Need help with RT III order execution

Hi everyone, I'm mostly one of the many "lurkers" here since I'm a newbie (although I have committed one complete year to full time study of this profession) and as yet I don't have much useful info to share. I just opened my acct. with MB Trading and I'm learning the Realtick III s/w, and although I have read almost every avail. book (Nasdaq Traders Toolkit, as well) I need some help with placing orders. It seems most Nasdaq traders execute thru Island, but can anyone elaborate on the proper method of execution. Lets take AMAT for example, it moves pretty fast, so do you put in an Island Limit order a couple of spreads out (if Island appears on Level II) and wait for it to come to your price? Is this the concept or do I have it wrong? Is Super SOES limit to a MM if he appears on the inside ask/offer viable or will he be gone by the time my order hits? I am truly perplexed over this part of the process. If anyone can help me with this I promise to return the favor to others in the future when I have the appropriate skills. Thanks to everyone who contributes here as I have already received a ton of useful advice on this fascinating business.

Kind regards,
Arky

 

arky =)

supersoes has made order routing much much simpler than ever before.. both redi and arca will automatically scan the market for the best available price and route your order accordingly.. i recommend that you use whichever has the cheapest ecn fee at your broker.. i dont recommend that you use island because it will allow you to accidentally buy or sell away from the market leaving you with a poor fill if you accidentally enter an order for the wrong price.. i recommend that you focus on the two inside price tiers to begin with.. that is the two best bid levels and the two best ask levels.. if you are going to go long then you can either place an order on the bid and hope that someone agrees to sell you shares at that price, or you can enter a buy order at the current ask or slightly higher..

remember.. until you get the hang of routing your orders trade VERY small shares.. 100 is a good size.. you will make mistakes, thats part of learning.. make sure they are as inexpensive as possible.. good trading..

-qwik

 

>i dont recommend that you use island because it will
>allow you to accidentally buy or sell away from the
>market leaving you with a poor fill if you accidentally
>enter an order for the wrong price..

If you enter an order for the wrong price on Arca or Redi they also will "allow you to accidentally buy or sell away from the market leaving you with a poor fill".

Most of us use Island for a reason...it's stinkin' fast while Redi and Arca fart around.

Your results may vary.

JB

(back after a much needed month off. Travelled from San Diego to the Hang Gliding National Championships in Tenn. and then all the way to up to Maine and back down the eastern seaboard to Florida. Back via Salt Lake City. Good to be gone and good to be back trading)

 

Turok,

unless redi and arca have their automatic order routing function turned off they will attempt to hit the best available market participant.. if you are trading a stock that is 102.01 x 102.05 and enter a sell order for 12.01 on arca, arcas smart routing will try to hit 102.01, not hit the best bid on the arca book that is better than 12.01.. with isld if you accidentally enter the order at 12.01 and there are no bids for a couple dollars down, youre screwed.. of course you might be able to break the trade but if its a fast market its not likely..

-qwik

 

I agree with both Turok and QuickTrade, however more than likely it will take you some time to acquire the order execution skills to use ISLD effectively and Quicktrade is absolutely correct that you can get filled away from the market if you make an entry mistake. THus ARCA and REdi are good routes to begin with due to their proactive liquidity seeking efforts.

FYI while ARCA and REDI have historically been known for slowness, for the most part this has not been an issue now that SuperSoes has been implemented. In pre SuperSOES days, ARCA/REDI would use Selectnet to preference MM's if they could not find liquidity from internal matches and via other ECN's. SNET preferencing was a painstakigly slow process due to MM's ability to delay the order and essentially "think about it". Now, ARCA/REDI deliver any residual volume after ECNS directly to the SuperSOES system and bypass SNET.

Regarding SuperSOES, yes if you see a MM at the inside price level and route your order via SS immediately, you will get filled. Again, in pre SuperSOes days, there was a 17 second interval delay between SOES executions to the same MM, meaning you could see 3 MM's at the inside, but if each one had just been SOES'd, and you then sent a SOES order, your order would sit for up to 17 seconds until the first MM came out of interval delay.

