I'm new to trading and especially automated/algorithmic trading. However, I have some programming skills and have been thinking about experimenting with some strategies. A couple of questions regarding rules/law: First, can one place a limit order to buy a stock, cancel the order quickly if it does not get filled, and then immediately place a new limit buy order at a slightly different price? Are there any rules to how often this repeated cancelling and placing can be done? The purpose of this procedure would be to get a liquidity adding limit order to be executed as quickly as possible (i.e. at a better price than current ask). Extrapolating the above, is it legal for a retail trader to program a system that automatically places limit orders, cancels them shortly and/or adjusts them as needed?
You mean a "fill or kill" order? Sure, of course, more info here for example: https://www.investopedia.com/terms/f/fok.asp
Not really, because I might need to cancel the order and place a new at a slightly higher/lower level if I need the order to be executed quickly. I would think it is more like trying multiple times to get the order filled at different levels. For example, Current bid/ask is at 100/101. -> First place a buy order at 100.1. -> Wait x seconds -> If order not filled, cancel original order, place a new one at 100.2 -> Wait x seconds -> If not filled, cancel, and place a new one at 100.3 -> Etc. Are there any rules to how frequently the above type of procedure can be done? Would it be ok to build a system that does this automatically for several stocks during a day?
Well, some stock brokers can restrict that type of trading activity, or even charge you extra for that. The best option is to contact your own broker and ask him that question directly, via email or a chat session.
Is this common? Do you know if, for example, IB, restricts this type of activity and for what reason? As you can probably tell, I'm trying to get a better grasp of how things work in this field. Can you recommend a website or another source that gives an overview of what is/is not allowed in algorithmic trading? I think I'm kind of missing a rule book of some sort at this stage.
How many are you planning on cancelling and reordering per minute? Per second? I would say unless it's thousands like spoofing then there's no problem
https://www.interactivebrokers.com/en/index.php?f=667 Believe it does state direct routing. So smart routing would be okay?
For any particular stock, cancelling/reordering max. few times per minute. However, I'm considering applying the same strategy for multiple stocks simultaneously, so combined it might be 100 stocks, and for each might need to cancel/reorder a couple of times within a 5-minute window, for example. This should be ok? About spoofing - it means cancelling the order when the market starts to move your way and you risk getting a fill, correct? Notice that I'm kind of suggesting the opposite here: all the orders are meant to be filled, and cancelling/reordering only if it looks like I'm not getting filled quickly enough.
Thanks, I was not aware of that. Does this mean that all cancelled orders incur a cancellation fee (regardless of whether they are placing using the API)? Execution credit is 25 x cancellation fee, so you are allowed to cancel 25 times as many orders as are filled without any cost? Am I interpreting this correctly?