Market is 20.50 x 20.51 and I'd like to short the stock using Island. 1)What happens to my order on the Level 2 screen if I put a short sale order at 20.00? 2)Does it make a difference if the 20.50 is an upbid or a downbid and how? 3)Any recommendations on the best way to short using Island as well as advantages and disadvantages?
Yes it makes a big difference if the 20.50 bid is an upbid then basically you can short at any price you want. Obviously with the ISLD best price feature you would get filled at the highest bid above $50 (asuming there was one) the moment you clicked sell. THe disadvantage would be if there were not a higher bid you would sell 50 cents below the current market....unlikely in a liquid stock. As far as you question goes on execution strategies, it depends on the situation and the platform you are trading. If the stock is printing from both sides and sort of waffling back and forth, you obviously have a good chance at putting out an offer. However if the stock is already selling off, then you have to be a little more creative (and sometimes lucky). On the platform I use, order entry is blazing fast and basically I just keep pounding the short sell keys if there is a downbid and the stock is already selling off, and I am often successful in getting a fairly quick fill. With slower order entry platforms though, you are likely better off waiting for an ECN to create an upbid (usually unintentional as joins the inside just after the last bid pulls) and then at the moment there is an upbid send a short off below the bid at a lower price since it is highly unlikely you will get matched with the single high bidder in a market filled with sellers. You will also have to use an ECN since SOES will automatically kill your order if the bid goes back to a downbid whereas the ECN order will stay live. If this makes no sense to you, check out this link for an example of what I mean: http://www.tradecourse.com/modules/shorting_execution.htm Hopes this helps.
Thanks for your reply.So are you saying that if 20.50 is an upbid,i can technically get filled on my short at 20 on Island if there are no other bids until 20? Also,if the 20.50 was a downbid and you tried to short at 20 on Island, what would happen to your order on Island and how would short sales on Island display on Level 2 if the Island short sale price is entered below the best bid?
Yes you could get filled at $20 if there was an ISLD bid at $20 and none higher...again assuming the $20.50 was an upbid. If the $20.50 was a downbid then your platform should stop you as this order would violate the Naz uptick rule, thus it would never hit the ISLD book or the Level 2. Regarding your third question, if the bid was an upbid and your order priced below the bid goes live but is not matched (ie no matching bids), then ISLD would change the DISPLAYED price to the lowest possible price which would not otherwise lock/cross the market. If the spread is already at a penny (for NMMS stocks), which it was in your example, then it would display it at the inside offer price. If the spread was wider, then ISLD would make your order the new inside offer a penny above the $20.50 bid. If/when an ISLD bidder comes in to buy at the offer, he would get routed to your order and get price improvement as the order would transact at your originally entered price below the bid. Again this can get a little confusing so if it is not clear, hear is another link to an example of this scenario. http://www.tradecourse.com/course/island_aggressive_introduction.swf User: public Password: access
So now you entered your Island short order on an upbid and it is being displayed on level 2 a penny above the best bid. Now if the new bid becomes a down bid, what happens to your order then? And also, does Island keep readjusting your offer downward following the bid down and finally stopping at your limit price to sell?
ISLD will adjust the displayed price automatically keeping as low as possible without locking the market until a bid matching the displayed price comes in.
DATTrader, some platforms provide easier and more convinient way. Two ECNs, REDI and ARCA, have feature that allows you to enter short sell order below the bid on downbid. Of course it won't get filled as it's prevented by uptick rule (will they ever do away with this??) but your order will be offered 1 cent above best bid and will chase it down to the limit you put in. If there is a buyer anywhere down the road you will get your fill, 1 cent above the bid at the moment. Very convinient thing, I just love it. Like you said, ISLD won't allow this trick, it just rejects short order if bid is on downtick (will they ever... oh, I already said it ) Best regards, Vad
Yes I forgot to point that out assuming Vinny already knew this. Actually your comment forces me to re-emphasize my point. With the Arca/Redi "peg it down" functioinality, the problem is that your order is always passive, waiting for an aggressive buyer to come in and take the offer which may not happen soon enough in a tanking stock. Rather my original point was to look for a (brief) uptick to appear and then aggressively hit a bid below it for an instant fill. This in particular may be easier or harder to do depending on your trading platform. Thanks for the clarifying points! Scott
I kinda was pretty there wouldn't be nothing new for you in this I never thought of it this way, to me it felt like if there is buyer willing to put up higher bid he would take my chasing offer, too. Most likely it all balances out in the end: in some cases that hypotetical buyer gets spooked by stubborn offer chasing bid down and in some cases he gets tempted by easy and sure 1000 shares fill. Vad
DAT, i'm not sure if you answered my question a couple of posts ago, so i will rephrase the question : You enter your Island short order on an upbid at a price below the best bid(which doesn't fill since there are no matching Island bids and it is now being displayed on level 2 a penny above the best bid. All the uptick bids get hit by other ECN's and Supersoes users and now the new bid becomes a downbid.Now when this new bid becomes a down bid, what happens to your order then? Does the Island order cancel or does it just follow the bid down tracking a penny above the best bid. And if it does track down, will Island orders that come in to buy get price improvement by being able to buy at your originally entered low price or will they only get filled if they put in a buy order at your currently displayed Island offer price or higher?