A question about speed

Discussion in 'Automated Trading' started by WhiteOut56, Oct 8, 2010.

  1. If you look at the stocks like C, or S.

    You'll see once a certain price level is taken out it is a RUSH to fill the new bids or offers, and whoever can get there the fastest has a huge edge, as you are first in line to be filled.

    Now I have to imagine there are several co-located computers trying to do this. Who gets the top spot? It is one guy all the time? Or do the ecns choose randomly amongst the black boxes trying to send there bids there? How is this determined?

    Also how much does it cost to get there first?
  2. Very very good questions...
  3. rosy2


    the exchanges all describe how there order matching works. check there sites
  4. definitely not random.
  5. jd7419


    Its not just about speed but about cutting off order flow by stepping ahead by .001. Anybody who trades frequently will see their bid often being the last one filled. This happens after you are stepped in front of by a minute amount(often a few tenths of a penny), if you get filled you can bet the stock will trade against you because that order flow that bought ahead of you has now exited against your resting order. This all happens in milliseconds,so fast where a traditional level2 tape reader can't even see themselves getting raped.
  6. dloyer


    Here is the thing.

    Many of those sub penny trades never reached the exchange at all. The broker internalized the order or filled it in a dark pool, or routed it to someone to fill it for them.

    Most retail marketable orders are handled this way. The broker has the first right to fill the order as long as they provide "price improvement" that might only be a penny for the whole order.

    Your limit order didn't get hit because the order never hit the exchange where your limit order was placed.

    That lets the broker make a market and earn the spread without having to compete with the HFT systems. The good part is that the retail order got filled without consuming liquidity from the exchange. The bad part is that those resting limit orders that established the best bid and ask didn't get rewarded with a fill.

    Like it or not, those prints where never available to you because you do not own the order flow and do not have the first right of refusal. That belongs to the broker who's customer originated the order.

    Ever have a market or stop order filled by IB routed to "SMART" That was a IB internalized order. They charged you a commision. If you are unboundled, they charge you a "take" fee. They also captured a spread if they are able to flip it before the market moves against them.
  7. to the op... it's first come first served.
  8. You watch CNBC and paper trade, right?
  9. yes, but only when you come over and blow me... don't be jealous though, none of my trader girls get to see my real screens... because that way i know they like me for me.
  10. There are lots of factors but essentially it is first come first served. The only way to jump in front is to offer an inside price.

    In equity markets if you have delays/latency in your lines you may not even see that someone was in front of your order or that someone came in a sub-penny ahead. Also, lead market makers are only required to be on the NBBO a certain percent of the time. This means that a certain percent of the time they are not required to honor 'first come first served'.

    Also, if your broker internalizes orders and you choose to use their internal crossing engines - all bets are off and you throw the rules out the window.
    #10     Oct 13, 2010