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Liquidity 'flipping'
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Liquidity 'flipping'

  #1 (permalink)
Market Wizard
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Liquidity 'flipping'

I have seen in most markets with thicker liquidity a frequent phenomenon, which is, the frequent and simultaneous flipping of liquidity within the inside bid/offer.

By simultaneous flipping I mean, the fact that one moment there's more liquidity on the bid, and the next moment there's more liquidity on the offer. Note this is without corresponding market orders consuming such liquidity.

Given the frequency with which this occurs, it is clear to me that this is not the simultaneous action of 2 or more people. It's either one (or more) market maker doing that or it is the result of algos adjusting their liquidity according to what they think the market may be doing.

We then have situations like the one I'm looking at right now in EuroStoxx (13:40 UK time) where price is stuck in a 2-3 ticks range.

When price goes below a certain level, the liquidity provider there appears to be unwilling to decrease their liquidity unless someone sells into them.

When price goes above a certain level, the liquidity provider there appears to be unwilling to decrease their liquidity unless someone buys into them.

In a way, it feels like watching a standoff between two kids and neither kid wants to let up. That is, unless someone steps in and takes the liquidity off that level by buying or selling serious size.

This has been going on for the past hour or so in EuroStoxx and we're stuck between 3062 and 3065.

There clearly isn't a 'battle' going on, there's no significant size being traded at each level. It simply looks like that nobody wants to buy at 3066 unless the liquidity drops, and nobody wants to sell at 3062 unless the liquidity drops.

So within this range, the liquidity 'flipping' is common. When we get at either extreme, the phenomenon stops.

I'm watching EuroStoxx 50 but, as I said at the beginning, the liquidity flipping is common, certainly to markets with thicker liquidity. I'm also fairly positive that this 'getting stuck' phenomenon can be common too.

Is anyone with considerable order flow experience able to

1 - comment on my assessment and
2 - provide a wider interpretation?

Thanks


Last edited by xplorer; April 27th, 2016 at 10:53 AM. Reason: Clarification
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  #2 (permalink)
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  #3 (permalink)
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I don't have the COFE you're looking for but maybe just the FOMC effect?

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Could be spoofing????... Guys trying to hide their intentions as they accumulate contracts on the other side I guess trying to influence others....

Ron


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ratfink View Post
I don't have the COFE you're looking for but maybe just the FOMC effect?

Thanks ratfink - if you're referring to the 'flipping', then that's definitely not FOMC-related. The flipping takes place practically every day, practically every minute in fact!

Perhaps the tight range could be FOMC related, but I'm more interested in the flipping and the tight range correlation and what, if anything, anyone makes of that.

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Blash View Post
Could be spoofing????... Guys trying to hide their intentions as they accumulate contracts on the other side I guess trying to influence others....

Ron


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Hey Ron,

Thanks. I had considered whether the flipping could be spoofing. I even checked what Pete Davies had to say on spoofing, and by his definition (pretty much similar to what you say)


DionysusToast View Post
Spoofing is simply submitting limit orders that you will pull before they get filled.

Flipping is a process of spoofing one side of the market to make that side look strong whilst sucking up contracts on the other side. So you might spoof the offer to make the offers look strong, this encourages people to sell and the spoofer is also sitting on the bid with an iceberg order absorbing all the selling.

When the flipper has had his fill, he does a 'flip', he pulls his offers, stacks the bid and starts firing in market buy orders.

Those that sold know they are toast and they bail out (by buying) and the market pops up.


I really don't think it's spoofing. Spoofing would need to take place across multiple levels of prices, not within the same bid/offer spread.

Also, this type of flipping takes place when no contracts or very few contracts trade. It's almost as if someone - whoever or whatever they are - thinks "let me add more liquidity on the bid and take liquidity off the offer, any takers? No? Let me try the other way round. Any takers?" and so on. I will see if I can record a quick video about it to illustrate my point.

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xplorer View Post
Hey Ron,

Thanks. I had considered whether the flipping could be spoofing. I even checked what Pete Davies had to say on spoofing, and by his definition (pretty much similar to what you say)




I really don't think it's spoofing. Spoofing would need to take place across multiple levels of prices, not within the same bid/offer spread.

Also, this type of flipping takes place when no contracts or very few contracts trade. It's almost as if someone - whoever or whatever they are - thinks "let me add more liquidity on the bid and take liquidity off the offer, any takers? No? Let me try the other way round. Any takers?" and so on. I will see if I can record a quick video about it to illustrate my point.

Cool would love a video. I have never watched or seen EuroStoxx 50 and don't have that data. Never checked if I have it as delayed data though. Doubt it.

Reloading the queue is the only way to keep oneself from getting filled, keeping oneself at the back of the line for spoofers. Could be a group of unrelated traders lacking clear intentions?? and pulling there orders many times???

As we spoke of before a while ago now ...could be people sending signals back to HQ.....lol.... just having fun... honestly would love to have Peter @DionysusToast chime in and offer his understanding....

Ron

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@xplorer

I know that you use CQG like me and you have a nice tool to see/verify this assumption.

With that you see if it is the same order that is moved from one level to another of it is cancel or if it is new order coming into the market.

And as you may know you can customize that tool to see more level or to filter specific trade

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Blash View Post
Cool would love a video. I have never watched or seen EuroStoxx 50 and don't have that data. Never checked if I have it as delayed data though. Doubt it.

Reloading the queue is the only way to keep oneself from getting filled, keeping oneself at the back of the line for spoofers. Could be a group of unrelated traders lacking clear intentions?? and pulling there orders many times???


Ron

This type of flipping is definitely not unique to EuroStoxx... I have seen it in several thick markets. To make my point in fact I have just captured it on ZN and it's being uploaded on an alias Youtube account I have, should be available shortly....

Thanks also for the tip aboout reloading the queue... something I had not considered...

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Okina View Post
@xplorer

I know that you use CQG like me and you have a nice tool to see/verify this assumption.

With that you see if it is the same order that is moved from one level to another of it is cancel or if it is new order coming into the market.

And as you may know you can customize that tool to see more level or to filter specific trade

Please register on futures.io to view futures trading content such as post attachment(s), image(s), and screenshot(s).

Hi Okina, yes I'm familiar with the order ticker thanks, I doubt it's related to orders moving from one level to the other... normally when that happens it tends to happen from two levels that are not within the inside bid and offer whereas this behaviour appears within the inside bid/offer, but I'll double check it anyway.

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