Author Topic: Less liquid markets - execution  (Read 3987 times)

r b

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Less liquid markets - execution
« on: March 26, 2015, 10:13:16 am »
Hi, I've found some pair - performing well on backtest however it is less liquid market. when using in PTL trader Z score calculation is (probably) on last prices though bid/ask is away e.g.
13.17/13.54 and last price 13.78 then Z score is incorrect. so question is how does PTL trader execute trades ... engine is checking bid on one side and ask on another and calculate Z score ?

And how is it with volume - does engine wait until there is sufficient amount of shares on both sides ? E.g. there is 10K leg for pair (market price is 13.50 ~740 shares) however there is only 400 shares at present bid or ask price, would the engine execute trade partialy and then again when sufficient amount is available or it waits until full value for leg is available?


admin

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Re: Less liquid markets - execution
« Reply #1 on: March 26, 2015, 01:45:35 pm »
Hi, I've found some pair - performing well on backtest however it is less liquid market. when using in PTL trader Z score calculation is (probably) on last prices though bid/ask is away e.g.
13.17/13.54 and last price 13.78 then Z score is incorrect. so question is how does PTL trader execute trades ... engine is checking bid on one side and ask on another and calculate Z score ?

The z-score indicated in the application is really calculated from last prices, however the trading engine works also with bid/ask prices in this way:

It calculates internally all z-score variants:
  • using last1, last2
  • using bid1, ask2
  • using ask1, bid2
  • ...

And for entering short position, it takes the lowest z-score out of them, for long position it is the highest z-score.

I agree for users trading low liquidity pairs this is a bit misleading, we plan to improve the indication in one of the next releases.

And how is it with volume - does engine wait until there is sufficient amount of shares on both sides ? E.g. there is 10K leg for pair (market price is 13.50 ~740 shares) however there is only 400 shares at present bid or ask price, would the engine execute trade partialy and then again when sufficient amount is available or it waits until full value for leg is available?

Not yet, PTL Trader just fires market orders without looking at volume for now. We are thinking about improving this in the future. Anyway, for trading stocks with at least 100k daily volume it works good enough (there is usually more hidden liquidity than what is indicated in bid/ask prices or in the level2 info). I advise to avoid trading stocks with less than 100-150k of avg daily volume.

If you intend to trade higher amounts of capital and you want more sophisticated execution, drop me a private message. We have a partner providing enterprise level executions using their own software and they integrate with our platform.