Contract tolerance

Discussion in 'Index Futures' started by naifwonder, Feb 23, 2007.

  1. I am aware that every trade effects the market in some way. My concern is after what extent do you actually start effecting the market to the point where you yourself can potentially change price, if that is possible at all. For instance, I trade the e-mini S&P 500 and if I were to trade 2 contracts at a time, I would not be considered a major player what so ever. Therefore, if I had a stop loss set at a price level it would very unlikely that the market would have anything to truly benefit from stopping me out. However, if I had let's say 800 contracts, all of a sudden if market makers did stop me out, a lot of money would be thrown into the market and therefore if the price is 1 tick away from my stop loss, driving the price to my stop loss level might be of some benefit to them. Secondly, I might not get filled on 800 contracts at a time either (most likely would not).

    I am not sure if this concept is even valid, however, it seems logical enough. In short, my question would be a two part one:

    A) After how many contracts do you start affecting the market substantially?
    B) After how many contracts do you risk not getting your whole order filled if your entry price is exceeded by a tick?

    Like I said, I am aware that trading such huge contract quantities might not singularly be responsible for altering price at all. I am considering making a time and sales analysis system to get a more mathematical perspective on this matter. However, feedback from the community might prove very useful before I undertake this endeavor.
  2. Take this with a grain of salt.........................(A) when your own daily trading volume exceeds ~3% of overall daily trading volume. (B) When your order size begins to exceed twice the average bid/offer size in the market.