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Today, setting limit orders is a bad idea because algos will go for runs to trigger these orders and use them to their own ends. In a sense, you just publicly

Today, setting limit orders is a bad idea because algos will go for runs to trigger these orders and use them to their own ends. In a sense, you just publicly announce your intentions which is never a good idea when trading or negotiating in a non-cooperative way. Of course, this means you can only use "buy and hold" or, if you know you still have access to your trading service in volatile hours, mean reversion strategies.

tptacek 11y ago
Can you explain this in more detail? What is the trading strategy in which an algo uses your tiny limit order for its own ends? And aren't these retail orders just going to internalizers like Citadel anyways? Do they even hit the exchange order books?
- dmichulke 11y ago
  An example would be your market maker knowing all stops. When price drops from 100 to 90, there may be a few people that have stops at 89.90. Someone with firepower could go short at 90 (which is not so risky if you know the order book), go down the 10 ct, trigger the stops and cover your short when you see the orders are getting filled. I read about much more sophisticated variants out there, e.g., the market maker selling order book information for high prices or selling high-speed access to this information but I'd have to search for it.
  - kasey_junk 11y ago
    I'm not an expert on all the various orders that are in play at every exchange, but in the venues I traded in you don't actually see stops in an order book feed. They are orders that do not appear in the book until the stop has been hit at which point they appear (or fill) as regular orders. Someone with more knowledge of equities platforms could chime in if I am wrong about those venues. I don't understand your trade at all. Could you explain it precisely with the orders someone would put in to take advantage of that trade?
    - peejaybee 11y ago
      The technique is known as "running the stops." There's a description here: http://www.mypivots.com/dictionary/definition/121/running-the-stops http://www.mypivots.com/dictionary/definition/121/running-th... Basically, you don't know the stops are there; you make an educated guess.
      - kasey_junk 11y ago
        Ok, if that is what the OP is describing than I guess I understand. But that trade does not have any part of it where the user of the stop loss order shows their hand to someone with inside access. Further, that trade is far from riskless to the people attempting it.
  - patio11 11y ago
    the market maker selling order book information for high prices In 2015, at most exchanges dealing in US equities, the "market maker" is reading the same tape as everyone else hooked up to the exchange. Your scenario is literally selling access to the outdated output of an API to which non-outdated output is available for the usual subscription fee. This sounds far-fetched. I also think anyone who believes this scenario to be plausible has an idea of what "order book information" contains which is likely not an accurate representation of what they actually expose over the wire. (It's like folks who think Facebook sells customer data to advertisers. Seriously -- where's the API you can hit that does that? That needs to be a thing that exists in the world for this claim to be true.)
    - dmichulke 11y ago
      The way I see it, the retail clients connect to a broker platform (IB, ..) and it is there that the above scenario can happen. The broker has an account in the exchange and uses this account to offset the global position of all his clients in his system. Using this information is generally possible for any intermediary (bank, broker, ..) To be clear, I am not saying everybody does it but I think that they can, they want to and regulatory oversight in the past could not even keep track of the total stock of a broker (see MF Global).
ant6n 11y ago
Can you clarify this? To me it would seem that If I put in a limit order to buy something at 20% below yesterday's price, if some HFT triggers that order that's most likely a positive for me. Or do you mean the different kinds of stop limit orders?
- deleted 11y ago
  [deleted]
- dmichulke 11y ago
  I think you should do that if you take the risk of publicly announcing your position, and it is probably better than plain stops (which reinforce the current trend) However, even then you might have bad luck such as in this case (which admittedly doesn't happen very often) http://www.bloomberg.com/news/articles/2010-10-18/nyse-euronext-cancels-trades-of-s-p-500-etf-at-9-6-below-opening-price?cmpid=yhoo http://www.bloomberg.com/news/articles/2010-10-18/nyse-euron...
  - ant6n 11y ago
    I don't get you point, or how your link reinforces your point. If I put in a limit order to buy some stock at 20% discount, yes I'm announcing my intention to buy. Is my order for crumbs going to provide the floor on the price because I 'announced my intention'? I feel it's more likely in a moment of volatility like this, that I pick up some bargain. What bad thing may happen except actual bugs with limit orders, which shouldn't really happen?
    - dmichulke 11y ago
      The link shows that there were several people that bet on mean reversion and their trades were cancelled. The interesting bit is that the decision to cancel the trades seems very arbitrary, at the very least to me.
      - ant6n 11y ago
        So during moments of high volatility orders got cancelled, but that may happen regardless of whether the orders had been sitting around for a month or a second. Certainly doesn't seem to be related to leaving orders sitting around 'showing one's hand'.
ssanders82 11y ago
Any mean reversion strat would use limit orders to enter the position. Maybe you mean stops?
- dmichulke 11y ago
  Yes and no, any orders are information that you concede to someone else that competes with you for the same resource. But stops probably more important that limits because they can be used to "buy cheaper" or "sell more expensive" So a acting "spontaneously" instead of having orders waiting is probably preferable when mean-reverting.
  - ssanders82 11y ago
    But when you "spontaneously" send that order in any mean-reversion strategy, it will be a limit order, not a market order. It will still wait to be filled, and may not be filled. Maybe you sit at the bid, maybe the midpoint, maybe hit the ask, but it for sure won't be a market order.

