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Real Time Order Execution Class
06/29/00 12:04:55 <Threei> OK folks...
Let us start with
reminder: Stocks discussed are NOT recommendations for buy or sell.
They are picked for discussing of execution technique and risk
What's the risk on this one, execution slippage wise? (See IMAGE A) Spread is 1/32 (doesn't get any smaller). Plenty of market participants on each level. Gap between levels 1/32-1/16 - fairly tight. Sizes shown are good. Stock is SOESable for 1000 shares. All this spells low execution risk. BTW, that's how usually stocks with big float look. Often you can guess is float big or small from pure level 2 look. Since we touched this, stocks with small float tend to move faster and when they get active they make some nice movements, but usually they carry bigger execution risk.
Let's see how to get order done on GMGC. If we want to buy it here (IMAGE B) and stock is quiet SOES would be OK since we have two MMs on the ask with sizes 3K and 1100. Snet PREF to SBSH is OK too. If strong buying hits the stock and you want in right now forget 13/32 and take ISLD or ARCA at 7/16.
Now, when they gone (IMAGE C) BRUT is only option via SNet PREF or ARCA if you don't have BRUT direct. No SOES! BRUT is ECN, SOES won't work against it. Let's pretend you sent SOES order at this moment. What happens next is: your SOES can't find any MM at the offer so it stays alive for 90 seconds so if one of MMs sees it and wants to fill it, he can get his quote down to 7/16 and give you a fill. If no one has volunteered in 90 seconds order times out.
ISLD joined the offer, (IMAGE D) so you can easy take it out. Notice: if you send order ISLD buy at 7 7/16 your actual fill would be at 7 111/256. You can see it on ISLD book. Level 2 doesn't reflect 256s, but ISLD book does, so actually you get price improvement.
If you want to sell it here, you can hit ARCA at 13/32 with 1000 shares sell order and if it has reserve order you get filled for 500 plus amount of shares ARCA has in reserve, up to full amount of your sell order. If it doesn't, you get your 500 sell and remaining 500 is to be sold at 3/8. Actually, what I would do: considering strength of 3/8 bid, I would not be in a hurry to sell the rest of shares and would just wait a little to see if new higher bid pops up keeping sell at 3/8 ready. Just keep in mind that different brokers have different commissions schedule and you need to know how it works in your particular case in order to not get hit by commissions for amount bigger than you saved on better price.
To sell the rest of shares at 3/8: (IMAGE E) just hit ISLD which shows gathered bid for total 1200 shares. ARCA sell is OK too, since there are enough ECNs at the bid (ISLD, INCA, BRUT). Other options: SNet PREF to HRZG or GSCO. and SOES. Why I named HRZG and GSCO? HRZG, because they have nice size. GSCO shows enough size but there is one more reason for me to pick it: It's solid MM that fairly seldom avoids fulfilling his obligations if at all and in fact when I see several MMs with the same sizes at the price I want and one of them is GSCO, I will prefer them and my chance to get a fill is higher even on fast stock. OK, seems it's pretty much it about this one. Overall stock is fairly easy to get your order done.
The next one won't be that pretty: LGND (IMAGE F). Let's evaluate risk on this one. Spread is tight, just 1/16. Gaps are not as tight but look OK still. Not too many market participants at each level. Sizes shown are not as great, and if you watched this one earlier when it was hot you could see spread changing up to 3/8 and stock moving almost hysterically on small prints like 200-300 shares could move it by 1/4. Risk is not as low here as with GMGC. I would say, if you play 1000 shares and things get nasty on you, you can count on losing 1/2 fairly easy.
Let's see how to route the order on LGND. If you want to buy it here (IMAGE G): just 300 shares on BTRD ECN, just 100 shares shown by NITE. If you want 1000 at 5/16, all you could do: SNET PREF to NITE for 1000, All Or Nothing (AON). If you are more flexible in strategy chosen for this stock and don't mind to pay a little higher and/or have several partials you can do following: SNet PREF to NITE for 1000 shares, ANY. If he fills 100 shares and leaves to ask, you hit BTRD for remaining 900 and if it doesn't have reserve you get 300 more. Then if no one gets down to 5/16 ask for 10 seconds you send 600 shares buy to MLCO at 3/8 with good chance to get filled for entire 600 order, since MLCO is big boy and often won't mind to give you more than he shows. If all he gave you is 100 shares... oh well, you have 500 now, which is tradable lot and further events will show you to add more or to trade 500 shares.
On stocks like this timing is extremely important and if you got nice entry point and momentum drives stock in your favor you would have to sell into strength risking to miss part of the move but protecting your profits from turning into loss. Old rule: Sell when you can, not when you have to. Of course all this applies to fast daytrading stuff. If you take it as swingtrade your stops would wider and entry/exit point wouldn't have to be that precious.
<Threei> OK, let's take
questions now, since I have to leave for long weekend camping fairly soon
Let's say, there are 3 groups
Who to deal with... well, there is no set of hard rules, but understanding of who they are helps to pick your way with some experience.
<orlean> What do you
consider big float/small float?
<David> Threei, do the
wholesalers (GSCO, MSCO, MLCO...) fool around much in the
<Foggybottom> When there
are no ecns so you send order to mms how would you do that?
<jigfish> I have been
told that you don't want to make a habit of going against GSCO.....low
percentage on success....true or false
<michaelj> Is LEHM with
MSCO, MLCO, GSCO as big boys wholesalers?
<mildog> 3i, what other
avenues can mm's use to transact/hide themselves: INCA, BTRD?
<bbcc> heard a while
back that market makers would have to honor their prices within 5 minutes
of market open. Is this true or will it be in the
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