6 ms·

My guess is that the algorithm doesn't expect to make money out of that particular order, but rather guesses this is a bigger order that is being split (laddere

My guess is that the algorithm doesn't expect to make money out of that particular order, but rather guesses this is a bigger order that is being split (laddered if you will) into multiple small orders at different acceptable limits. The product I used (Interactive Brokers interface) offers that laddering strategy as an option when trying to make big purchases. Oh, and BTW, order cancellations cost money. Cents, sure, but when you are making money on a 1c spread, you would also benefit from a 1c cancellation. Other than that, I've been tempted (and many times succumbed) to raise the limit just to get that trade. And then you see the price go up again before your order goes through. It'd be hilarious if it wasn't infuriating.

tptacek 10y ago
Just chiming in to point out that 'yummyfajitas, 'chollida1, and 'kasey_junk are all current or former trading engineers.
- dguaraglia 10y ago
  I imagined as much. That's what I love about HN, you do get some details on how the sausage is made from the sausage-makers themselves.
yummyfajitas 10y ago
My guess is that the algorithm doesn't expect to make money out of that particular order, but rather guesses this is a bigger order that is being split (laddered if you will) into multiple small orders at different acceptable limits. If the order is coming from a retail brokerage that's a terrible guess - how often do you think someone goes into ETrade and tries to move $20M of GOOG? Big orders come from institutional investors. Those are explicitly the orders that market makers are trying NOT to trade against, and that's why they try to buy order flow. Order flow is known to come from players who aren't making big orders.
- dguaraglia 10y ago
  As I clarified on the other comment, I meant "big" as in "retail big" (i.e. a couple thousand shares of TSLA, or any order big enough to be fulfilled by matching several sell orders.) I can't really recall that many of my orders being filled below my limit price, unless I was willing to increase the limit by a few cents over the NBBO. If the ask price for a security is, say, 5.51 and I put my limit at 5.51 the chances of getting the order filled were pretty low. If I was willing to go to 5.53 the chances would increase, if the order was 5.55, I'd probably get a fulfilled order at an average price of 5.53 or so. Not a huge difference on small orders (say 1000x2c = $20) but enough to make a "big" volume, small spread strategy pretty much useless.
  - mrchicity 10y ago
    The price can change from the time you place your order to when it arrives at the broker. This is especially likely if you are an active trader chasing news or momentum where others are likely trying to buy at the same time. It's like aiming a rocket, or in your case, an old Honda Civic, at a fading star. Have you looked at what the book state was after you placed your order in the cases where you don't fill? If you have a working order priced through the market that's unfilled, take a screenshot and name & shame your broker here.

tptacek 10y ago

Just chiming in to point out that 'yummyfajitas, 'chollida1, and 'kasey_junk are all current or former trading engineers.

dguaraglia 10y ago
I imagined as much. That's what I love about HN, you do get some details on how the sausage is made from the sausage-makers themselves.

yummyfajitas 10y ago

My guess is that the algorithm doesn't expect to make money out of that particular order, but rather guesses this is a bigger order that is being split (laddered if you will) into multiple small orders at different acceptable limits. If the order is coming from a retail brokerage that's a terrible guess - how often do you think someone goes into ETrade and tries to move $20M of GOOG? Big orders come from institutional investors. Those are explicitly the orders that market makers are trying NOT to trade against, and that's why they try to buy order flow. Order flow is known to come from players who aren't making big orders.

dguaraglia 10y ago
As I clarified on the other comment, I meant "big" as in "retail big" (i.e. a couple thousand shares of TSLA, or any order big enough to be fulfilled by matching several sell orders.) I can't really recall that many of my orders being filled below my limit price, unless I was willing to increase the limit by a few cents over the NBBO. If the ask price for a security is, say, 5.51 and I put my limit at 5.51 the chances of getting the order filled were pretty low. If I was willing to go to 5.53 the chances would increase, if the order was 5.55, I'd probably get a fulfilled order at an average price of 5.53 or so. Not a huge difference on small orders (say 1000x2c = $20) but enough to make a "big" volume, small spread strategy pretty much useless.
- mrchicity 10y ago
  The price can change from the time you place your order to when it arrives at the broker. This is especially likely if you are an active trader chasing news or momentum where others are likely trying to buy at the same time. It's like aiming a rocket, or in your case, an old Honda Civic, at a fading star. Have you looked at what the book state was after you placed your order in the cases where you don't fill? If you have a working order priced through the market that's unfilled, take a screenshot and name & shame your broker here.