IB Stops on Exchange + CME Stops

[OrderFlowDashPro]

My understanding is that with the CME that the stop orders (really stops with protection) are held at the exchange and they are given priority to any incoming order.

If true, this means that its impossible for HFT even co-located at the exchange too get better priceing then your stop losses if they are stop limit. This has been my understanding. When I place a stop market order, it shows up as blue on IB but when I place stop limit, it shows as green or exchange held when palced through 3rd party software.

However, trading through IB my stops show ups as blue in the platform which indicates they are held on IB's servers whether they are stop limit or stop market.

I will be going through the CME's information for clarity but thought I'd see if anyone knows because IB hasn't answered my request.

Here is where I've read conflicting information:

1. Blue stops on IB are actually queued at the exchange. But somehow held on IB's servers until they are sent?
2. Stop limit orders are given priority but not stop market.
3. CME only supports stops with protection.
4. Stop limit should not be used for stop because it wont be filled if it cant be filled at that price.
5. Stop market should not be used because stop limit have priority.

I will be going through the information to try to figure it out but any clarification welcome. I'd prefer for my stops to be held at the exchange and not IB's servers because if held at IB's servers then the HFT will blow the stops out.

So, what we're trying to figure out here is the proper stop loss type to use for CME ES and whether or not the IB is sending those to the exchange -- which should go before HFT or holding them which would be executed after the HFT. Also, I'd like to know how IB's stop limits work when send to CME.

 

[DionysusToast]

"this means that its impossible for HFT even co-located at the exchange too get better priceing then your stop losses if they are stop limit"

You really don't know what a stop limit order is?

You do not need to research the exchanges, you need to research what a stop limit is because it sure does NOT guarantee you any price.

Try putting in some orders on a live account to test out your theory - Ninja SIM will not have any issues but on a live market, you should fairly quickly get to understand what this order type is.

 

[OrderFlowDashPro]

The big take away from the research is that:

1. CME Globex doesn't support true stop market. There is no stop market order. Only stop market with protection which appears to act very similar to the stop limit.

2. All indications is that IB doesn't send stop orders to exchange but may send stop limit to exchange. But apparently, this behavior can differ, as well.

What we're trying to get at it, is how the stop market and stop limit orders are given priority. Because, if I place my stop say 5 minutes in advance then my stop should have priority over a co-located HFT trader. I'm not clear that it does and obviously it has to be held at the exchange for it to be have that queue priority.

From Investopedia:
An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will be executed at a specified price (or better) after a given stop price has been reached. Once the stop price is reached, the stop-limit order becomes a limit order to buy (or sell) at the limit price or better.

http://www.cmegroup.com/confluence/display/EPICSANDBOX/Order+Types+for+Futures+and+Options

Order Types:

Limit
Market order with protection
Market Limit
Stop Limit
After the trigger price is traded in the market, the order enters the order book as a limit order at the order limit price. The limit price is the highest/lowest price at which the stop order can be filled. The order can be filled at all price levels between the trigger price and the limit price. If any quantity remains unfilled, it remains on the order book as a limit order at the limit price.

Stop Order With Protection
A stop order with protection is activated when the market trades at the stop trigger price and can only be executed within the protection range limit. The order enters the order book as a limit order with the protection price limit equal to the trigger price plus or minus the pre-defined protection point range.

http://www.cmegroup.com/globex/files/GlobexRefGd.pdf

 

[OrderFlowDashPro]

This is is quite good. So, as it looks like stop orders whether stop market or stop limit, are really just stop limit. So, I'm still not clear on how the queue priority works for resting stop orders submitted in advance. I'm, also, still not clear on how IB's stop limit works which allow me to set my limit price compared to the the CME stop limit using the defined range, whether or not there is any difference.

http://books.google.com/books?id=bBqHGZ4wa0kC&pg=PA62&lpg=PA62&dq

 

[DionysusToast]

A stop order is a market order - there is no queue and no priority.

A stop limit order is a limit order that gets created when prices trade at the stop price. This is a new limit order, it is at the back of the queue. Therefore it will not get priority.

In fact, in fast markets, it is quite possible for the limit part of your stop limit order to be placed once price has passed that point. So with a stop limit order there is a chance that you will not even get filled, that the newly created limit order will hang there unfilled as price moves on.

Like I say - you don't understand these order types. Trying to "get in front of HFTs" is a futile exercise. They aren't the reason you are losing money in the first place.

If you trade a market like the ES - and you get to a price where you have a stop order, then 95% of the time you will get filled at that price with no slippage.

 

[OrderFlowDashPro]

Dionysus, please quit trying to sound authorititative on a subject which it is clear that you are not and quit trying every oppportunity too attack me with poision words. First, you accused me of not trading live and next you accuse me of losing money. Look, I know we created a better software then you. I know your customers keep clamoring for you to match our features and that you've had a hard time doing that. But just stop with the nuisances, I'm here to learn and actually improve my trading.

Maybe you should actually read what's in the CME handbook, which states right above that the CME does not support stop market orders but only stop-market with protection orders. It states right above that such a stop order becomes a limit with a protection range. And, we're trying to figure out what this means. The only way you get a stop market order is if your broker simulates it because the CME doesn't support it. But, you'll also see above that the CME doesn't true market but only market with protection.

