Normally I trend trade and use momentum. But the other day I was thinking about using a different strategy. I was trading BKS and noticed that the spread was about 10 cents. So lets say the bid was 15.05 and the ask was 15.15. What would happen if I narrowed the spread by placing a bid for 1000 shares at 15.07 and an ask for 1000 shares at 15.13? Would other market making competition come in and compete most likely? Should I just use a small amount of shares? I have direct access and can do this, just wondering whether or not I should have a program doing it instead.
Picking up pennies in front of a bulldozer. What will probably happen is you will get filled on both sides a few times, and then you'll get filled on one side and then it will go against you. Knock yourself out, but likely those clever market makers already quoting a bid and ask have already priced in such things as the risk of taking on either side they are quoting (i.e. they think that if somebody hits their bid for example then the price will not decline by more than the spread by the time somebody else lifts the offer). Let me know how it goes though.
---What will probably happen is you will get filled on both sides a few times, and then you'll get filled on one side and then it will go against you.--- exactly. most likely-they will squeeze you out much sooner than that. i'm pretty sure that if you(retail) got filled easily on either side-the price will go against you. at least in very short time frame. think about it..one side will be filled. side where demand for shares is greater.
That strategy by definition takes the wrong side of every mayor move. So you are going to have trades that go really bad every now and then. Question is how many round trips you need to take out of the chop to cover for the next wiPe out? What's the minimum spread you can take to compensate that risk? is a function of how often and how severely take you take lOsses and how many pennies n dimes you can pick up each time it goes in your favour?
Good point. The order will most likely fill and then move against me because of this. In order for my proposal to work it would have to basically be a 50/50 demand on each side. Which...is pretty unlikely. Aside from this... I am somewhat new to direct access and placing my orders right on the ECNS. Do you guys typically do market in and limit out? Or limit both sides?
i never use market orders with exception of few super liquid ETF's(IWM,SPY,QQQ). even there once in a while i got screwed by a cent or two,if i place odd lot market order
Still flat on the spread trades. Almost got cooked a few times. The MMs are too fast lol. And as far as the orders for a few cents, I am testing just giving a direct ticket into the buyer or seller based on the direction I think it's going. That way I don't get messed up by a cent or anything it just kills it if it's not that price. It fills then the price lifts a few cents and then I sell/buy. Kind of confusing, goes back to that pennies in front of a dozer thing.
Yeah lol should have just focused on my usual trend strategy. Could have just shorted this SPY tank happening as we speak.