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In a message dated 4/13/01 10:42:37 AM Central Daylight Time, LScharpen
writes:
<< John,
I wasn't quite sure how to interpret the '16 tick limits set to stops'
phrase you used. Could you explain in a little more detail how this would
work in practice please?
Thanks
Lee Scharpen >>
Lee:
Here is the long explanation from a page I wrote on the Electronic Trading
Division web site. I would have given you the URL, the site is down due to
an ISP change.
****
These stops are not traditional stops in the sense they become true market
orders. It is possible for the stops to be elected and sent to Globex2 and
not filled. These stops become limit orders that become "Or Better" orders
16 ticks or 4 handles in the E-mini S&P and 16 ticks or 8 handles in the
E-mini Nasdaq when the order is
accepted by Globex2. The clearing firm sets this differential for the limit
order. In the case of Man Financial Inc the limit distance for the E-mini
S&P stops are set at 16 ticks or 4 whole points, also called handles in
trading floor lingo. Orders are executed on Globex2 on a first in, first out
basis, so the order will match up with the best available and eligible
opposite bid or offer, if possible.
Market orders also sent to the Order Manager server have the same limit order
dynamics. The market order becomes a bid 4 points above the last trade or an
offer 4 points below the last trade in the E-mini S&P, depending on if it is
a buy or a sell once accepted by Globex2. Nasdaq market orders are 8 point
Or Better limit
orders. Ninety-nine-plus percent (my estimate from experience) of the time
these market orders have been filled immediately. The E-mini S&P and E-mini
Nasdaq are normally that liquid.
However, during times of extreme volatility is when the anomalies occur.
Thus, the trading environment for major government report days may be ripe
for such misfires in the E-mini S&P, E-mini Nasdaq and other Globex2 markets.
This is the time when stops and stop-limits could be triggered, but not
filled.
The way to overcome these problems, other than not trading, is to use
aggressive limit orders rather than markets and to use specified stop limits.
Aggressive limit orders means that if the E-mini S&P is trading at 148500,
enter an order to buy one at 149500. You will get the best offer available
at 149500 or lower. If you don’t get filled, the order management of cancel
replacing a limit order is much easier and less complicated than having to
check on the status of a market order, canceling the market order and then
entering a new limit order.
Likewise, stop limits on the E-mini S&P and E-mini Nasdaq are supported by
Globex2 itself and are not sent to the separate stops server. Thus, you can
enter your stop price and define the limit as large as you feel necessary to
increase the probability of ensuring a fill. Again, these orders are easier
to cancel replace than elected, but unfilled, regular stop orders.
Here are some sample situations:
Example 1:
Last price trade in June E-mini S&P is 1443.25
Order entered to "Buy 1 June E-mini S&P at the market" will default to a
1447.25 Or Better order.
Order entered to "Sell 1 June E-mini S&P at the market" will default to a
1439.25 Or Better order.
Example 2:
Order entered to "Buy 1 June E-mini Nasdaq 4726.50 Stop."
Moments after the market trades up to 4726.50, the OM server obtains a last
price from Globex2 (perhaps 4727.00). Order enters system as a 4735.00 Or
Better.
Note: The price obtained by the OM server from Globex2 will not necessarily
be equal to the order's stop price. It could be higher, lower or the same.
Example 3:
Order entered to "Sell 1 June E-mini Nasdaq 3689.00 Stop."
Moments after the market trades down to 3689.00, the OM server obtains a last
price from Globex2 (perhaps 3690.50). Order enters system at a 3682.50 Or
Better order.
Note: The price obtained by the OM server from Globex2 will not necessarily
be equal to the order's stop price. It could be higher, lower or the same.
Disclosure: Depending on market conditions, there is no guarantee that a
market or stop order will be matched and executed. If the order cannot be
matched at it's defaulted limit price or better, it will become a resting
order at it's default limit price. It is also possible that an order may
only be partially filled, in which case the unfilled balance will continue to
work at the default limit price. As a result, all E-mini S&P futures market
and stop orders, and all E-mini Nasdaq market and stop orders are
accepted on a "not held" basis.
Information is obtained from sources believed to be reliable, but in no way
is guaranteed. No guarantee of any kind is implied or possible where
projections of future conditions are attempted. Futures and options trading
involves risk.
Regards,
John J. Lothian
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