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making 2 sided markets
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Created: by Jamie818 Attachments:0

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making 2 sided markets

  #11 (permalink)
Toronto ON/Canada
 
 
Posts: 8 since Mar 2017
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Hello convex, Thank you for your reply and information. That is interesting , assuming you are correct then it is indeed a widespread myth. Martha Stokes at stockcharts.com goes on and on about how "it's not the market makers running your stops-- it's the HFT's. They are wired right to the exchange and they see all that info. They are the ones ripping you off." But then what would you say to allegations that HFT's employ stop hunting techniques such as "momentum ignition"? If they cannot see stop orders resting in the book what are they basing their strategy off-- simply a hunch based off significant previous swing area?

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  #12 (permalink)
New York, NY
 
 
Posts: 3 since May 2017
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The specs for the datafeeds available to HFTs are typically available on the web. For example the CME direct feed is MDP 3 and the section of documentation relevant to order book feeds can be found as the first google response to "mdp3 book management" (I'd post a link but I don't have enough posts on this forum to be allowed to). If you look through that, you'll see that stop orders are nowhere there. In fact, not only are stop orders not there but even some limit orders ("Iceberg" or "reserve" orders are hidden in all dataefeds as well).

I suspect that in reality, nobody is actually hunting your stops but rather, they are either picking up on statistical signals or even more likely, you are attributing malice to random movements of the market. What I mean by picking up by statistical signals is that a pattern of "When a size X order, submitted at a latency insensitive time (so probably not by an algo) trades and the price moves Y against it, there's a Z % chance to see an aggressive size-X order reversing the position" isn't exactly rocket science. Even then, those indicators typically go into a predictive model as to what the "fair price" is, so if the market starts falling for other reason's, the algo trader will know that there's a hidden sell order coming soon and will adjust its fair valuation accordingly; I don't believe people are aggressively moving markets in order to induce stop orders but rather just moving their fair-value valuations to adjust for the information.

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  #13 (permalink)
Europe
 
Trading Experience: None
Platform: RTP, IRT
Favorite Futures: ZB, FGBL
 
Posts: 53 since Apr 2016
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convextrading View Post
"When a size X order, submitted at a latency insensitive time (so probably not by an algo) trades and the price moves Y against it, there's a Z % chance to see an aggressive size-X order reversing the position"


I'd call that stop hunting. Semantics...



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  #14 (permalink)
New York, NY
 
 
Posts: 3 since May 2017
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Call it what you will, my point is that the stop orders are not transmitted in the datafeed (at least not before they get triggered and become limit / market orders). Furthermore, what I intended to say is "most likely nobody is noticing or cares about your stops but if they are, this is how they could do it" so yes, the "if they are this is how they can do it" part can be called stop hunting if you want.


Alexander Savin View Post
I'd call that stop hunting. Semantics...



Last edited by convextrading; May 15th, 2017 at 04:31 PM.
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