Some night reading, I don't share this often. But just something for the peeps here to learn (probably won't get much traction cuz people are lazy most often). 
Your limit order is a static promise to trade at a fixed price. An informed trader, gets new information, will use a market order to execute against your stale price just before the entire market reprices. Ex: You have a limit order to buy a stock at $100.05. An informed trader learns of terrible news and knows the stock's true value is now $95. They will happily sell you all your shares at $100.05 right before the news becomes public and the price plummets. You're now fucked.
Therefore, you can't be naive. models update faster and faster, update stale price and adjust limits. MMs and traders avoid submitting their limit orders too aggressively, dynamically adjusting them based on the actions of rivals and counterparties. So, what about those big limits we see all the time? Are they flashing cheese? what's the catch?
Mostly, hedging activity. An agreed price risk transfer interbank. Could be a lot of things, but they are for sure not fully exposed/single leg trades. Someone who put up 800 lot limit, isn't that stupid (very rare). So we don't usually look at that. Most of the big money moves are broken down, icebergs, any way/shape of form to hide real size.
That leads to queue positioning. This is one of the reason why we fight for queue and new matching algos appeared in the recent decades. FIFO which is the most basic. But now, RATA, Pro-RATA, split FIFO, etc coming in trying to make marketing more efficient
for you scalpers, this is crucial. A moment of hesitation can ruin your alpha. One trade is okay, but at 10-50 trades, your pnl will show.
This should be it for now. Won't read more. Good night, and this is your alpha
• • •
Missing some Tweet in this thread? You can try to
force a refresh
