Market Inefficiencies via ECN Systems

Discussion in 'Trading' started by newmansk, Mar 19, 2008.

  1. newmansk


    I was wondering if anyone out there has used market ineffeciencies through different gateways, ECN's, ATS, Dark Pools to exploit the market on any flaws. These strategies would involve quick exit executions once entered. This is something that would have to be done through professional order execution systems like the ones at prop trading firms.

    I am not looking for people to give away specific strategies to me. That wouldn't fair and I probably won't be able to execute the startegy affectively. I am just wondering what there methodolgy is for researching, exploring, testing and implementing these market inefficient strategies. Basically whats the creative psychological process to finding these strategies.

  2. Every trade is flawed. Since the next tick is higher or lower, the previous trade was wrong for someone.

    Now if you can just figure out how to be on the right side.....
  3. newmansk


    That's not answering my question. Its hard to understand what I'm talking about but for those that have executed strategies in market ineffeciencies you'll know what I mean.
  4. jd7419


    You would have to have access to a bunch of dark pools and be able to arb against ecns in seconds if not milliseconds. Most prop front ends as far as I know have limited access to most dark pools and if they do they cant see the quotes anyway since I think dark pool liquidity is hidden and anonyomous.
  5. rjv27


    This might of worked a few years ago, but all the markets route to each other. And if there is any ineffieciencies you'll be battling with the black boxs that trade is nanoseconds. Better off spending your time doing research on a real strategy....
  6. newmansk


    That's funny because there are guys that I personally know that still find new strategies. Sure it does not last forever but ther is always a new ECN or Dark Pools that provide the oppotunity for new strategies. Any strategy is a real strategy.
  7. trom


    This is one of those areas where the people that know how to do it are not going to share it with you.
  8. Bingo.

    Best I've ever seen, was a day where NSDQ declared self-help against EDGX and most firms couldn't see EDGX quotes, including mine, and had about a 15 minutes window where any stock with a live stale EDGEX order was getting traded through. I believe he made about $500 arbing (lifting the edgex offer, hitting the bid on NY or other ECNs 5-10 cents higher instantly). After that, EDGX operated normally and other ecns started routing to it.

    I believe the Hamilton Swift branch found a great gig a few years ago where they were doing some darkpool manipulation/arbing, but that is long since dead.

    Here's the only idea I can think of (this is me being nice and sharing what I'm pulling out of my ass)... reg NMS only requires orders get routed to the inside market, after that whichever venue you send your order to, you're sweeping that venue's book.

    People do send really stupid panic limit and market orders that only sweep one venue's book. If you can develop an algorithm that separates with some degree of predictive value BS orders deep in the book from legit stale size (I think timestamp analysis should do the trick), perhaps when that stale size is 2SDs away on the bid, you could put a Bid in a different book behind it and hope to get filled by a freak occurrence sweep. At the beginning of the Hybrid, this would have been a killer strategy. Now, most likely, unless you're really clever the stale size will pull, and even when it doesn't, there are a lot fewer retardo market orders that only sweep one book than there used to be. One problem is that all the other bots trying to do this shite (lots of them) add a clutter to the book, but again timestamp analysis should work for that. However, since every quant fund and box writer and their mother wants to take advantage of some variant of this strategy (get filled on size away from the inside market on a 2-3SD inefficient booksweep), the margins may get killed. Maybe going the other way is where more money is - finding extremely, extremely high probability situations where a large reserve buyer or seller comes into a stock, and then sweeping all that liquidity that's enveloping the market trying to benefit from mean reversion... where your edge is basically that those boxes aren't aware of when that specific buyer/seller comes in, thus they don't realize it is non-advantageous to provide liquidity against the direction of the main player in that stock, even if it's 2SD's from the inside market.

    What it comes down to is you have to find your own edge. From your post, it sounds not like you have one.
  9. newmansk


    Well thats the thing I have not found my edge yet and I learned from the guys at Hamilton Swift about these strategies. I'm trying to understand the process they went through mentally in trying to figure these things out. I'm currently going to ECN sites to learn about their products and learn how the orders get executed. All this stuff is very confusing to me and I'm not sure how to apply it to trading.
  10. newmansk


    What it comes down to is you have to find your own edge. From your post, it sounds not like you have one. [/B][/QUOTE]

    Can you elaborate on what you mean by "find your own edge"?
    #10     Mar 20, 2008