CME Matching Algorithms - Algos, HFT, Bots Advantage with LMM algorithm!

Eurex

Active member
105 5
Hello Everybody

First link i should have visited and read before any Tape Reading books or videos. Below links from CME displays advantages to MM and priority to them in order book and algorithms.

Read whatever you like in below links and post anything useful you find.

Market Makers - http://www.cmegroup.com/confluence/display/EPICSANDBOX/Market+Makers

Matching Algorithms - http://www.cmegroup.com/confluence/display/EPICSANDBOX/Matching+Algorithms

Lead Market Maker (LMM) Matching Algorithm

Lead Market Maker (LMM) is a designation given to CME Group authorized market makers. The LMM status provides special consideration in order matching.

An LMM order at the same price level as the top order will receive the LMM match percentage allocation before the top order allocation. LMM matching rules apply first and top order matching rules apply thereafter. An LMM order can also be a top order.

A top order that belongs to an LMM will be matched first and will not be included in the following calculations:

If the LMM has a single order at an elected price level it will match N% of the remaining incoming order quantity, with N equal to the LMM's allocation percentage. However, the matched quantity will not exceed the LMM's order quantity.
If the LMM has multiple orders at an elected price level, then the LMM quantity is aggregated and will match N% of the remaining incoming order quantity. Multiple LMM orders are matched on Time Priority basis until N% quantity allocation is fulfilled.

All remaining resting orders at an elected price level (including LMM orders) are matched according to FIFO rules.

If the LMM has a single order at an elected price level it will match N% of the remaining incoming order quantity, with N equal to the LMM's allocation percentage. However, the matched quantity will not exceed the LMM order quantity. If the LMM has multiple orders at an elected price level, then the LMM quantity is aggregated and will match N% of the remaining incoming order quantity. Multiple LMM orders are matched on Time Priority basis until N% quantity allocation is fulfilled. All remaining resting orders at an elected price level (including LMM orders) are matched according to FIFO rules.


Good Luck Trading!
 

DionysusToast

Legendary member
5,963 1,499
Realistically, none of this is going to have any bearing on your trading.

Don't get bogged down in the minutae
 

Eurex

Active member
105 5
Realistically, none of this is going to have any bearing on your trading.

Don't get bogged down in the minutae

If you saw ES past few days it was exhibiting a particular pattern on chart only broke it yesterday.

What i'm looking for is how to find where they are positioning and whats their order size they exhibit before breaking a level. or flipping a order or where are limit orders resting which they go for.

When a limit order is placed on DOM the Total limit order volume ath that price changes immediately it flashes then keep oscillating looks to me a sign language used to communicate to the algos via DOM wheres the latest addition of limit orders.

If MM can get a guaranteed %age of limit order fills before FIFO then its a definite advantage for them.

Good Luck Trading!
 
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OrderFlowDashPro

Member
76 9
Eurex, CME has different matching algorithms for different markets. I could be wrong but I believe ES is always FIFO matched and not pro rata. Other markets may use pro rata matching. As such, I'm inclined to believe this doesn't apply to the ES. Maybe someone else can clarify or could contact CME directly.

I'm pretty sure they have a list of all the markets and the matching algorithms that those markets use.
 

Eurex

Active member
105 5
Eurex, CME has different matching algorithms for different markets. I could be wrong but I believe ES is always FIFO matched and not pro rata. Other markets may use pro rata matching. As such, I'm inclined to believe this doesn't apply to the ES. Maybe someone else can clarify or could contact CME directly.

I'm pretty sure they have a list of all the markets and the matching algorithms that those markets use.

Some good find.

Adverse fills for limit order side is because of the resting hidden Icebergs and following order qualifiers.

The priority in queue is unchanged for the red colored ones

Order Modification CME

Market participants may modify the following open order parameters:
Reduce Quantity
Increase Quantity*
Price*
Stop Trigger Price*

Executing Account Number*
Side*

Life Expectancy
Customer Type Indicator


Minimum Quantity
Maximum Displayed Quantity


This implies that HFT can spam the market with orders and change above parameters Reduce quantity or Min Quantity Max displayed Quantity to get an edge.

Spamming the DOM ahead of everybody and then reducing the order quantity can give them a priority in queue.They had bigger lot size, speed and algos to place such orders and get a fill before anyone else!

That's why as the price moves around in DOM the Best Bid Ask becomes thin. HFT most of the time reduce quantity and not increase quantity so as not to lose there priority in queue.

Even if i place an order 2-3 Handles above where DOM is not even visible limit orders are not filed on touch because they are resting orders way above and below the market and they utilize In-Flight Mitigation (IFM) This optional parameter for order modification has the goal of preventing orders from being overfilled.

Which can be very useful if HFT are ms faster than their peers which gives them a definite edge in using IFM!

Good Luck trading!
 
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