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Shredding
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Shredding

  #1 (permalink)
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Shredding

This thread is concerned with understanding how large players break-up or "shred" market orders in the futs mkts.The reason I am trying to understand better how this is done is part of my methodology is concerned with tracking institutional vs retail activity.

In their effort to (sometimes) camouflage their activities we all know that large players are able to bleed-in markets orders very rapidly in small lots using algos. One trader I know mentioned that "up to 1000 single lot orders can be entered per second" on the Globex for example. If anyone has first hand experience with this I would be grateful to know:
1) Under what conditions will large mkt orders likely be shredded (ei entries, profitable exits, losing exits etc)?
2) We all see large block orders passing T&S. Under what conditions will a large player not be concerned with hiding his tracks?
3) If a 3000-lot order was shredded into 1000 3-lot trades in 1 second, there would be a way to spot that. Does anyone know of tools that are of use in this regard?

Any comments on this practice in the futs mkts would be welcome.

Thanks
John Bly

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  #2 (permalink)
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  #3 (permalink)
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JohnBly View Post
This thread is concerned with understanding how large players break-up or "shred" market orders in the futs mkts.The reason I am trying to understand better how this is done is part of my methodology is concerned with tracking institutional vs retail activity.

In their effort to (sometimes) camouflage their activities we all know that large players are able to bleed-in markets orders very rapidly in small lots using algos. One trader I know mentioned that "up to 1000 single lot orders can be entered per second" on the Globex for example. If anyone has first hand experience with this I would be grateful to know:
1) Under what conditions will large mkt orders likely be shredded (ei entries, profitable exits, losing exits etc)?
2) We all see large block orders passing T&S. Under what conditions will a large player not be concerned with hiding his tracks?
3) If a 3000-lot order was shredded into 1000 3-lot trades in 1 second, there would be a way to spot that. Does anyone know of tools that are of use in this regard?

Any comments on this practice in the futs mkts would be welcome.

Thanks
John Bly

John,

Cumulative Delta is the best way I've found to track "market orders" flow. Market orders are usually heavily favored by big players vs. retail investors doing a lot of limit orders. I couldn't tell you the exact answers to questions 1 and 2 other than the fund/trader's motive or criteria at the time. Maybe they are building a big position around a certain value area but do not want to move the market out of that area by placing big block orders. Going in at small lots will potentially keep the price around their goal entry/value area without attracting to much attention or creating a rally/crash. Maybe they're building a position in a highly correlated market and are creating some sort of hedge with specific leverage ratios, etc. Big market orders can be used to try to push the market around to either scale out of a losing position (pump and dump) or simply get out no matter what the situation. It really just depends on each trader/fund's trading system. I assume you are mostly referring to the ES contract which is dominated by big players and black box algo's doing all sorts of orders.

Cheers,
PB

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JohnBly View Post
1) Under what conditions will large mkt orders likely be shredded (ei entries, profitable exits, losing exits etc)?
2) We all see large block orders passing T&S. Under what conditions will a large player not be concerned with hiding his tracks?
3) If a 3000-lot order was shredded into 1000 3-lot trades in 1 second, there would be a way to spot that. Does anyone know of tools that are of use in this regard?

Any comments on this practice in the futs mkts would be welcome.

Thanks
John Bly

most algo's are proprietary that I know off... so they dont really share... but since I see you are with IB, just take a look at their algo offerings and that will give you an idea... keep in mind that many of the orders will go to dark pools first before being displayed, it all comes down to the routing sequence based on the algo being used... also keep in mind that many orders might be internalized by the matching engines, though DMA means Direct Access, that is not always the case... specially depending on the instrument being traded... so not sure what you are trying to "see" ...

best way to spot order size/flow IMO is via the tape... and MD/IRT T&S provides for the ability to aggreagate ticks on the same side within the same second.. something that I believe I have seen someone else try to do with NT7.. but I have to look at my links to recall who it might be.

CVD will help, but IMO it does not communicate how aggressive order flow is... which is what I think you are trying to decipher..

lastly, keep in mind that true large blocks will more than likely be traded on the floor when done by hedgers..