Now, if the MM is there at the inside, you get an instant fill as the interval delay has been reduced to zero seconds under SuperSOES. Thus SS acts like an ECN in that if the MM/ECN is there when you click the button, you will get the shares unless another trader literally beats you buy a fraction of a second (which does happen by the way). Hope that helps.

 

Direct island orders only execute against the island book, thus you may not be getting the best market price. In cases of price improvement on island, two things could have happened.

1. In the time that it took for your order to reach the island book, someone else on the opposite side posted a better bid/ask, thus allowing you a better fill. this happens often when you are selling into a rising market and vice versa

2. A hidden order was on island, that didn't show on the book or level 2, but you executed against it.

 

since some of you seem quite knowledgelable. Here is a question. Sometimes when trading through the redibook with a limit just outside the market I see a slight lag when there is just a mm on the inside. Sometimes I get that price. Sometimes a partial and then sometimes I see my price post at that mm price then the mm clears and then I go active to the next level within my limit. I assume that this has to do with the fact that SuperSoes has seperate execution and price computers. This lag may have cost me fills a few times. Do you think it would be better to go with an ECN only function.

If this is confusing let me explain. I trade though SLK so when I put my price in I see it in the level II. I could be buying with a limit at say 90.05 there is one market maker at 90.01. When I send my order I will see it priced at 90.01 even though my limt is .05 until I get that mm or it clears. Then I will get the trade up to my limit, but sometimes that market runs away. This can be problem. Therefore I suspect ECN only is the way to go, any thoughts.

 

Jem, in a SuperSOES world, this should not be happening so I am at a loss to explain. First off lets clarify something. In your example, do you mean there is one MM at 50.01 and that is the inside offer price or bid price? I don't think you meant offer because REDI technically cannot post a 50.01 bid when the offer is 50.01. Either way, your situation sounds very familiar to what would happen pre-supersoes days however there is no way it should be happening now, so I am not sure what is going on.

First off, as you probably know, market participants technically cannot lock or cross the market meaning the level 2 should not display a bid that is at or higher than the current offer price. When you enter a buy order such as your example that would otherwise lock or cross the market, REDI normally attempts to take the best (low) offer first which means the offers at the inside price level, targeting ECN's first. If ECN's do not provide enough volume for the order and there are MM's at the inside, REDI used to deliver the balance to Selectnet, however now delivers it to SuperSOES.

Before SS, when the order would go to a MM via a SNET preference order, the MM may ignore and/or not fill the order within its required time limit. At that point REDI would often "lock" the market by displaying the matching bid on the level 2-in essence telling the world "hey we are matching this stinkin MM's offer and he won't fill it." Usually, the MM would then clear out and the REDI would go active at the next level assuming you priced the order outside the inside.

However with the balance of any such order now being executed against MM's via SS, the fill should be virtually instantaneous- as long as the MM remains at the inside at the moment the order is is diverted to SS-due to the zero second interval delay feature of SuperSOES. Thus, I cannot see how REDI would ever post your order and lock the market in a Super SOES world unless you can turn -as you implied-structure the order to NOT go to SS. ARCA had a similar feature I know thru RealTick. Even so, I think REDI would adjust the displayed price of the limit away order to a penny below the offer so as not to lock the market just as ISLD does.

So to summarize, I can definitely see a lagging situation using REDI orders priced above the offer to buy and below the bid to sell, as REDI proactively seeks liquidity from different market participants (BTW ECN volume where Redi does not have direct connections with the ECN still goes thru SNET). However, I am struggling to envision a situation where REDI would actually post any volume that would lock or cross the market as you implied.

Finally, I do not trade with Redi plus and/or thru SLK, but I know that if you do, you can choose different types of limit away orders so that the order will go right to the away price and any participants already quoting at that price, avoiding the liquidity seeking efforts thru various price levels up to your limit price. In your example, the order would go right to anyone offering at 50.05 and you could be filled instantly (paying up 4 cents in the process) without waiting for the proactive re-routing thru the price levels of a "normal" limit order priced away via REDI.

 

Don't avoid what is clearly one of the best execution platforms just because you are worried about entering the wrong price. If that's a problem, a better solution would be to simply not enter the price manually - click on a price in the level2 window, then adjust it using arrows or hot keys.

voodoo