ECN revolution

Discussion in 'Trading' started by sabena, Feb 15, 2002.

  1. sabena


    Well, a nice evolution is going on in the marketplace.

    Island's share in volume for the QQQ grew from 5.9 %

    in january 2001 to 28.73 % in january 2002.

    Same thing for the S&P futures. ALready 40 % is done

    electronically when adjusted that the E-mini is 1/5 of

    the big contract.

    The Forex market is the last to jump on the train, but

    the train is already moving.

    Hoera, for a fair market place without those crooked

    market makers !
  2. def

    def Sponsor


    just got to add that not all market makers are crooked :) In fact some are leading the revolution towards electronic trading. When it comes to options and even futures, market makers are the ones providing the initial liquidity in a product. I assume the same will be in SSF's if they are to take off.

    I'm on the same page as you, it is clear that the public and institutions prefer to trade in an electronic market place - clearly there is a preference for speed and transparancy.
  3. sabena


    Yes, the market makers are there for the initial
    liquidity but they don't have to be there at all

    Look at Eurex, there are no open-outcry pits
    like in the S&P and it's working so fast and
    it is so tranparent.

    What are the disadvantages of completely elec-
    tronic markets...tell me, I don't known....
  4. fleance


  5. Fohat


    The same way IslandFutures will surpass the other Single Stock Futures exchanges imo.
  6. BKuerbs


    There are some disadvantages, at least if there are some rules missing. Look here:

    EUREX is in the process of questioning the members what to do about such problems.


    Bernd Kuerbs
  7. >> makers are there for the initial liquidity but they don't have to be there at all Look at Eurex...<<

    Sabena, you mean Eurex has no MMs? That certainly contradicts what I've heard.

    >>What are the disadvantages of completely electronic markets...tell me, I don't known...<<

    In a word, =electronics=. Sorry but they're simply not infallible. Systems can crash, hiccup, and/or otherwise not work properly, not to mention the element of human error that gets injected into the process (see e.g. the article above re Eurex). I have personally witnessed one such anomaly happen on a previous iteration of Globex (a rather ugly sight to see fills of 9999.99 in the E-Mini). The reason for that was actually two-fold; (1) all offers pulled in the face of tons of bids and (2) no (reasonable) limits in place to prevent such whacky fills.

    To be blunt, electronic markets provide a nice cover for retards and n'er-do-wells. You screw up like that on the trading floor and you find yourself all alone; no one will trade will you.
  8. Josh_B


    Yes there are advantages with electronic networks, speed, some transparency, but also there dangers, some were mentioned above.

    Market makers, dealers, specialists, do provide a function, and do soften the impact even as little as it might seem at times.

    But do not forget the "bid juicing" that happens a lot after hours many times on OTC stocks. Only to have traders buy up shares and suddenly the bids disappear and buyer is "literally" nowhere to be found.

    Some examples come to mind with Globex few weeks back when someone entered wrong size/price, or the German Futures exchange late last year. It doesn't happen often but sometimes it takes only one really bad trade to wipe a trader out for good.

    This of course can be argued both ways.

    As a trader, one of our main goals is to control risk. Fully electronic trading could make the risk control part of the trading equation more difficult.

  9. sabena


    Yes, computers systems are not infallible.

    But I just talked with someone at IB and

    he told me that for the Eurex market their

    system was down 2 minutes in the entire year.

    A little calculation comes to a reliability

    of 99.99885 % uptime.

    To be really unlucky at such a moment, you

    have to be in the market at such a moment AND

    the market has to move substantially against

    you during those 2 minutes.

    Suppose you are 50 % of the time in the market

    and the trade moves against you another 50 %

    chance then is the chance that you make a

    losing trade because of such a failure

    (1/86400)*(1/2)*(1/2) = 1/345600

    That's 1 on 345600 or .000289 %

    You known that the chance to crash with an

    airplane is 1 on 1 million.

    So the chance that you will lose money because

    of an electronic failure is 3 times as big

    as crashing with a plane.

    If you don't want to accept such a risk then

    you should not take an airplane flight next

  10. #10     Feb 16, 2002