I'm trying to run a market making strategy. I'm posting limit orders on both sides of the book , at the end of the day my broker sends a summary of how much bough, sold and sold_short and the volumes and average net prices of each. It never fails that I always lose money on the sell shorts but usually make money on the sell longs. Security Side Quantity Net Price BYND Buy 8623 133.118137 BYND Sell -3438 -133.125702 BYND Short -5067 -133.039272 Why might this be? The uptick rule only applies when there is a 10% drop in price that day, isnt that right? I have authorized my broker to remark sells as sell shorts if my positive is not net long when the order arrives, could there be some latency in this remarking process? Seems unlikely as its designed for HFT. I checked the Reg SHO faq on this and it has some applicable remarks but its not entirely clear Question 2.4: How should a broker-dealer mark an order where the seller is net long for only part of the order? Answer: A seller may be net long a security but wish to sell additional shares of that security in excess of the seller's net long position. For example, a seller may be net long 500 shares of a security but may wish to sell a total of 600 shares of that security. Under such circumstances, only 500 shares can be sold long, and the remaining 100 shares must be sold short. ... "Thus, the order must be marked to accurately reflect that part of the order is long and part of the order " Question 2.5: How should a broker-dealer mark an order where the seller is net long 1,000 shares and wants to simultaneously enter multiple orders to sell 1,000 shares each? Answer: Rule 200(g)(1) of Regulation SHO states that "[a]n order to sell shall be marked "long" only if the seller is deemed to own the security being sold pursuant to paragraphs (a) through (f) of this section and either: (i) The security to be delivered is in the physical possession or control of the broker or dealer; or (ii) It is reasonably expected that the security will be in the physical possession or control of the broker or dealer no later than the settlement of the transaction." Further, Rule 200(c) of Regulation SHO provides that a person shall be deemed to own securities only to the extent that he has a net long position in such securities. Thus, we remind sellers that where a seller is net long 1,000 shares and simultaneously enters multiple orders to sell 1,000 shares owned, only one such order would constitute a long sale. After the long sale order is entered to sell the 1,000 shares, it is no longer reasonable to expect that delivery can be made by settlement date on additional orders to sell the same shares. In addition, under Rule 200(g)(1) of Regulation SHO, a broker-dealer must mark only one order as "long" and any additional orders as "short." Question 2.6: Is a broker-dealer required to re-mark a pending sell order if, although the order was correctly marked based on the seller’s net position at the time of order entry, the seller’s net position in the security has changed prior to execution such that the original marking is no longer consistent with the seller’s net position? Is a broker-dealer required to re-mark a pending sell order if the seller increases the quantity or changes the price of the order? Answer: Rule 200(f) provides that, in order to determine its net position, a broker-dealer shall aggregate all of its positions in a security. In addition, if a broker-dealer is using independent trading units for net position calculation, each unit is required under Rule 200(f)(2) to determine, at the time of each sale, its net position for every security that it trades.[4] As long as a broker-dealer marked a sell order accurately based on the seller’s net position in the security at the time of order entry, an unchanged, pending sell order does not have to be re-marked to reflect a change in the seller’s net position in the security after order entry but prior to its execution. However, if the pending sell order is cancelled and replaced, any new sell order in the security must reflect the seller’s net position in the security at the time the new order is entered. A broker-dealer must not mark a new sell order based on the seller’s net position at the time the previous, cancelled sell order was entered. In addition, if a seller increases the quantity of a pending sell order, the resulting modified order will be considered to be a new sell order that must be marked by the broker-dealer to reflect the seller’s net position at the time of order modification. Thus, the broker-dealer may not rely on the initial marking of the sell order, prior to the increase in the quantity of the order, and must re-mark the order at the time of entry of the new sell order reflecting the increased order quantity. A broker-dealer is not required to re-mark a pending sell order if the seller decreases the quantity of the order. Any modification to the price of an order to sell a covered security, including displayed orders, marked “short” or “short exempt” under Rule 201(c), while the short sale price test restriction of Rule 201 is in effect with respect to that covered security, should be considered a new order. As a result, a trading center’s reasonably designed policies and procedures should prevent the execution or display of the new sale order marked “short” at a price that is less than or equal to the current national best bid. In addition, a broker-dealer would need to identify, pursuant to its reasonably designed policies and procedures, that the new order is at a price above the current national best bid at the time of submission of the new order to a trading center in order to mark the new order “short exempt” under Rule 201(c). See 17 CFR 242.201(b); 17 CFR 242.201(c). Is it worth trying my strategy without going short, or marking the orders before I send them? I dont really like that idea,because I need to go short when I dont have any inventory because making markets one usually has limit orders on both sides of the book
%% Plenty of reasons for that/assume volume is good &equal. Longs tend to be >orderly+ shorts more disorderly.Also depends on the day; sqqq is not pulling back much @ all today/ so have to used the IBD[investors business daily] rule ''don't quibble over a quarte + miss the move'' SDOW is pulling back but stuck mostly in a 30 cent range, so also depends on the market. AND its a bull market uptrend; no wonder your longs do better...…………………………………………………………………..
Great observations.. BYND has been pretty volatile.. 6 months ago it was pretty much ranging all day on equal volume buy and sell, now its all over the place. I should look into trying this on QQQ instead, and also add at least some directional bias to it, order imbalance seems a good indicator, as it is now, I assume I have no idea where the price is going , just trying to earn the spread.
%% QQQ is in an uptrending bull market until proved otherwise; many use a 200 day moving average/me 2. Also since summer tends to sell off in spy/dow; looks like we are still over due for a good correction AUG/SEPT. Good points. NOT a prediction...…………………………………………...
Even in an uptrending market, there are still many of sellers, or else no one could buy. Maybe the sellers aren't even on the wrong side of the market, just closing out positions to take in others. I'll add in the ability to model a drift in the price diffusion
I borrow them from my broker. If the stock is on the easy to borrow list I dont have to do anything, its automatic. If its not, I need to request a locate the day before, indicating how many shares I need to reserve for shorting
You need to ask your broker how short vetting is implemented and if it may cause delays. Do you measure latency in acks for long vs short sells?
Yes, im formulating an email to send them about it later. I have it all stored but I havent analyzed it in detail yet, I will do that soon.
Even after I fixed the bug of my algo reacting to itself I still get good fills on long positions and bad fills on shorts . Perhaps I need to buy inventory and maintain that to sell instead of selling short