Hi all, I am trying to figure out how the orders are matched and filled on the exchanges, esp. NASDAQ and NYSE, esp. the interaction of order flows and orderbook. Where do I read about these things? Please give me some pointers! Thanks!
This is a little pricey and may not hit the target exactly but I found it helpful when pondering similar questions...
That is a fine book, but it's more about theory of markets as opposed to specific rules. There won't be anything in it about how your order is routed if you cross the market with a 5000 share order on BATS vs. a 5000 share order on EDGX. I'd suggest looking at each specific venue/ECNs website for routing details. Here's a bit from nasdaq: http://nasdaqtrader.com/content/marketregulation/regnms/rash_strategy.pdf
I've just been going over a lot of your posts ... you really seem to have a knack for asking a lot of non relevant questions ... you don't think this info is going to make you any money were you ? :eek: Just watch charts for a few months, tons of them, in realtime, untilll they start to speak to you ... but then I found other people have said that too before, and you it doesn't seem that you were listening then ...
Ouch, you hit me right on the nose! :=) I am exploring various trading strategies from various perspectives... and I have followed previous advice of course. Thanks everybody on this board!
I find the OP's question highly relevant - how can you expect to profit from something that you do not understand? How can you profit from an actioning process if you do not understand how the market agrees upon a price? Inherent to this is the process of actually price matching. To think you can be profitable on the long term from just watching charts is naive; if you do not possess the necessary curiosity you'll never progress - that's true in trading as well as any other aspect in life.
I would agree. As my trading has evolved, I no longer exclusively scalp small moves from the orderbooks, and often enter exclusively based on the chart; nonetheless, having the knowledge I have of orderflow trading allows me to be more precise with getting my fills and lets me reduce slippage. I often save several cents on entry and exit, compared to someone who just looks at the chart and puts in stop orders. Would the chart trades work without that? Sure, but those few pennies over the course of a year add up to what is likely a 5 digit number. Real money. To the original poster, I think the way to do it is to watch a slow moving, low volume thin stock, that's not priced too highly, and experiment with crossing the market with different venues and seeing which routing strategies get you the best fills in different situations. Even if you can find a published guide, likely the information will be dated or somewhat inaccurate. I'll give an example. I once sent in a 5000 share BATS limit order, crossed down to 45.95, when the best bid was 46.26. This was a very thin, gappy stock. At 46.25, there was a very large bid on New York (40,000+ shares). At 46.26 there were 300 shares on NSDQ. What happened to my order was the following: 300 shares went to NSDQ at 46.26. 3500 shares went to the NYSE bid at 45.25. 1200 shares got filled at 46.95 on the bid there on ARCA, despite the fact that there were still over 40,000 shares left on NYSE at 46.25. What BATS does, with its cyclone routing strategy, is automatically send a percentage of the order (25% i'm guessing) to ARCA. Since the best bid was 46.26, not 45.25, reg-nms does not mandate that all my stock get filled at 45.25 even though the bid was there. So I was a victim of a bats-induced arca trade through. However, if I'm trading JPM or BAC, I'll often cross with BATS because on those thick stocks, having X% of my order get sent to Arca, and Y% to NSDQ, automatically, is generally useful. It should be noted that Arca now routes to depth of books on different ecns, but only sometimes, so what happened to me may not happen again. Regardless, this kind of knowledge can only be attained by experimenting. Even if a certain ECN says it works a certain way, that's often not the case.
Thanks Carbonator and NY0BScapler. Does anybody know the format of Nasdaq order flow/update? I was wondering what's the definition of "market order" and "limit order" from the perspective of Nasdaq order flow? And when the orders are matched, what's the precedence rule, esp. when market order and limit order appear on the same order flow update/message?