Author Topic: Smart Execution strategy for bucket  (Read 2494 times)

vladimir vaynshtok

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Smart Execution strategy for bucket
« on: September 04, 2016, 02:54:50 pm »
Hi All:

Let us say we have a good pair with 100bp   return per trade and everything else  looks great.
But  with low VOL of 100K  the  BID/ASK spreads are 100bp.

As far as I understood  Back Testing assumes Market on Close IB order and getting Close prices for  both stocks.  However there are couple problems with that. First MarketOnClose order might not be executed for low VOL stock.
Secondly if executed we do not know were it will be executed. Thus we might loose spreads on open bucket and the same on closing bucket.

Do we have any protection against loosing too much  BID/ASK spreads via  bad execution for Market On Close order or order not filled?
There are some smart execution strategies for bucket that offers some grantees ... just not quite sure if PTLab Trader uses any ?

Thank you very much

admin

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Re: Smart Execution strategy for bucket
« Reply #1 on: September 15, 2016, 12:02:08 pm »
Dear Vladimir,

at this moment, PTL Trader uses simple market orders to enter positions. For retail traders trading liquid stocks it is enough.

To protect the trader from high bid-ask spreads, the software has a simple protection - internally it uses two z-scores, one calculated from ask/bid and the other calculated as bid/ask. Then it uses the "ask z-score" as a signal to open long pair positions and "bid z-score" to open short positions. So, it basically compensates the bid-ask spread by entering at slightly more advantageous z-score. It looks at bid-ask at real-time and waits for the best moment.

But of course, if you are really unlucky, it may see no opportunity at all. So in general for illiquid markets, real trading brings less trades than backtesting, which is quite simple.

We don't use MoC or LoC orders...

In future we will also have "enterprise" version of PTL Trader with advanced execution algos (based on limit orders fired to order book, etc...). We are consulting potential options with a previous HFT trading expert. But these won't be available for retail users.

For now, you need to stick with liquid stocks to have real profits.

Vlad vaynshtok

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Re: Smart Execution strategy for bucket
« Reply #2 on: September 19, 2016, 11:34:18 am »
I see.
I guess there is one simple strategy that may make sense when 1 stock is not liquid and another is liquid.
Put a limit on illiquid and wait for exe. Once that exe then exe  liquid  at market.
In many cases that make sense.


 

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Re: Smart Execution strategy for bucket
« Reply #3 on: September 19, 2016, 04:10:53 pm »
Makes sense. I will keep this in mind while designing the advanced execution algo.