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Plea for help...experienced ES trader in need of execution advice (HFT related).
Hi. I've been trading ES since '06, and heavily as a CME IOM equity member since 08-09. 2016 was my peak revenue year on ES, and after VIX blow-out in 2018, I've slowly watched my size reduce due to inability to hide short-term scalp intentions from HFT. I've not been able to find other scalpers that trade ES in size who are willing to share their latest execution techniques. All the CME has-beens I find on Twitter don't know enough as they have transitioned styles/careers or some just full of it.
As we know, markets continually morph, and HFT continues to become an increasingly large part of the ES trade volume. From what my handler at RJO has stated, an unhealthy amount in ES. On tepid days he has heard rumors of upwards of 70% from an ex-Jump Trading employee. But post Covid drop, during this recovery I've noticed an exceptionally steep drop in ability to hide intentions. To the point that if we are printing 27-30+ VIX, I won't trade ES and shift to 10YR/Bund/UB. I can trade ES with relative ease using 1-5 lot, but when needing to allocate a 40-60 lot that has non-displayed targets in 8-16 tick envelope, I often have extreme difficulty unless I'm in an iceberg pocket. In 2016 sometimes I would have 3 strategies trigger full 60 clips, so I'd be exposed 180. I can't fathom that in today's ES in my bracket of operation. 1-5 lot ES not worth my time, so I find myself hanging in 10yr/Bund quite a bit lately.
Ex... I use iceberg randomizer in TT, small display partial, will get the fill, but then an immediate wall is formed at my avg entry price (literally no more than 1 tick MFE), and opposing direction the dominant HFT will pull liquidity, the others follow suit, and run it against me with ease. It's obvious the genuine spread is not 1-tick with any meaningful size, so I constantly monitor how it rotates and adjust sizing. I try to stay just outside their domain as I find alot of low hanging fruit in this area. But it's how fast and random this spread changes that is tiring me out. It used to be much more stable. It feels like a game.
I run tests during lower volatility sessions on 2 separate accounts running same strategy in variable order, one running 1 lot and other a iceberg 20-lot. It is beyond absurd the difference in performance over large sample pool (100's of trades). IMO there is one dominant HFT in ES, with lots of speed copy cats, and the dominant has very extensive insight of the book since they are majority liquidity. ie they can smell their own. Since they can scratch out at 0.25-0.5cent rt, it often is in their interest to sell/buy opposing size to non-native liquidity, then attempt to pull the book, and take the small fiscal hit on all the scratched levels (they have to leave some for MM stipulations). This has been amplified due to thinned out book from continually higher VIX 25+ per Covid era and higher notional value of ES.
Any order advice from those actually battling in this spectrum? I've been meaning to slow this high pace realm down for my general life health (very hard on the mind, often tired & groggy), but I'm not yet prepared to segway to new avenues. Hard to find the right person at TT to get good real-world insight. ES is my baby, hard to let it go without a fight, but I'm really starting to dislike it. I actually found myself yelling at my terminal today (very unusual) so I need to vent/let off some steam. Will not be stubborn though and start putting a major dent into my capital.
Execution advice? Anyone willing to share their experiences of late? Am I'm delusional for thinking ES will eventually shift back towards pre-Covid thicker book behavior? I know it will very likely never be pre-2007 or 2010-2016 thick unless Dodd-Frank is amended and bulge brackets can get back in the vanilla product MM game.
I'm going to come right out and say that I probably can't help you. I don't operate in your world; I tend to trade higher time-frames, smaller size, and even when I used to trade very large size institutionally I never once used an iceberg order (I just had dealers work my orders for me).
All that said, a few thoughts come to mind that I'll just throw out there in the "for what it's worth" category.
If it sometimes feels like the HFTs are coming after you, personally, well maybe there's something to that. No, I'm not saying they're gunning for Peter in Denver, but rather you as an archetype.
Put it this way - who uses icebergs to trade 50 or 60 lots in ES? One answer: an independent trader / professional scalper. And everybody knows that the guy trading 50 or 60 lots with an iceberg almost certainly has a pretty tight stop on his position. You've tipped your hand.
