Liquidity Trading

Discussion in 'Trading' started by Brandonf, Aug 21, 2002.

  1. That would be my guess.
    #21     Aug 28, 2002
  2. Seems this whole liquidity trading thing gets in peoples' ass big time. Comments like "liquidity trading is for suckers", and "liquidity trading is not real trading", are interesting.
    I used to do this, or at least a version of it in the early days (some months ago), before all the ECN's really started cutting each others throats trying to gain market share. I am no longer doing it because I left the prop. firm I was trading with (personal issues), and am now trading for myself again.

    A couple of comments on the issue;

    As for not being 'real' trading, I have to ask what planet you are from if you believe that. What the f@#% is 'real' trading. If you are live and the numbers on your P/L represent 'real' profits and 'real' losses than I think it qualifies as 'REAL' trading. Think about it this way.. are market makers 'real' traders? They are turning over millions of shares at times only to capture a spread, not only that but these guys often have the advantage of having orders to fill. Even with liquidity trading you have to get in and out of a position with the expectation of profit and the avoidance of loss, that would imply speculation for profit, and that to me would qualify it as bona fide trading. There is more than one way to trade the markets, and time frame and profit/share to me don't define 'real' trading. Just my opinion.

    On the issue of liquidity trading being for 'suckers', I don't agree with this either. I think that people are failing to realize how this liquidity trading thing works, (or at least how it does where I worked). You are typically trading high volume low volatility stocks, speculating on the momentary direction of the stock and then bidding into and offering out of a position (usually a large volume position) using your ECN of choice. The big thing to keep in mind here is that these traders are not paying commissions! Hence the smallest move represent a profit and in fact if you can get in and out at the same price you are profitable. That doesn't mean that you don't attempt to capture a small profit on the actual move of the stock but rather you don't have to rely on multi-cent moves to make some money. If you think about it, it is actually a great business model for the right kind of trader.... Zero commissions, how do you beat that? Admittedly it's not for everyone, but far from being 'suckers' I know some guys who are making a pretty sweet paycheck with this little model. This includes guys who trade stocks that are a little more volatile and by using the bid in / offer out technique are able to substantially improve their profits by having negative pass-thrus all the while enjoying Zero commissions. Not a bad deal all and all, kind of makes me wonder who the suckers are.

    So that's my take on the liquidity trading thing. Will be interesting to see how this is effected by Supermontage.

    One thing I will say... these expensive ECNs popping up with big volume can be a major pain in the ass and can seemingly crush momentum and stop a move in its tracks! It pisses me off a bit since I am trading a different style right now but, my solution and my recommendation to others is... don't trade the stocks that these guys are trading! You don't see this problem with stocks like MSFT and other movers.

    #22     Aug 29, 2002