Adapting to the Hybrid

Discussion in 'Order Execution' started by JGTrader, Dec 10, 2006.

  1. JGTrader


    I have been trading listed stocks at a prop firm for a few months and am finally starting to get a handle on executions and the games the specialists play with stocks.
    But with the hybrid, what I learned seems to be irrelevant and I have to come up with a new way to play the game.

    Do any of the senior traders have any input on how to adapt? Trading from the open book and MM window seem less important as someone can swipe the size immediately vs having the specialist work the order.

    D1010 mentioned he now trades thicker stocks. Any input on this strategy?

  2. JGTrader


    no takers?

    From reading many threads on ET I have been finding that many are trading it technically. What I am wondering is whether some still put on a trade (define their risk) by size or whether they only use technical stops.

    What I am seeing is people market in, swipe the book up 20 cents and then it comes back down with the size gone, and your original out is gone.

    Only 2 months of trading for me and I already have to learn a new strategy.

  3. Sorry man. I saw it a couple of days ago and wanted to answer, but I forgot. This is a great thread, but the problem is that no one has a clue as to how to adapt to this Hybrid event. Even our seniors are trying to figure this one out. We're all on our own on this one. We have to take it slowly and learn exactly how these hybrids trade. Trading thick hybrid stocks is a good/safe way to learn the hybrid features. But I don't know of any strategies for thick stocks. Personally, I stay away from thick stocks as it doesn't fit my personality. Other than that, I can tell you what I have experienced. Here's what I have learned in my 2 month hybrid face-off with MA & ODP:


    1. Fills are extremely fast. You get what is available on the open book and counter market orders that are coming in as you send your order.
    2. The "Hold and Match" technique is completely history on hybrid stocks. Specialist does not hold marketable orders anymore.


    1. Although fills are fast. Fills can become pretty nasty on stocks like MA when there are no bids and offers on the book and no specialist regulating orders. This leads me to think, "What good is a fast fill if it is filled 10-15 cents away from the market?" So watch out with your "market" orders!
    2. The specialist is still able to spread the price up and down(as he sees fit) away from the inside market as usual. This is where it really differs from nasdaq. Therefore, this hybrid can never match nasdaq.
    3. And you all know about the infamous LRP. When LRP triggers, all electronic traders will be locked out while the specialist fills himself and/or his floor buddies.
    4. The moves are not nice and sweet as it used to be in nyse. If a stock is going down, offers will continue to come in and step down before. But now, the offer rarely has a chance to step down. It just gets taken as soon as it comes in. Thus, creating tremendous whipsaws.
    5. Price improvement is gone forever. Before when you buy a stock and if it is going up and you place a market order to sell, you can get a fill that is way better than the current market price.
    Now, if you place a market order. You immediately get filled on what's available.

    As you can see, If you are a pure nyse trader, then you've got a lot of negatives to work with. I think the best way to adapt is to take it slowly and learn it. Hybrid is a totally new market.

    Main Point: Forget about trading with size. Size trading is becoming extinct. Your out has to be gut feeling or some other technical stop price.

    I hope this helps somewhat...
  4. Never (seriously, NEVER) send a market order with hybrid. I've seen some disguisting fills - fills at prices that the market never traded at, even, and that by scrolling through the time and sales make NO sense. Before hybrid, a market order meant you waited a while, watched the price move against you, and got filled at a shitty level while you cursed the specialist. Now you get filled at an even shittier level without waiting.

    I suspect it's those new "specialist algorithms" - they're probably much simpler than we imagine. "If market buy order for 1000 shares comes in, fill at best offer price - .15. Deposit $150 in specialist account."
  5. If I wanted to scalp spy, where should I send the market order?
  6. mnx


    Yeah I noticed that shite the other day... I was holding a stock in place on a hybrid stock with a bunch of fake bids, and the specialist droped his bid 10 cents... I was like "oh no"... so I hit cancel and everything canceled... Guess they can still screw around with people....

    - mnx
  7. Watch out for those Amex specialists... far worse than NYSE...

    As for the hybrid market, I love what it does to thin stocks, now you don't send your order to pick up liquidity offered in NYSE just to watch em pull the liquidity away from you without a print...
  8. JGTrader


    Does the specialist have any control over the inside market when the stock is not at the LRP?

    Here is something from the NYSE website stating they can trade through the open book but doesn't say anything about the NBBO

    mpact to Specialists
    In order to react to customers, specialists will interface with the market through proprietary algorithms that interface with the NYSE Display Book via an NYSE-provided application programming interface (API).
  9. Hi JG

    Based on what I have seen, I think the specialist does have control over price even at normal times. Today, I saw the guy showing an offer on MA and he kept on refreshing it on level 2, which means he is either selling or shorting for his own account. And the stock was pretty calm and did not trigger LRP. So it does not seem like he trades for his own account only during LRP.

    To Hoodooman: Sorry, i don't know anything about amex and the spy's or dia's...
  10. LOL:D Thats what it seems like.

    I placed a market order for a mere 500 shares for agn once and he spread up and filled me immediately 40 cents above what he was showing initially and then comes back down as if nothing happened. And I'm sitting here going thru time & sales unsuccessfully trying to make sense of it.
    #10     Dec 12, 2006