tptacek 11y ago

Can you explain this in more detail? What is the trading strategy in which an algo uses your tiny limit order for its own ends? And aren't these retail orders just going to internalizers like Citadel anyways? Do they even hit the exchange order books?

dmichulke 11y ago
An example would be your market maker knowing all stops. When price drops from 100 to 90, there may be a few people that have stops at 89.90. Someone with firepower could go short at 90 (which is not so risky if you know the order book), go down the 10 ct, trigger the stops and cover your short when you see the orders are getting filled. I read about much more sophisticated variants out there, e.g., the market maker selling order book information for high prices or selling high-speed access to this information but I'd have to search for it.
- kasey_junk 11y ago
  I'm not an expert on all the various orders that are in play at every exchange, but in the venues I traded in you don't actually see stops in an order book feed. They are orders that do not appear in the book until the stop has been hit at which point they appear (or fill) as regular orders. Someone with more knowledge of equities platforms could chime in if I am wrong about those venues. I don't understand your trade at all. Could you explain it precisely with the orders someone would put in to take advantage of that trade?
  - peejaybee 11y ago
    The technique is known as "running the stops." There's a description here: http://www.mypivots.com/dictionary/definition/121/running-the-stops http://www.mypivots.com/dictionary/definition/121/running-th... Basically, you don't know the stops are there; you make an educated guess.
    - kasey_junk 11y ago
      Ok, if that is what the OP is describing than I guess I understand. But that trade does not have any part of it where the user of the stop loss order shows their hand to someone with inside access. Further, that trade is far from riskless to the people attempting it.
- patio11 11y ago
  the market maker selling order book information for high prices In 2015, at most exchanges dealing in US equities, the "market maker" is reading the same tape as everyone else hooked up to the exchange. Your scenario is literally selling access to the outdated output of an API to which non-outdated output is available for the usual subscription fee. This sounds far-fetched. I also think anyone who believes this scenario to be plausible has an idea of what "order book information" contains which is likely not an accurate representation of what they actually expose over the wire. (It's like folks who think Facebook sells customer data to advertisers. Seriously -- where's the API you can hit that does that? That needs to be a thing that exists in the world for this claim to be true.)
  - dmichulke 11y ago
    The way I see it, the retail clients connect to a broker platform (IB, ..) and it is there that the above scenario can happen. The broker has an account in the exchange and uses this account to offset the global position of all his clients in his system. Using this information is generally possible for any intermediary (bank, broker, ..) To be clear, I am not saying everybody does it but I think that they can, they want to and regulatory oversight in the past could not even keep track of the total stock of a broker (see MF Global).

ant6n 11y ago

Can you clarify this? To me it would seem that If I put in a limit order to buy something at 20% below yesterday's price, if some HFT triggers that order that's most likely a positive for me. Or do you mean the different kinds of stop limit orders?

deleted 11y ago
[deleted]
dmichulke 11y ago
I think you should do that if you take the risk of publicly announcing your position, and it is probably better than plain stops (which reinforce the current trend) However, even then you might have bad luck such as in this case (which admittedly doesn't happen very often) http://www.bloomberg.com/news/articles/2010-10-18/nyse-euronext-cancels-trades-of-s-p-500-etf-at-9-6-below-opening-price?cmpid=yhoo http://www.bloomberg.com/news/articles/2010-10-18/nyse-euron...
- ant6n 11y ago
  I don't get you point, or how your link reinforces your point. If I put in a limit order to buy some stock at 20% discount, yes I'm announcing my intention to buy. Is my order for crumbs going to provide the floor on the price because I 'announced my intention'? I feel it's more likely in a moment of volatility like this, that I pick up some bargain. What bad thing may happen except actual bugs with limit orders, which shouldn't really happen?
  - dmichulke 11y ago
    The link shows that there were several people that bet on mean reversion and their trades were cancelled. The interesting bit is that the decision to cancel the trades seems very arbitrary, at the very least to me.
    - ant6n 11y ago
      So during moments of high volatility orders got cancelled, but that may happen regardless of whether the orders had been sitting around for a month or a second. Certainly doesn't seem to be related to leaving orders sitting around 'showing one's hand'.

ssanders82 11y ago

Any mean reversion strat would use limit orders to enter the position. Maybe you mean stops?

dmichulke 11y ago
Yes and no, any orders are information that you concede to someone else that competes with you for the same resource. But stops probably more important that limits because they can be used to "buy cheaper" or "sell more expensive" So a acting "spontaneously" instead of having orders waiting is probably preferable when mean-reverting.
- ssanders82 11y ago
  But when you "spontaneously" send that order in any mean-reversion strategy, it will be a limit order, not a market order. It will still wait to be filled, and may not be filled. Maybe you sit at the bid, maybe the midpoint, maybe hit the ask, but it for sure won't be a market order.