With today's advancements in computing and deep learning I would be astonished if the big market making HFT firms were not able to easily detect those 50 or 60 lot icebergs. Showing 1s and 2s and refreshing until you get your fill? Probably not that difficult to parse out from the data, nowadays.
And to them, you're probably the low-hanging fruit. The 1-lot pikers don't matter. The big institutional players are probably buying or selling in clips of 100 or 200 or 500 throughout the day - and no one knows their true size or risk tolerance (is it a hedge? a long-term asset allocation? a swing trade? impossible to know). But that 50-lot iceberg is almost guaranteed to be a scalper with a very short time horizon, a very low risk tolerance, and most certainly NOT another 1000 lots behind it. So if they can detect you, and no one else happens to be in the way, then it's open season.
Again, I'm just spitballing here, but maybe the iceberg is a tell.
If you just straight up showed 50 lots on the bid, they wouldn't know if that was your full size or if you had another 1000 behind it. I don't know, maybe I'm crazy, but could it be that your attempt to hide your size and intentions is in fact giving you away completely?
Appreciate input. To expand, say I want 40 on, I'll display 5-10, upon fill, iceberg immediately adds another 2 limit to back of book, fills, then 8, 7, 1 so on (random refresh sizing). Sometimes spread over 2 consecutive prices. I don't child order the targets with the entry fills to prevent sniffing out any stop distance estimation. If on a long & want to fill a target, I'll wait for ask to trade one tick past price, wait for enough display to show, and quickly place standard non-ice limit at bid (cross-spread) for immediate market fill. Since Covid downdraft, I've found better (but obviously still challenging) results using TT iceberg vs outright limit display. In my entire career, rarely used iceberg, so it's rather new to me. Like you insinuate, this often has me thinking I'm being naive to something besides the obvious: too much size in a small 8-10 tick space @22-25 VIX. Perhaps it's wishful thinking, but perhaps someone would chime in: Dude, let's get with the times, use this xyz order type.
If I would display a 50 full, as you say, too many naked moves were being eliminated before fill. ie, market would see size, approach/sniff, maybe take a small bite, then pull away taking away the naked move I was looking to get on. I'd cancel if it came back to me as I'm very adamant about interfacing on naked rotations. Or it trades through, I'd get 0-1 tick type MFE before heading towards hard stops. Whats interesting, it's easier for me execute a 40 lot afterhours without being challenged, but I'm not comfortable doing so given its sporadic violent nature. The intraday algo(s) is just not operating at this time. Granted this is only about 60 or so trades, but the behavior is clearly more favorable.
One older CME guy over skype told me back in Aug "ES morphing into NQ crap, algos are gonna kill another great product." I'm more hopeful, esp when VIX calms down, but truthfully it's starting to concern me here within 5% of record highs. Would have thought it would be on a faster thickening pace. With the notional size of contract getting up there, and the sheer reduction in share float (buybacks) of the top echelon of equities in SP500 (keeps their intraday % movement/beta relatively high), does this only keep thinning out ES to match respective % moves? It's amazing to think ES displayed 1500-2000/price level in 06-07, and it still moved. Dodd-Frank...grr.
70 % of volume is well known and cme put out a study showing exactly how much of it is HFT and it is roughly 70 % or more.
the problem you are having is not the volume but the cancelled volume which for hft is 98 % for each order. they only get charged 1000 bucks a day to send too many messages per fill and there are lots and lots of wash trades which is why you are also faced with a wall of WASH. google it and you will see soime very good traders sued the cme and many have tried but the problem is that the code for citadel is sacred because it is all part of the manipulation machine.
the mkt is fake and thats ok so long as you know it is fake and trade accordingly. They will never let you get big enough as them quickly and that is because as duffey the ceo of the cme said. futures markets are for price discovery and stock markets are for wealth building. you understand there is no such thing as insider trading in futures right? You cannot make insider trading illegal when you are a soybean farmer and you have inside knowledge on crops etc.
