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Liquidity 'flipping'
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Liquidity 'flipping'

  #11 (permalink)
Market Wizard
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The segment relates to ZN and after some 'adjustments' (and very little trading) liquidity stabilises around 1029 on the bid and 450-550 on the offer). With no further trading, contracts sitting on the bid start to get pulled. That's when 2 contracts are sold into the bid. Seconds later 1 more contract is bought into the offer. But now the situation has changed and there's more liquidity on the offer (821) and less on the bid (763).

This is just an example, and this kind of flipping or switching takes place all the time in different quantities and sometimes in more extreme ways. Depending the time of the day, the flipping can take half a second or can take seconds, but it happes frequently.

It also seem to affect often the way the rest of the order book is stacked, i.e. when the flipping takes place within the inside bid/offer, the entire order book is automatically adjusted as well (minor adjustments compared to inside bid/offer) which I'm sure must be algo-driven given the speed.


Last edited by xplorer; April 28th, 2016 at 04:35 AM.
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  #12 (permalink)
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It must be algo driven, and this is classic market making.
As you said it happens after small order hits for example offer, it increases size on offer.

For small investor or some algo increasing size on offer means there is plenty of supply.
It should probably signal interest to sell, but not as active risk taker (hitting bid side). So, increased offer should be possible sign that market will go down, and because of that someone will hit bid. And that is exact aim of market maker, sell on offer and get hit on bid as fast as possible.

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  #13 (permalink)
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Caerus View Post
It must be algo driven, and this is classic market making.
As you said it happens after small order hits for example offer, it increases size on offer.

For small investor or some algo increasing size on offer means there is plenty of supply.
It should probably signal interest to sell, but not as active risk taker (hitting bid side). So, increased offer should be possible sign that market will go down, and because of that someone will hit bid. And that is exact aim of market maker, sell on offer and get hit on bid as fast as possible.

Thanks Caerus - I did think that it had to be market making, and I do understand the rationale you presented. Still it puzzles me that just 1 or 2 orders hitting at market can cause that kind of flipping.

Sometimes it seems that the flip occurs even when there are no trades present.

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xplorer View Post


The segment relates to ZN and after some 'adjustments' (and very little trading) liquidity stabilises around 1029 on the bid and 450-550 on the offer). With no further trading, contracts sitting on the bid start to get pulled. That's when 2 contracts are sold into the bid. Seconds later 1 more contract is bought into the offer. But now the situation has changed and there's more liquidity on the offer (821) and less on the bid (763).

This is just an example, and this kind of flipping or switching takes place all the time in different quantities and sometimes in more extreme ways. Depending the time of the day, the flipping can take half a second or can take seconds, but it happes frequently.

It also seem to affect often the way the rest of the order book is stacked, i.e. when the flipping takes place within the inside bid/offer, the entire order book is automatically adjusted as well (minor adjustments compared to inside bid/offer) which I'm sure must be algo-driven given the speed.


Looks to me as though sellers are defending the highs near this 27.5 after dumping 1400 contracts there. They're pulling from their own side at 28 and 29. Bids see this and start backing off after seeing there is no reason to continue defending 27.0 especially without any participation on the uptick with only 22 hitting the offer. they are just going to give up 27.5 to sellers.

Using your word "flipping" im not sure this is simply the bids switching to the offer (if that is what you had meant by it), if we add up the contracts pulled from 28 and 29 and add it to the 200 or so that was at 27.5 before the pulling started we'll get around to that 760 amount added at the end there. Also watch the timing of when the offers start stacking compared to when the bids are pulling, its not the same. BUT it is roughly the same with the offers pulling from 28 and 29.

Algos also try and probe the market by just stabbing a few contracts at the bid/offer trying to set off a pull or stack of liquidity to see how much is really available. This is why the depths can change without any big orders actually going off.

Watching the ladder is so much more interesting than charts, dunno how those technicians do it :P haha.

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  #15 (permalink)
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I'd like to see a few more video examples. Are you just talking about the activity at the inside bid/offer at any point in time. I shall presume so.

The video you posted was close to the high of the day - so that's going to be a slightly different story. As you can see, there's 2k+ offered per level above the high. That's pretty much always the case - offers stacked above the high. It doesn't mean the high will hold but you always seem to get large offers right above the high of the day and large bids below the low.

As one poster mentioned market makers will of course be part of the picture.

