I am running a trading system on XIV based on closing prices. I may trade up to 50,000 shares. If I enter my trade at 3:55 PM, how would you suggest placing it? Since the XIV market is typically a penny wide, (currently 24.09 - 24.10), I could place a limit order to buy at the offer or to sell at the bid. But I've noticed that since XIV moves so much, the market has often moved away from my order by the time it is placed. I could use a more aggressive limit order such as buying 2 cents above the offer. But will this get me a worse fill? In my backtests I have baked in a bid-ask spread of 1 cent. I am using Interactive Brokers.
You're right, the VIX derivatives bounce a lot at the close. And you've already identified your 2 choices. Either go for a limit and chance missing the trade, or put yourself at the mercy of a market order. You might also consider VXX options, depending on your holding time. They continue to trade right after the close, and tend to be more stable after 4 PM. Another advantage of taking the option route instead of going heavy with XIV, is that you can limit your losses if the VIX moves strongly against you. Which can and will happen. Just something to consider. Good luck.
Thanks for your reply. I know VXX options trade actively, but backtesting an option-based system is much more difficult, and I want to trade close a strategy close to what I have tested. Interactive Brokers lets you enter market, limit, or "IBALGO" trades, and I am going to look at how IBALGO trades work.
Ive been dealing with this alot on the stock side and have found that an "At Close" order works well. If that isnt an option Ive done market orders in the last 5 seconds of trading and got the close or very close pretty much all the time.