Estimating Realistic Volume Limits & Trading Capacity Estimates

Discussion in 'Order Execution' started by CPTrader, May 2, 2008.

  1. A salient issue in system development is the twin issue of realistic volume limits and trading capacity; that is:

    1. How much volume can you trade in a particular market and

    2. Given the above for each of the markets in your portfolio what is the maximum asset capacity for your trading strategy.

    These two issues are of course heavily impacted by market venue (pit or electronic exchange) and market order type.

    For the course of this discussion lets consider the following assumptions:

    1. Order Type: Limit Orders only

    2. Market Venue: Electronic exchanges/Interbank FX

    3. Trading Times: all markets trade for 22-24 hours a day/5 days a week

    4. Markets: Electronic Indices, major FX pairs, Interest Rate Futures, Crude Oil, Gold,

    Ideally we should have:

    A. VOLUME LIMIT (VL) = A percentage of average daily volume and

    B. TRADING CAPACITY (TC) = derived from VL and your money management algorithm. Let's use a simple money mgmt algo where you limit your margin usage to 20% of account equity (MER).

    In this case TC = Sum of VL * Average Daily Volume * Margin for each market divided by MER

    My thoughts are VL should be no more than 1% of average daily volume.

    What are your thoughts on this issue?

    What’s the ideal/most realistic VL estimate?

    What other methods exist to estimate market impact and volume limits?

    Lets have an intense, focused and insightful debate on this important issue.

    Many Thanks.
  2. You must be kidding. I'll get to the point.........the market can handle more money than you have. The "debate" is over.
  3. Typical irrelevant, unproductive, myopic and daft response from a typical "Elite Trader".

    On another forum I participate in I just got a most insightful response.

    On ET insightful responses are becoming rarer by the minute.

  4. What other forum ?
  6. Mschlau


    All well and fine except the myopic bit.

    Myopic: (adjective)
    1. Ophthalmology. pertaining to or having myopia; nearsighted.
    2. unable or unwilling to act prudently; shortsighted.
    3. lacking tolerance or understanding; narrow-minded.

    If you ask me, which you didn't, I'd say it was you who was being myopic. I say this because you have no tolerance for this mans stupidty. But thats okay, you shouldn't.
  7. empee


    He probably is trading a subset of the market. You don't know his strategies, for example he might be trading micro caps. Who knows.

    I would say its dependent on how you enter and exit as well, ie hitting the market with huge market orders is different than if you can VWAP type order out (or something like it)
  8. 4. Doesn't deal in false hope.
    5. Able to see, acknowledge and discern the important from the unimportant.
  9. Mschlau


    Uh, where did you get that?
    You do realize that myopia is a ailment of the eye so any deffinition of a word based on it probably doesn't include the concept "able to see"
  10. G-Boa


    I'm not sure, but it sounds like you're taking a blind stab at dark pools.

    All markets have their parameters.

    Or do markets exist where money is the parameter??
    #10     May 2, 2008