otc automation

Discussion in 'Automated Trading' started by infolode, Oct 15, 2005.

  1. Any successful traders using a black or gray box program trading system with the otcbb or micro/small cap stocks?

    I know most cringe at the mention of penny stocks but there appears to be tremendous potential for profit due to the volume and volitity.
    Almost like pre bubble burst era.


  2. maxpi


    The liquidity can be a problem. Many of the otc issues have an average day of less than $1000 worth being traded, if you are 1% of the daily volume that is a whole $10 and with IB's commissions having a $2 round trip minimum your system has to overcome a 20% initial threshold. If you are 10% of the daily volume the commission problem is better but your size might affect the market and make your system work differently than it did in testing. I know that with IB, they do not offer many of the otc stocks for trading and you can only find out which ones they will trade by putting the issue in the TWS according to the help desk, I could have been misled in that for sure. It would be a lot of work to find out what the list is and it is changing all the time. Possibly if you limited your universe to the more liquid stocks and had a broker that would trade them automatically and a commission structure that made it attractive you would not have very many issues to trade anyhow. It seems better to trade them on a long time frame so that you can buy more of them at a time and overcome commissions better and on weekly bars why autotrade? Having said all that I will admit that I have a few of them in my autotrading universe. I have been questioning their value from day one but I use them to flesh out the list sometimes and sometimes the trades get rejected by IB because they don't trade the instrument.
  3. Same question here.. anyone doing it?

    I'm using IB and DTN, which both cover OTC/PS.

    Maintaing a list of active issues is really a trivial problem. Thereare 20'000 official OTCXB issues or so, from which at any point in time perhaps 1000 are tradeable for a sub-250k account. You don't have to trade the other 19000 from which 75% don't have a regular quote anyway.

    What I noticed is that the cycles are very different from the general stock market. If a stock trades 1000 it's daily average on one day, that looks like a nice imbalance to trade. A newsletter or a recommandation can have a big effect.

    Of course these strategies are not scalable at all. However there seem to be a few penny stock trades who make a few hundred k a year or more. I have never heard of an automated penny stock trader though, after a year of research, but somehow I guess there most be some selected few who are making very easy money, considering who is trading on the other side.
  4. Occam


    OTC's are highly internalized by retail B/D's and their NITE/UBS/Citadel/etc. payment-for-order-flow (PFOF) friends, so you'll be lucky to trade at price X unless it benefits the PFOF firm.

    If you start making money consistently against the PFOF firm on a ton of short-term trades, they have a nasty habit of noticing and start making vague threats against your broker. Doesn't hurt to try if you're profitable, though.

    One option is that many Pink's/OTC's are traded on ARCA, so you might try routing there. But the relative lack of regulation sitll means that any B/D is going to PFOF their retail customer order flow, so you're only going to get the crumbs that fall off the PFOF table, until if/when the SEC decides to clean up either/both the OTC/Pink mess and PFOF itself.
  5. As I understand it you are talking about market making kind of strategies. I'm thinking much more about market timing, and therefore not doing 1000 trades/day, but 5 or 10 a day. Spreads are usually 30-70bps+, so I don't quite understand how higher frequencies strategies could work.
  6. hehe .. it is *because* the spreads are wide that the MM strategies work .. the high frequency bit is about them coming to you a lot -- not the other way around.
  7. Thx for the input. Can you explain with an example? If the current spread is 1.50$/1.70$ I basically estimate the probability that if I offer a narrower spread at 1.55$/1.65$, I can unload the position later?
  8. Sure ..

    Quote 1.51/1.69.

    Why go narrower? Just pip the other guy.

    If you get evenly hit, you make ((1.69-1.51) / ((1.69+1.51)/2.00)
    = 11%

    Which is a lot...

    Buy if you get stuck on one side, you're kind of screwed .. but, you're in at 5.5% better than the midpoint.

    Ideally you can hedge the exposure. Maybe not so much on the micros though. If this were an option you're quoting, you'd hedge with the underlying for example.
  9. iggy9807


    I am trading (sort of market-making) about 1,000 low-volume non-OTC stocks. I've been eyeing PinkSheets but I am afraid to touch those stocks. I can't figure out what the requirements are for your order to be 'visible'.

    Here is one example:
    (by the way I made a couple grand trading it manually when it was range bound)
    For some reason, my orders wouldn't show up on the Montage unless I had 2,500 (or 5,000 when price was below 50 cents) shares. If you don't have the right size, it's very hard to get out of an OTC position. It happens occasionally to me when one of my non-OTC stocks decides to de-list and I get stuck trying to get out.

    Basically, unless you have a good handle on how OTC works, stick to listed stocks. There is plenty of money to be made for some one with a small account :) Except recently things have slowed down. Volatility is just not the same as last year.
  10. So PUMA is quoting 0.77$/1.77$ and NITE 0.08$/0.80$. Interesting.

    Do you use passive orders then or what do you mean by range-bound trading?
    #10     May 14, 2011