks,
JohnBly

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JohnBly View Post
Does anyone know whether large traders/funds tend to use limit or market orders to do their business?


Thanks,
JohnBly

It's entirely subjective on their objective. There is no reason to pay more for anything than you need to. Sometimes, they might want people to see what they are doing, and other times not. There might be times where they HAVE to open or close a position, and times where it's not so urgent.


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I would classify iceberg orders, which bigger traders use to hide their true size and intention, as a "limit order" of sorts. But of course more complex DOM's and execution strategies can allow the iceberg orders to shift up/down as the market moves.

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JohnBly View Post
Does anyone know whether large traders/funds tend to use limit or market orders to do their business?


Thanks,
JohnBly

What kind of business, John? Your question was a bit opaque. Large order participants use market orders to aggressively move price. On the other hand, limit orders in large quantity can be "stacked" to halt or slow price movement often obscuring a large participants' true intent. Market orders are executed at best price whereas limit orders are "resting" or a non-executed order. Therefore, limit orders can be pulled from the order book and may be used to mask areas of support or resistance.

Non-commercial traders often enter near these areas of large volume support or resistance. Stacked areas of resting orders can be "refreshed" temporarily slowing price movement or even halt price at certain levels. As small fund traders take the opposite side of the trade to build a price position, large traders can "pull" their stacked orders from the order book forcing smaller traders to exit their positions or to capitulate thereby adding momentum to the trade. When cum buy/sell volume registers an extreme, it is likely that market exhaustion has taken effect and the market now begins to move in the opposite direction.

Ken "COTtrader"

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COTtrader View Post
What kind of business, John? Your question was a bit opaque.

Ken "COTtrader"

You are right Ken my questions was a bit open ended.

I was wondering about what order types large traders use to actually get filled.

I know they can spoof the book to create different types of setups that create liquidity,
but at the end of the day when they need to execute to get in or out, do they tend favor market or limit orders?

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Big Mike View Post
I would classify iceberg orders, which bigger traders use to hide their true size and intention, as a "limit order" of sorts.

Mike

Agreed yes.

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addchild View Post
It's entirely subjective on their objective. There is no reason to pay more for anything than you need to.

Right and this is why logically it follows that large traders would favor limit orders for getting filled.
In the long run paying the spread matters, especially on huge orders.

But if anything knows different would like to hear.

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JohnBly View Post
You are right Ken my questions was a bit open ended.

"...but at the end of the day when they need to execute to get in or out, do they tend favor market or limit orders?"

John,

Best buy/sell orders to exit a trade. Large institutions hold ladder positions for weeks or months. They can sustain large draw downs with deep pockets. Those same institutions also hedge in non-correlated markets. Prop firms, on the other hand, wield short-term influence over the market by closing out trades by the end of day. In highly liquid markets like the ES, slippage is minimal, even when using market orders.

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JohnBly View Post
Does anyone know whether large traders/funds tend to use limit or market orders to do their business? Thanks,
JohnBly

Hi John,

A good question for the upcoming order flow 'Ask Me Anything' session. For now, just ask yourself if you were a large trader, what orders would you place?

Scenario 1 might be a large trader working for a fund that just needs to buy and sell to suit its cashflow needs. If they have the time to wait on filling, dependent on size, they can place limit orders (perhaps icebergs/hidden) at the prices they are happy with. If more urgent, a sequence of market orders might be needed. Then again, a combination of both would also be fine. Some of these guys would not be too concerned paying the spread for some part as they are dealing with others money and any shortfalls will be picked up by the Muppets.

Scenario 2 is where a hedge fund, or perhaps a HFT firm, are actively playing games on system to maximise their returns. They would be placing limit orders, through icebergs, to get fills at desired prices. But at the same time pulling those limit orders, to influence price movement. They would also be putting up large spoof orders on one side to encourage market action towards their resting limit orders on the opposite side! In addition, they would use market orders to move the inner bids/offers in the direction needed, either to fill their own orders, or to add uncertainty to market stopping others getting in on a pullback, for example. So many tricks, and just some ideas to show that large traders would be using both types of orders, and just not so simple.

Hope that helps. Just my measly two cents on topic.

Richard
Hong Kong

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