Discussion in 'Trading' started by Vinny1, Jan 29, 2002.

  1. This question is addressed to anyone,preferably someone trading at a pro firm. The Nasdaq quote for whatever stock is 50.00 x 50.01 with a 1000 shares offered on Island at 50.01 with the next offer price on Island at say 51. Now i put in a buy limit order on Island for 2000 shares at a price higher than the current offer,say 50.25.I get the 1000 shares offered at 50.01 filled at 50.01 i assume.Correct me if i'm wrong. Now i have 1000 shares left to fill.My question is what happens on Level 2 with the rest of my order. Is the 1000 shares cancelled,since I can't cross the market? Does my 1000 share bid show up at 50 on Level 2,a penny below the best offer, with my order on the Island book bid at 50.25 making me eligible to get filled at 50.25 if someone on Island offers 50.25 or lower,giving the seller price improvement? Any help is appreciated?
  2. The rest of your order shows up on the ISLD book as a bid. If you take out the offer with the first half of your order then the remaining half is the inside bid.
  3. Am i bid at 50 on level 2, but 50.25 on the Island book?
  4. If you are the highest bid you will show up on the level 2.
    Your bid will show as 1000 shares @ 50.25 x what ever is the next offer.
  5. You should get The Electronic Day Trader book they are the same guys who own ISLD there book is one of the best for understanding level 2 trading and the market in general. If you can take there trading course you will have a lot of time to ask them questions and you get to practice executing and trading off a simulator in there office. Also they help correct your mistakes on demo. After a course like theirs you will become lightning quick at executing witch is important in trading NASD.
  6. Though I think Trader555 was correct in relation to Vinnys scenario, this might not be the case always. Vinny you were right on in your speculation on how ISLD handles the order. You asked what would happen with an inside market of 50.00 by 50.01 with 1000 shares offered via ISLD and then you buy 2000 shares at 50.25 via ISLD:

    Yes the first 1000 shares are filled at 50.01 and yes the remaining 1000 shares would show as a bid in the ISLD book and also would be displayed on the bid side of the L2. However, getting specific, ISLD will display the bid at the best possible price that would otherwise not lock or cross the market, rather than merely the inside bid. THus in a situation where there was more than a penny spread on a NMS stock, then Vinny's 2nd 1000 shares at 50.25 could become a new higher inside bid. For example, market is 49.99 by 50.01 instead. Vinnys order of 2000 would fill 1000 at 50.01 and theother 1000 would be displayed on L2 as new inside bid of 50

    Again, in Vinnys situation, he would not have to be the highest bid to be displayed on the L2. In this case, since his order is crossing the market, any and all such orders in the ISLD book- ie any buy orders for more than 50.01-would be lumped together and be displayed as described above, at the best possible price which would not lock/cross the market.

    Vinny, regarding price improvement, you were correct in that ISLD gives it to the 2nd order coming in ie the trader who gets matched with your (first order). For example, I am long in the same stock with your 2nd 1000 shares bid at 50.25 but displayed in the L2 as 50.00 and I decide to hit the bid at 50.00-where your shares sitting- to sell my shares via ISLD. In this case I would get a very nice surprise in my order book....I sold shares at 50.25 instead of 50.00.

    Hope that helps clarify................
  7. DAT, thanks for the info.,you answered all my questions. So basically, I see that you have to be really careful when entering orders into Island. You could be filled on a buy order a point higher than the inside offer if you enter a bid a point higher by mistake.
  8. Only if there were no other offers between the actual price you meant to enter and the one you did by mistake. If there was (and there likely would be in any active stock) then you would obviously get price improvement as discussed.