You are noticing most of these problems ever since all of the equities went commission free where they sell the roder info before filling the orders this means everything. stops limits lit mit all of it!! so if indexes are run by 4 to 10 symbols why would you think for a second that the big hft and funds are not sending this infomration via microwave to the cme for them to be ready to do battle and capture even more. it is pure insanity for anyone to think that any and all discovery information is always i the futures first because there are no LAWS against trading on insider information in the futures stock indexes! there is lots of hidden liquidity tons of it obviously but sure they control all of it not you and me and we never will.
You can make money and a lot of it but at some point they have figured out no one can or will railroad them and or ever get to their level of play. think about it. you are a massive hft. you make money off of all of the futures mkts and you fill cash stock orders AKA citadel and many others. what is the biggest limiting factor you have? well you can limit anyone and everyones profit by making sure that as a SYNTHETIC mkt maker with no restrictions that you make sure slippage and commissions and fees will LIMIT just how much anyone person can put on at any given moment. YOU ARE NOT ALLOWED to become massive anymore it is just not in the cards anymore for fast scalp trades. it is for mainly hedges because any and all retail day traders are just extra pennies to scoop up. there is plenty of business filling orders and being aggressive. those walls are there on purpose and it is obvious and oh so very sad that they are working.
friend of mine trades prop in chicago and is a big player because the prop firm has the technology to make sure all of their traders get priority on the book and they get member pricing and rebates as a 106! cumulatively. so in the end you want to give up 50 % or give up 20 % to the prop firm. you save way more trading prop because when you pay 30 to 40 cents round turn you can actually rebate trade like the soes bandits back in the day since the cme has a very healthy rebate program and it is a whole new ball game to trade breakeven to win!!
MY advice is to go trade prop who will set you up i fyoua re any good and you can trade from home once they know you and your style and the amoutn fo risk vs money you bring into them. it is a cme rule as you must know that they can only take 20 % of profits right.
HFT should have to register and be considered and actual bonafide market maker and not be allowed to be as aggressive as they are in the futures and there needs to be a TAX ON FIX MESSAGES each and every one of them! this will stop the needless spoofing that is rampant still in the futures markets.
I have another friend who hangs out at DRW owners house on occasion and let me tell you he made 400 million when oil went negative in 3 to 4 weeks and he bought physical gold the problem was 2 jets to fly it to the usa from switzerland or 1 big one and what if one crashed was it cheaper to insure 1 big palne or 2 smaller ones? my point is that he told me straight up that they will on occassion just for fun when they see bigger orders completely destroy them right after they fill them. you buy a 20 lot they sold it to you. you are long they are short. they just sell until all the other algos and retail and cta's all see the technicals broken ultra short term and boom you are toast. this is true i have no reason to lie.
the code is sacred because we all know it is just one big electronic spoofing racket. you also know that dma get to ask the cme engineers for special walkarounds right? this is yet another reason the futures are the wild west and all of this craziness allows the arbs in cash to futures which is the same guys spoofing in the futures to make even more money arbing out the micro imbalances that they create.
the higher the mkt goes the more money people put into the mkts so the hft want it as bullish as possible but there will always be those big shocks because think about it. it is all paper money until you take out your money. stocks etc. so as hft pulls out billions and billions you must make sure the mkt sells hard and fast in order to make sure the mkt gets down low enough where people dont have time to sell and get their profits because how is the money actually even there to begin with it is not the hft and large banks have siphoned most of it off on the way up. if i am taking a penny on every share traded then explain to me how if the mkt moves in penny increments that there are still more pennies left? initially the pennies are all taken as slippage. yeah i know 1 share may add 50 dollars but i am talking about total turn over! how many pennies over the years or months of buy and hold from a turnover stand point of all those shares at a penny in and a penny out? so the hft needs the mkt to fall back all the way to the equilibrium point of where the mkt should really be in order to account for all those trillions in pennies being taken out. almost like an accounting ledger that must be balanced and they will always use as they always hve any and all news events to do this just like all of trumps tweets.
How do you beat this system.
1. you reduce the tick size of the emini and the nq to match the russel this way the gaming only costs 1.25 to 2.50 instead of 12.50 to 25 bucks! this will create a lot more CLOB limit orders at each level and will surpass the current 1/4 point increments. this is not done already because hft do not want this!
