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It almost never makes sense to use a fill or kill order in markets where
Immediate or Cancel or Minimum orders are allowed. The general objective in
using a fok is to get immediate "satisfaction", minimize transaction costs and
leave no "inventory" for the locals to "lean on"...... to not leave an order
that a trading crowd or specialist could lean on. I would have the same view
of an AON order......which IMHO is also a really foolish order.
If you objective is to get an immediate fill...the first question is would you
take a partial fill.
If you want to buy 100 at 5 1/2 would you accept 50 at 5 1/2? If so why not
place an order to buy 100 at 5 1/2 with a minimum of 50. An FOK or an AON
doesn't allow a partial. Additionally almost every trading crowd I know on any
exchange views FOK or AON orders as used by "fools" who will be back in the
case of the FOK or is just plain stupid in the case of an AON.
The fundamental question is what do I want to accomplish and how do I best
manage the balance between my broker and the trading crowd. Do I want
immediate..then the choices are IOC..immediate or cancel or FOK.....IOC allows
a partial and cancels the balance....the physiology of the crowd with an IOC
allows a trader with inventory to fill at least all or part of your order.
Let's take the buy 100 at 5 1/2. A trader in the crowd has just bought 50 at 5
1/4...they could fill 50 to you at 5 1/2 for a quick scalp. If your order was
a FOK or AON they can fill nothing. In fast markets it is also simply too easy
to fill a FOK, especially if it represents a size that the traders would assume
"has to come back" and trader....they kill the order and wait for you to
return....remember they "trade" for a living and have to stand there and
trade...you've just demonstrated anxiousness and they may very well assume
you'll be back. If it is an exiting trade in a derivative where an expiration
is pending or open interest can be measured it is even worse, because the
telegraphing of you NEED is even greater.
If you trade a market that is so illiquid that an FOK is the only way to keep
the crowd honest than your broker is really doing a rotten job of representing
your order OR you ought to consider not trading an instrument with that kind of
illiquidity. I used to trade the High Beta options on the NYSE and the quality
of the Specialist was so poor that the only way to keep him honest was to
exercise the options early(which on paper is a rotten idea...but the market
quality was so poor it made sense in this case)...my way to keep the specialist
honest was to pull the open interest away thru the exercise process.
BrentinUtahsDixie wrote:
> RT's
>
> I would like to here some ideas about when it is appropriate to use Fill or
> Kill orders.
>
> Thanks,
>
> Brent
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