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Pro-Rata Order Matching on Eurodollar with small positions.
I have been doing a lot of simulated trading on Eurodollars.
The simulator used FIFO matching and Eurodollars uses Pro-Rata - not ideal.
I was wondering if anyone with experience could let me know the average number of contracts that are typically required at the bid or ask to be filled relatively quickly.
Would 10 contracts be viable in the Eurodollar market for fills under Pro-Rata, or would I be waiting until price clears through the price level to be filled.
Thanks!
Can you help answer these questions from other members on NexusFi?
I've never actually traded eurodollars, and I don't think I've seen anyone on this forum who has either, though I'm sure *someone* must have. But, let's do some quick math to see how likely you are to get a PR fill. Forgive me if you know this already, but it's a good example to walk through regardless.
First, Top matching is performed: the top order in the book at a given price level is matched completely with an aggressor order. Let's just call this an additional hurdle when it comes to getting a fill, as you aren't likely to be top of the book most of the time.
Next, pro rata matching is performed. Your allocation is:
N / R * A
where:
N = your order size
R = number of orders at this price
A = remaining orders to match (the original aggressor order size minus however many were matched during the Top allocation)
The caveat here is that this value (rounded down) must be greater or equal to the minimum PR size, which I *think* for eurodollar is 2. This means you can never receive a single contract pro rata match, only two or more.
So let's do an example, and create an inequality in which you will definitely receive a PR match. Let's use your own contract size of 10 for N. We have:
N / R * A >= 2
--> 10 / R * A >= 2
--> 5 * A >= R
So, in general, in order to receive a PR allocation in your case, the aggressor order must be at least 20% of the size of the orders at that price to get a PR fill. To think about it intuitively, imagine if N=100 -- in this case, you only need the aggressor order to be more than 2% of the size of the resting orders -- a far more likely scenario, and almost certain of a PR fill here.
I'm seeing right now a top book of 28Kx10K, so let's go with 20K for R. In this case, You will need an aggressor order of at least 4K to get a PR match. Looking back at some history I can see several cases of 4K orders filled. So, sometimes you may get a fill (but as they say, when you get a fill this way, maybe you don't actually want to have it anymore lol). Of course, eventually you may actually work your way to the top, given that top of book is given 1st priority. That is, unless there's a really large order at the top in which case it becomes more difficult to do that, as even pro rata fills may not occur for anyone with a really large order at the top.
Given the relatively small tick value ($6.25 / $12.50) and given the tiny fluctuation, outrights in eurodollar futures are really not much of a thing IMO, and they truly are used mostly for hedging interest rate risk. The range in the past month is only 20 ticks, for example, and 7 of those ticks were on the big Jan 7 move that went across all asset classes. So, I hope you don't fall asleep watching! :-)
But in this case "top" doesn't mean the aggregate of all orders at the "top of book" price.
For example, the book is 98.10 x 98.20
At 98.10 there are 20K individual contracts bid (you see 20K bid on DOM), but perhaps there are 100 different orders, some with 2000 to buy, some with 10 to buy, etc., all for this price, and they aggregate to 20K total. These orders are ordered by *time* priority at this price. So maybe the top, that is, the FIRST order by time priority, is only 10 contracts. This will get filled first, and in this case likely there are many more that will get filled at pro rata.
“Top” order is just the single order that improves price, so there is only ever one top order per price change. So if you submit into a wide market first, you have top priority. Or if you turn a level and have size left over you have top priority.
Sure but after the top is filled, then whatever is next in time priority is the current top, and on the next round of matching (the next order) then the new top gets filled first. That is to say, you don't have to improve price -- you can simply be next in FIFO. That's how I understand it anyway, let me know if that's not correct according to your understanding.
btw, how do you like Philip as a broker? I was interested in them because they have kospi futures .. then I thought, why the hell would I want to trade those? :-) But I'm curious as to your experience with them (I see you use TT and not CQG but nevertheless).
As for Philip, they are pretty good. I've had some growing pains with them as I have fairly unique requirements but everything got sorted out eventually.
The prompt contract (Feb20) represents a $1M 90 day libor loan on 17-Feb-20. As you can imagine the expected move in 'spot' interest rates in the next 26 days is negligible. Hence why 'most of the time' the ATR on the spot contract is so small. The Z20 contract on the other hand, which incidentally has daily volume over 1M contracts, will move quiet a bit more - although that has been in a relatively tight 48 tick range recently as well. Problem is if your using Tradestation it doesn't (or at least didn't) correctly calculate a Eurodollar custom contract to always be trading the 4th contract in the HMUZ cycle, so on Tradestation at least, Eurodollars are extremely difficult to trade.
Getting off topic slightly, Eurodollars are interesting in that they list 10 years of contracts, and the first 5 years are pretty liquid. (At time of posting 944am central, the Z24 contract is 1 tick wide 9824.5/9825 and has traded 5636 lots already). Only other market I know that has liquidity calendar years forward like that is Crude.
