I'm developing a strategy that places limit orders for stocks prior to the market opening. If the opening price is more favorable than my limit price, will my order execute at the open price as reported by the exchanges?
You're better off waiting a few minutes until after the open, because the market orders sitting there overnight will send the stock up and down ridiculously, which is usually more irrelevant to where the stock will be going for the morning than later bars. Wait a few bars to see where it goes after it sets up the wacky opening range bar. Try to look for breakouts of the opening range, those are much more meaningful.
Thanks, Stefan. Actually, I will like to take advantage of wacky prices at the open. This is not a high frequency strategy and I am willing to wait to be filled at a good price. If the opening price is even better than my limit price, I want to be filled at the open price, otherwise my order will remain parked and I may or may not get filled later in the day. It's okay if the market runs away from me. What I am struggling with is proper understanding of the opening cross, the distinction between consolidated price and primary market price, as well as the distinction between NYSE, Nasdaq, and ECN behavior at the open. I'm new at this and have not found a good explanation of these concepts. Have been testing with the IB paper trader -- deliberately placing buy orders far above the previous close and unfortunately I am not getting filled at the opening price. Sometimes the fills are 2-3% away from the open price. I don't know if this is a quirk of the paper trader. Maybe my expectations are incorrect. I thought any order placed before the open is eligible to participate at the opening price or at least very close to the open price. I don't want to place a limit-on-open order because I don't want it cancelled if it does not fill at the open. I will accept my limit price at any time during the day. But, if the open price is better than my limit, I want in at that price. By the way, my definition of "opening price" is the price I see from my end-of-day quote provider, Quotes Plus. Comments appreciated.
I use the Instinet or Nasdaq ecn for my limit orders. You may have to look at what's happening in the premarket before the open. Say If I put a buy limit order in the premarket, and for some reason the pre market price comes down and hits my limit order, I will get filled during pre-market hours no matter what, before the open. From that point on, the price could fluctuate until it opens so I wouldn't be capturing the open price if I get filled during the premarket. I'd use the limit-on-open order, and then if it gets cancelled, just enter a regular limit order at your desired price. At least if you use a limit-on-open, if the opening price is better than your limit, the order takes liquidity and is a marketable order, and you get filled at a better price. If the pre market decides to tank below your buy limit order, you'll get filled as it tanks past it, and you'll get filled at a higher and unfavorable price than the open. I'm not really aware of any other way to do this... Is this a gap fading strategy?
This is not a gap fading strategy. It is just a strategy that buys weakness and sells strength regardless of whether the weakness/strength is at the open or at any other time of day. Any particular reason for using the Instinet or Nasdaq ecn for limit orders?
Well I usually only trade nasdaq stocks, it's the best ecn in terms of liquidity for that because it's the most popular. it's the fastest as well for nasdaq stocks.
Are you referring to INET? Is there some other Nasdaq ECN you're also referring to? I'm looking for other routing possibilites, too - checking out EDGX, and also NITE and CSFB, but it looks like NITE and CSFB are more market makers than ENC's in the same sense as Arca or Inet. I could be very wrong here as I just started trying to find out more about these in the last couple of days.
For NYSE in order to get the opening print you need to make a limit, time in force OPG (opening). With that you get the opening print of the specialist if your price is lower than the open print for a sell and higher that the open print for a buy. When the open print is done your orders eitheir filled or cancelled. You can have a look at this NYSE opening auction on the NYSE website. This is only for NYSE, no ECNs. BTW, you can smart route your orders, IB sends OPG order automatically to NYSE. Ho, and forget the paper trading account for the first 5 minutes of trading. Also, I dont know for other markets, but the opening print is not what you see on shitty stock charts or on Yahoo. Theses "opening" prices can be 100 shares "pre market" on an ECN because it's consolidated data. If you thought you could profit by those unreal open 1$ away from the real open, sorry it was an erotic dream. Look at the time and sales an you will see. I personally wasted months of work because of that, thinking I was a genius. I got it, it's the holy grail... one more time. See you next time.
trader56, Instinet or INET was aquired by NASDAQ. In my level II it says NSDQ as the ecn, but it's really just the old INET, merged. That's why it's so big and liquid, it where the majority of shares are traded outside of the market makers, heck they add liquidity alot to it too, it's anonymous.
For NYSE stocks 1-2 minutes prior to open have look at the NYS Full Book. If the stock is news effected or likely to open with big gap it is likely to give you a fair idea. Place you bid/offer thru NYS you may get a good price. I don't really think paper trading will help since fluctuations can be wild; rather try with 1 lot size. For NASDAQ stocks it is relatively easier and can be judged from level2 activity. I trade much betting on the open print if you have any stock to discuss just post it here.