What you will also have, is people like you and me and everyone else reading this, that are sitting on a limit and don't like it any more as they aren't getting a fill. You'll have people not getting a fill and going to market and you'll get people joining in fading the lack of momentum . The longer you sit at that level, the more people will change their minds about any orders they have sitting there. The more people might think the market is stuck too.

In my own experience, I will fade if I feel buyers have run out of steam, so the market might move up and then see no buyers, it sits up there and after a while I just think to myself - this is going down. I'd normally do that at market but no reason not to do at limit.

I think to some extent it could just be the nature of sitting at a price for a while and people changing their opinion - pulling orders or deciding to join.

I'd want to see a few more vids of what you are seeing - but perhaps in areas that aren't so significant - or are you looking only at good contextual areas?

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  #16 (permalink)
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RielA View Post
Looks to me as though...


DionysusToast View Post
I'd like to see a few more video examples. Are you just talking about the activity at the inside bid/offer at any point in time. I shall presume so.
[...]
I'd want to see a few more vids of what you are seeing - but perhaps in areas that aren't so significant - or are you looking only at good contextual areas?

Thank you both for the insigthful comments.

Pete, it is definitely just activity I see at the inside bid/offer, although I notice sometimes that whenever that 'flips' the entire order book adjusts accordingly - perhaps not suprisingly - must be algo driven.

What I see tends to happen pretty much at any spot, not only the significant ones such as high/low of the day, step in the profile, key support/resistance, etc.

Here's another example from today



Market just moved up. 2 lots sold into the bid, 0 bought into the offer. Around 500-650 sitting on the bid and 950-1000 sitting on the offer. Then bid 683 and offer 961. Then bid 706 and offer 936. That's when the flip takes place and we have 830 on the bid and 791 on the offer (last second of the video). Note that throughout no further trades took place.

Sometimes the behaviour can be gradual, i.e. a gradual increase on one side and decrease on the other until one side is greater than the other - other times the change is fairly sudden.

EDIT: this is EuroStoxx 50 this morning.

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  #17 (permalink)
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Another EuroStoxx 50 instance. This was back in January after 7am UK time, so low volume.



After 13 contracts trade into 2875 market ticks down to 2874/75.

Bid 122 / Offer 18. 2-3 seconds pass with no more contracts traded and the 'flip' occurs. Now Bid 78 / Offer 144.

It does feel like this is market making, just intrigued about the mechanics.

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  #18 (permalink)
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xplorer View Post
Another EuroStoxx 50 instance. This was back in January after 7am UK time, so low volume.







After 13 contracts trade into 2875 market ticks down to 2874/75.



Bid 122 / Offer 18. 2-3 seconds pass with no more contracts traded and the 'flip' occurs. Now Bid 78 / Offer 144.



It does feel like this is market making, just intrigued about the mechanics.



I love this stuff too......

Was able to watch about half of Peter's 20/20 webinar so far great stuff regarding HFT algos etc learned a lot.... Wondering if you watched it and what your thoughts are?

Ron

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  #19 (permalink)
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Blash View Post
I love this stuff too......

Was able to watch about half of Peter's 20/20 webinar so far great stuff regarding HFT algos etc learned a lot.... Wondering if you watched it and what your thoughts are?

Ron

Hey Ron, how are you doing - yes I did watch it, in fact I attended one Pete presented a few days later. That's why part of me thinks this may have to do with market making, HFT/algos or a combination of the two, but I'm not yet experienced enough to be able to tell.

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  #20 (permalink)
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After trading FESX for the last year from the tape I can safely say that out of all the big liquidity markets it is one of the most heavily manipulated and Eurex get a lot of complaints about it. However that is not to say it is not tradeable from the tape, far from at as there are some really good opportunities when market structure context marries up well with order flow strategies.

One important thing to note is, its not so much how the order book is reacting as to where the market may go, but where and how much trading takes place that really determines the outcome. I do hear a lot people who try to judge the direction based on how many limit orders there are on bid vs the ask and this isn't a credible strategy to trade from or even use as conformationally information for signal given from technical/profile analysis.

From looking at the videos these seem to be at a time when there is very little market participants around and HFT algos operating on the bid/ask at a range high/low and simply attempting to judge from how many people are with them on the bid or offer, joining the majority to either break the range or fade the range. This is pretty common in a low volume/volatility late in the session environment. As a profile scalper I personally wouldn't trade at all after 9:30am BST on a low volume/volatility day that lacks any pertinent fundamentals. You are literally up against the robots then and you won't win.

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