Using Databento's Real-time TBBO data to Estimate Midpoint Liquidity?

Discussion in 'Order Execution' started by ppy93, Jan 25, 2024.

  1. ppy93

    ppy93

    I am working on a strategy that needs to minimize slippage against the NBBO midpoint at the time of placing the order. The alpha decays slow enough to give me an entry/exit window of 5-10 minutes. My trade size is less than 1% of the volume in the entry window. In other words, I can be quite patient/passive when I enter/exit.

    Is it possible to "predict" whether there is existing midpoint liquidity by observing the real-time TBBO data with the following method?

    If I see a TBBO data point traded at the midpoint, it indicates that there was midpoint liquidity. As a result, I would ping the midpoint with an one-share order to check whether the midpoint liquidity is still available. If the midpoint liquidity is confirmed, I would place a peg-to-midpoint order for the remaining shares with time in force of FOK(fill or kill). If the order does not fill, I would repeat the above process.
     
    Last edited: Jan 25, 2024