Important Question about Expectancy

Discussion in 'Risk Management' started by WhiteOut56, Oct 5, 2010.

  1. In Which Scenario will you be down less?

    1) You send out non marketable limit orders buys @ the bid for 1000 shares for several stocks that do 3 million / and are priced around $40. You cancel all open orders when you have a million dollars worth of positions.

    2) You send a market orders for the same type stocks say buys until you have a total of a million dollars worth of positions.

    At the end of 2 minutes you look at your NET P&L, ecn fees, sec... everything. Which scenario are you down less.

    Basically I'm asking on a random stock is your expectancy greater to take or provide.
  2. According to the theory ...

    - If you are an “informed” trader, and your expectation is that the market is about to move imminently in a given direction, you will probably be best off taking liquidity so that you are certain to get a position before the move occurs.

    - If you are not an “informed” trader (i.e. an “uniformed” trader), whose information is no better than anybody else’s, it makes no difference; on average, you’ll be lucky/unlucky some of the time in both cases. Neither will give you an enduring advantage ... you regret trading/not trading in equal measure...

    For the “theory”, see Chapter 14 of “Trading & Exchanges” by Larry Harris.
  3. This is pretty much what I'm getting at

    Taking---> You have to pay the spread, and the ecn charge
    Providing ---> You don't have to pay the spread, receive the rebate but you lose against the algos that control the mkt "only getting filled when price goes against you"

    Which is more negative expectancy of the 2?
  4. Super comment.

    It may be that the OP does not understand the market provides a "tell" before the price moves. There are also tells with respect to the order flow that explain the timing a rate of unrealized profit accumulation. The OP may be "betting" and only one type of trader does that. Hence his questions from the category you mentioned that he fits into as a givine type of trader.

    We're all lucky in Tucson, Harris is one of our residents.
  5. No algos control any market. What they do is try to profit by making a market.

    Abattia's answer was very good.
  6. very interesting question. I'll remove liquidity everytime.