I understand if you'd rather not say,but I'd be interested in knowing what markets in particular you were trading on LIFFE and the kind of size your black box was inputting. Just about every local I know(the few remaining!) has had a problem with the algo-trades sticking in tens of thousands of lots in the STIRS but only completing the order if they get taken out. Fair enough they are there to be hit but how many times a year does someone hit a 20,000 lot bid,meanwhile on a daily basis they gain a huge unfair advantage over the other participants.
Why unfair? Aren't you allowed to do it also? Something else (and I hope no one here takes it personally). I am especially annoyed by the word "locals". Who the #$#@$ are those "locals" in a global market?!?
Of course.I don't know why I didn't think of that before - I'll just do the same.Let me see, I'll stick 10 million dollars in my account,convince my clearer to give me 40,000 lot limits and I'm in business! What about all the 'locals' that trade any size between 5 and 500 lot clips that can't get filled?Another idea - go bid for 10 times the amount that you actually need and try and scratch them when the giant bid gets pulled and you become everyone's stop. The term local goes back to the days of the pit to distinguish independently backed traders from the paper i.e. the banks - I've been calling traders who trade their own account locals for the last 15 years.I've got to agree,it does seem a bit of an out-dated term now,I imagine the majority of posters never even set foot on a trading floor so probably all call themselves 'day-traders.'
you are correct my friend that they can be hit by anybody at anytime for the amount they are working. i spoke to liffe this morning and subject to your own margin requirements the maximum the system is set up for is 999,000 lots in total. that means across the strip or an individual contract. they also said the new algo for liffe is delayed until q3/q4. i think there are a few points here that people are talking about. (1) traders who are entering those large size bids and offers be it individuals or companies are not necessarily capitalized to take the loss on a hit of that size and their sole intention is just to pick up lots in a size of 10 percent of the working order. (2) does the exchange have a moral responsibility to ensure this does not happen - i personally think so. (3) we all know that there is software out there in terms of word and number reckonition that immediately sends multiple buy and sell signals to the market to trade. (4) if there is an unscheduled event or emeregency rate decision these people people will be offside anywhere between 25 to 50 ticks and down a lot of money very quickly. probably so much money there will be margin calls going around the market very quickly. (5) i could be wrong and maybe this does not happen but whenever people take advantage of a situation because 'it never will happen' it invariably does. (6) will liffe do something about it? i think they should but they probably wont. not until the damage has been done. (7) i will trade the same old way working my 200 lots genuinely trying to get hit unitl my account has 50 million pounds in. then i myself can join the silly bid and offer size club and make a fortune.
this is called efficiency. those algos do a wonderful job assuring that no one flips a contract...but themselves reality is algos need one tick to make a profit while locals need three. get over it, in the near future only the big time algos will be able to trade this way, no matter what the exchange policies are. low latency big size algos will dominate the tick action, because they have the necessary resources to feed from the weakest link in the food chain.
'Locals' need two (assuming the spread is 1 tick). You pay the spread only once; you buy at the ask, you sell at the bid (= 1 tick)
http://www.euronext.com/fic/000/020/880/208805.xls using the above link to go to liffe statisical historic data you will note the following: comparing month on month march 2007 versus april 2007: all short term interest rate products for traded contracts are down a massive 20.2 percent. as a value of total liffe volume they were down a massive 20.8 per cent. total exchange traded contracts are down 16.9 per cent. oh dear liffe the efficient market you upheld seems to be back firing on you. volume down, share price down, people fired. no wonder they came round the other month flapping about their new algorithm. the algo based trading market when very efficient would seem to provide lower volumes. makes sense as if you lose you do not continue to play.
Exactly.People are finally figuring out that they can't compete and the sad truth is that LIFFE want the best of both worlds - the big algo models providing this 'great' liquidity and a load of crappy locals churning out tons of round-trips lifting the wrong leg in front of size and looking for a cheap tick. They really don't care if someone gets taken out on a massive bid. As long as the trader's/hedge fund's risk managers say they can afford to put the orders in,they'll let them put them in.After all if they get hit on a 20,000 lot and drop a million dollars they've still got to pay Exchange fees,which is all they care about. In all honesty I think LIFFE just let this algo-trading get away from them,they could have put a stop to it years ago I'm sure but it did seem like these models were providing liquidity and I'll bet doing shed-loads of round-trips every day - they just didn't realise that eventually they would really stop other locals from growing with the markets and gradually start to drive them out altogether.