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Discussion Starter · #1 ·
I'm reading Michael Lewis' new Flash Boys book about HFT and it got me wondering how many people buy at market price? Personally, I've always put in a fixed price, usually lower than market when I buy my stocks...not that it would have helped me to avoid market manipulation any...
 

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I use limit orders (almost always) for equities and every single time for options, without exception.

I haven't read Flash Boys yet, but I don't believe you are immune to front-running by using limit orders.
Your limit is always based on a % delta from the current trading price, right?
So if there is front-running going on and/or price manipulation, the nominal value of your limit order is immaterial.

IMHO, limit orders help protect you against typical market makers shenanigans, but not against front-running or price manipulation.
 

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Discussion Starter · #3 ·
Theoretically, it should prevent front running...however I imagine that even small orders can suffer because the prices are artificially raised, so you order may never be filled.
 

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I always use limit orders. Market orders have a habit of getting bad fills for me. The HFT ripoff is not news to anyone who reads Zerohedge regularly, they have been talking about it for 5 years. It is not enough to stop trading over, but it is enough to kill day trading. 30 years ago retail traders paid higher fees, commissions, and slippage in the open outcry markets and it didn't stop trading.

A limit order can still get clipped by HFT and dark pool operations.
 

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I have rbc and cibc accounts. And I use limit orders 99% of the time. I always set limits few pennies over the market price so I don't get surprises. I noticed that with rbc di. I get filled at market price which below my limit price most the time. But with cibc. I always got filled at my limit price. Someone always made money on me at cibc.
 

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I have rbc and cibc accounts. And I use limit orders 99% of the time. I always set limits few pennies over the market price so I don't get surprises.
Over or below?
By market, do you mean the last price or the latest ask price?
Why are you setting limit price above market for a buy order?
It doesn't make any sense.

I noticed that with rbc di. I get filled at market price which below my limit price most the time. But with cibc. I always got filled at my limit price. Someone always made money on me at cibc.
That doesn't sound right, either.
The brokerage is required to get you the best price possible.
As long as your order size is equal to or less than the ask size, you should get filled at the ask price.

In the case of low volume stocks, it is possible that your bid was above the last price but below the current ask.
Then the seller lowered his/her ask to match your bid.

BTW, do you have Level II quotes?
It is absolutely essential to have that when trading.
Not being able to see the order queue incl. the individual order sizes is like shooting blind.
 

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I don't have level 2. I am still new to investing. I always put in limit order to buy at few pennies above the ask price my order will get filled. Some stocks don't have ask/bid and lots available. With rbc. My orders got filled at$xx.xx5 and below my limit.
 

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I use limit orders. I used to do market orders way back when I was young and too eager. I like to buy when the market is taking a serious pounding, and am often surprised at a buy price much lower than anticipated. I don't like the front running, but I don't feel overly harmed by it. I don't like the different levels of quotes either. Everyone should have the same information, and you shouldn't have to pay more for more detail. It isn't clear to me how they rationalize the different levels. It doesn't comport well with the idea of a level playing field.
 

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I always put in limit order to buy at few pennies above the ask price my order will get filled.
Theoretically, if you did a market order in such a case (i.e. bidding at or above lowest ask price), you should still get filled at the same price.
Limit order makes sense only if you are bidding below the lowest ask price.
If you consider the lowest ask a bargain price for the stock, might as well do market order.

Also, at the very least you need real time quotes.
The 20 min. delayed quote is no good.
 

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BTW, do you have Level II quotes?
It is absolutely essential to have that when trading.
Not being able to see the order queue incl. the individual order sizes is like shooting blind.
I don't agree. Those quotes are provided by HFTs and automated market makers. What that means is that they are a complete illusion. On top of a massive speed advantage these guys have special order types that basically mean they can flash quotes thousands of times per second while having order types that ensure their orders don't get filled. Throw in dark pools and Level II stopped being useful somewhere around 2008 is my guess.

Real time quotes I agree with - although that term is not very accurate given the huge delay between what we see and where the action really is going down in the first few hundred microseconds.
 

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I never buy at market. I think you should always use limit orders and I can't even remember the last time I placed an order at market. The biggest way to beat the HFTs though is just to stop doing any kind of short-term trading. They manipulate prices over seconds, not over days or weeks or months.

I wouldn't worry about HFT though, that whole thing has been a bit overblown. Doesn't directly impact your trades, unless you're day trading. Besides, once HFT stops ripping us off, we're still going to get ripped off by the brokers, and in fact will probably get ripped off by that "hero" from RBC they've parading all over the media. This notion that he's trying to bring fairness to the market out of his sense of morality is ... laughable. I almost spit out my drink when I watched the Bloomberg interview. RBC is drumming up business for their spinoff exchange and all the big banks are probably supporting it, since big banks are suffering due to HFT and want to see them get shut down.

Don't kid yourselves. RBC and the other big banks are not looking out for us. They have prop trading divisions, and their brokerage arms make tons of money by betting against us and skimming money out of our orders, etc. Why do you think they drive fancy cars, live in expensive mansions and have 500k to 1 mil bonuses? You don't make that kind of money just by simply serving customer orders fairly. OBVIOUSLY!

Reality check: the RBC guy in the story isn't a hero. He may have a bit more integrity than the HFT people, but this is like comparing malaria to tapeworm. They're both bad news
 

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I don't agree. Those quotes are provided by HFTs and automated market makers. What that means is that they are a complete illusion. On top of a massive speed advantage these guys have special order types that basically mean they can flash quotes thousands of times per second while having order types that ensure their orders don't get filled. Throw in dark pools and Level II stopped being useful somewhere around 2008 is my guess.
HFTs are not playing with every stock out there, esp. on TSX.
There are market makers that are injecting wide spreads in those cases.

Ultimately, investor has to determine the valuation of a security and decide what is an acceptable price to pay for it - usually that's a range within a few bps or so.
Being able to see the lot sizes and prices being ask/bid in the queue can help you get a slightly better price.
 

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HFTs are awfully annoying in US markets. Can't count the number of times I have entered a limit order just below asking price only to see the bids immediately move up a penny. James is of course right though.
 

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HFTs are not playing with every stock out there, esp. on TSX.
There are market makers that are injecting wide spreads in those cases.

Ultimately, investor has to determine the valuation of a security and decide what is an acceptable price to pay for it - usually that's a range within a few bps or so.
Being able to see the lot sizes and prices being ask/bid in the queue can help you get a slightly better price.
Even if you are not trading stocks the HFTs are using, all the market making is computerized and running software that operates in the thousands of quotes per second range.

Agreed on determining your own value and deciding on a price - that is fantastic advice and what should be the plan for every entry and exit. The exception is as mentioned above speed - if it is a very liquid security and you need to get out quickly a market order can do that for you with very little slippage on the big stuff like AAPL and SPY.

I find the L2 info to be a double edged sword - it can give you some basic information if you look up or down the book a bit further, but I always like to test it with limit orders since so much of that order book could vanish in a few microseconds if some major event happened. A few years ago I found the order book in the options space to be much more useful than L2 in stocks or futures, but as the HFTs have proliferated and market making has been automated I've seen the value of it degrade on the options markets as well.
 

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BTW - I was extremely low in terms of # of quotes per second. This entire graph shows the aggregated quotes for options for ONE SECOND.
http://www.nanex.net/aqck2/4611.html

Here is an article with a graph of the quotes just in SPY over the last few years. http://www.nanex.net/aqck2/4569.html

Granted SPY is heavily traded by the HFTs - but when you can step in front of orders risk free you tend to do it in as many securities as you possibly can.

I wish some of this type of research existed for the TSX.
 
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