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sysot1t View Post
most algo's are proprietary that I know off... so they dont really share... but since I see you are with IB, just take a look at their algo offerings and that will give you an idea... keep in mind that many of the orders will go to dark pools first before being displayed, it all comes down to the routing sequence based on the algo being used... also keep in mind that many orders might be internalized by the matching engines, though DMA means Direct Access, that is not always the case... specially depending on the instrument being traded... so not sure what you are trying to "see" ...

Futures markets do not have 'dark pools'


sysot1t View Post
lastly, keep in mind that true large blocks will more than likely be traded on the floor when done by hedgers..

Besides the few big markets left, most of the pits cannot take very large blocks anymore. They will be done 'upstairs' or with an algo.

Math. A gateway drug to reality.
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traderwerks View Post
Futures markets do not have 'dark pools' .


please keep in mind that Dark Pools basically provide liquidity and anonymity... institutions hedge, and trade, and they will do so cross-assets, and as such search for what dark pools provide cross-assets specially when they are connected to the venues that you and I are not... Dark Pools have already moved into Derivates and Even FX Markets, specially since HedgeFunds have already moved into arbing FX for quite some time in search of alpha..



traderwerks View Post
Besides the few big markets left, most of the pits cannot take very large blocks anymore. They will be done 'upstairs' or with an algo.

I stand corrected on this, I figured the floor was still handling large blocks... but you could very much be correct... it is a lot easier to trade very large blocks upstairs..

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sysot1t View Post
please keep in mind that Dark Pools basically provide liquidity and anonymity... institutions hedge, and trade, and they will do so cross-assets, and as such search for what dark pools provide cross-assets specially when they are connected to the venues that you and I are not... Dark Pools have already moved into Derivates and Even FX Markets, specially since HedgeFunds have already moved into arbing FX for quite some time in search of alpha..
..

So you are talking about OTC derivaties or the underlying ?

I think the OP was talking about Globex. There are matching venues for listed derivates , but like equity options they have to cross on the floor so you will still see the volume come across. Futures contacts don't 'exist' anywhere but the exchange. If you trade a contract OTC, you don't get CME clearing, and unless it is a natural buyer or seller, they will make you pay up just like a floor trader.

If you do trades off the CME like in a dark pool or alternative exchange for CME products, the CME wil fight you to keep them from being exchanged and cleared which you need for margining. Look at ELX and how long they have been trying to get EFRP http://www.cftc.gov/stellent/groups/public/@requestsandactions/documents/ifdocs/cbot02-08-10responseletter.pdf

And if you look at the CME nowadays, except for options, Globex has taken over. Even if a guy on the floor takes paper, he is going to relay it upstairs to get rid of it with a trading partner on Globex and he will demand edge. Sort of sad to see how far the floor has gone down in 5 years.

http://www.cmegroup.com/daily_bulletin/preliminary_voi/VOIREPORT.pdf

Math. A gateway drug to reality.
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  #8 (permalink)
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Hi
Cunparis's Pace of Tape indicator would identify high frequency of orders hitting the tape. Its in the download section on the following page but note that this version is for NT 6.5. There doesnt appear to be a NT7 version.

Downloads - NinjaTrader 6.5 Indicators - Big Mike's Trading Forum

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Sorry, guess we got off topic


Quoting 
1) Under what conditions will large mkt orders likely be shredded (ei entries, profitable exits, losing exits etc)?

Are you sure you don't mean limit orders.?


Quoting 
2) We all see large block orders passing T&S. Under what conditions will a large player not be concerned with hiding his tracks?

Panic or block trade.


Quoting 
3) If a 3000-lot order was shredded into 1000 3-lot trades in 1 second, there would be a way to spot that. Does anyone know of tools that are of use in this regard?

Once again, mkt or limit orders. a single 3,000 lot market order or 1000 3 lot market orders both walk the book. The only difference would be any one else coming into the market in that one second.

Math. A gateway drug to reality.
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Private Banker View Post
John,

Cumulative Delta is the best way I've found to track "market orders" flow. Market orders are usually heavily favored by big players vs. retail investors doing a lot of limit orders.
PB

Thanks PB,
Do you know why big players prefer mkt orders?

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