2. require HFT to be bonafide mkt makers who must accept a match even if sometime it is costing them money on some trades. they only take winning trades or create them right after!
3. change the operation of the limit order book auction process to a different form that cannot be as easily gamed
4. force any and all orders to rest and be valid for a small time period. logn enough to be picked off by other hft and or you at times. if you have intent to buy or sell then what is 250 milliseconds! sure this can be gamed as well but slowing it down will be good.
5. RIGHT NOW you can figure out other mkts to trade and not do all of your trades in the #es. the liqudity is what it is and it wont change so dont wait for it. the voaltility is exactly what they want and hve created they can do less trades and make more money. this is why most people do not spread trade and make big bucks anymore. the HFT owns all of that! that is why I hate HFT. in early 2000 to 2007 you and i could be mkt makers making 300 k a year without breakign a sweat and then 10,000 other traders could do that also and we all did very well but then hft came in and got so fast all we have left is the scraps! thats truth right there so again just like all capitalist regimes with zero regualation now we have 20 guys making 20 billion a year instead of 40,000 guys making 500k a year around the globe!
the hft have a monopoly of the CME monopoly. imagine if 20 people sold all of amazons goods? same idea.
i would look to trade multiple mkts in smaller size per mkt and use your same strategy or go trade prop.
TT and CQG and all of those very high priced pipe dream auto-spreaders are useless if you cannot get filled because it all gets eaten up
in slippage and fees and dont get me started on missed legs overfill and well you know the hangmans noose!
yeah the mkt really sucks for retail right now eventhough as usual they say oh yeah it is the greatest time ever ha ha ha right.
you can always take on a lot more risk and stay in your trades much longer and this will get rid of your execution issues but then again can you still profit overall and you will need to take on massive massive intraday drawdowns and hope it comes back and one day it wont, so size down on your dreams and your trades unless you can trade multiple mkts or have dma servers at the cme!! i mean being colocated these days is still not enough even TT has some stupid extra cost prime server which cuts down on your time just for their servers to push your orders but you have to pay extra for that too..
so on top of huge slippage and high cme fees we have to deal with hundreds if not thousands of dollars monthloy in costs just to get competitive with speed! not with our knowledge or how we value price but speed!! the speed race is almost over which means what you see is what you get. the next step for them is to own all of the speed which means they will open their own for profit exchanges. this is what i was told. they want total control which means they will group together and own their own exchanges making their own rules an charging for data which by the way!! data should be free since we are the ones who create it!!
back in the day i could call down to the floor and get a quote 100 times a day and they never said hey we are chargin you 5 bucks everytime you call and want to know what the mkt is doing that is another thing huge prices for data what the hell just insane. thats my rant and good luck!!
i got off track on one of my thoughts the problem with lawsuits on the cme is that you cannot show the exact damages the hft and wash trades and spoofing have actually cost you in monetary terms because no one knows the outcome of the trade you might have had so the cme always wins!!
Assuming you don't want to increase risk or holding time, or trade multiple markets, and still scalp, in general, as it pertains to ES, is there a max size you can realistically trade and remain so insignificant they wouldn't bother to target your trade: a 20 lot, less, more?
You're struggling to get filled on exit icebergs which are synthetic via TT? I've always thought those were nearly invisible to detect?
It could mean your edge is getting razor thin. I've had this happen on "small" 20 lot trades on mini dow, and usually it's because the original trade was sub-par and that's my hint to exit at market and eat the spread, because nobody wants to hit into my offer for whatever reason.
I have seen 40 lot limit offers sitting there and discretionarily taken liquidity and it usually works for me when the bias and direction are all in-line for me. Not sure if it helps to just put your whole order out there or spread it over several price levels? I've also seen price run away from those big orders that I place on the outside bid/ask (fully visible orders on the limit order book, no synthetic/hidden liquidity).
There could be some funny games being played, sure, but half of it could be your edge/psychology as well.
I'm pretty green still, so maybe more people can weigh in.
I would think those synthetic orders are the best, especially compared to what I do with putting it all out there 100% visible!
I found this today, just poking around the interwebs... Looks like your 60 lot iceberg is fairly common in ES, and this snipped I'm posting is from "way back" in 2014.