PS: Yes, I do trade live and yes I experienced 3-4 points slippage on a stop loss order. So, yes I've an interest in understanding the details which you can't be bothered with. I'm interested in what happens in the other 5% of the time. Also, if the stops are held at the CME then how do you think a HFT trader will get the order in first? This is what we're trying to understand because it absolutely matters. If news breaks and the CME has queued your stop then understanding how that exchange stop executes is very important. If your stop isn't held at the exchange but sent when price reaches a level and it takes your broker, 300 MS to execute and it takes 10 MS for HFT to execute then it absolutely matters.

 

[OrderFlowDashPro]

So, our questions for any real experts out there:

1. How do exchange held stop market orders get executed? Are they executed in the order they were received?

2. It sounds like they are converted to stop limit orders. Would this be a correct assumption?

3. Do stops placed at InteractiveBrokers "blue orders" go to the exchange? My experience has been stop market orders show as blue "held at IB", stop limit placed within IB show as blue, but that stop limit placed in third party programs show as green.

4. What is the difference between the IB's simulated stop limit and the exchange held stop limit?

5. Within the range defined by the stop limit, how exactly does this limit order get filled? Does it get "walked up the book"... do they receive priority?

There's a lot here I don't understand at a low level, and yes I've been trading for years.

 

[OrderFlowDashPro]

Let's go back to the book, we get this

Market orders with protection are intended to avoid cascading market orders being filled at extreme prices. Market orders with protection are filled within a pre-defined range of prices referred to as the protected range. For bid orders, protection points are added to the current best offer price to calculate the protection price limit. For offer orders, protection points are subtracted from the current best bid price.
CME Globex matches the order at the best available price level without exceeding the protection price limit. If the entire order cannot be filled within the protected range immediately, the unfilled quantity remains in the order book as a limit order at the limit of the protected range. Refer to http://www.cmegroup.com for a list of the "no bust" ranges for products

.

For hypothetical purposes, if there were 1,000 orders in the book within the "no bust" range. And you put in a market order for 2,000 contracts then it sounds like you'd get matched to the 1,000 and then the next 1,000 would be entered in as limit order. The limit order will be placed at the limit of the no bust range.

Okay, that makes sense.

Stop Order with Protection (Futures Only)
Stop orders with protection are intended to avoid cascading stop orders being executed at extreme prices. A stop order with protection is activated when the market trades at the stop trigger price and can only be executed within the protection range limit. The order enters the order book as a limit order with the protection price limit equal to the trigger price plus or minus the pre-defined protection point range. Protection point values usually equal half of the Non-reviewable range. Refer to www.cmegroup.com for a list of the Non --reviewable range for products. For bid orders, protection points are added to the trigger price to calculate the protection price limit. For offer orders, protection points are subtracted from the trigger price.
CME Globex matches the order at all price levels between the trigger price and the protection price limits. If the order is not completely executed, the remaining quantity is then placed in the order book at the protection price limit.

http://www.cmegroup.com/confluence/...#OrderFunctionalities-OrderAggressorIndicator

For stop-limit and stop with protection orders, once triggered a stop order is treated as an Aggressor limit order and Fill Notices reflects this behavior.

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

----

Speculating here...
I'm starting to think based on all of this that there is no such thing as the market order. There are rather aggressor limit orders and passive limit orders. This is the part I think that is most confusing. When you enter a market order, you actually execute an aggressor limit order which has a pre-defined max limit execution price. When you enter a stop-limit order, it is also an aggressor limit order and it makes sense that they would be executed in the order they were received. And, there are also the implied orders (which may exist on the spreads).

But, what I'm thinking should happen, price trades at level X. First, what will happen is that exchange held stop-market orders are converted into stop-limit with protection orders. These are aggressor limit orders and executed in the order they were received up the limit price. Next, co-located "market" orders will be triggered -- as aggressor limit orders. Finally, as the price is registered in the feed, the brokers which are holding simulated stop market will be executed last. This is very crucial because they are behind the HFT while the exchange held orders are presumably in front of the HFT. It kinda makes sense that all the orders are the same because they are probably held in the same queue.

 

[DionysusToast]

Dionysus, please quit trying to sound authorititative on a subject which it is clear that you are not and quit trying every oppportunity too attack me with poision words. First, you accused me of not trading live and next you accuse me of losing money. Look, I know we created a better software then you. I know your customers keep clamoring for you to match our features and that you've had a hard time doing that. But just stop with the nuisances, I'm here to learn and actually improve my trading.

The fact is the premise of HFT front-running is invalid in the context of the discussion but it does seem you have something else you want to get off your chest first...

So if you want to go there... Yes, you are one of a number of copycat products that came to market after Jigsaw changed the way the Order Flow information was presented to the world.

The fact is though - the copycats are all still looking to the Jigsaw product as their roadmap. Hence any discussions about those products on-line will eventually compare it with Jigsaw. If you go on line though - how many discussions about Jigsaw even mention you and the other products? Go take a look.

You can repeat the mantra that yours is better ad nauseum. You can claim that my customers are switching to you ad nauseum. It doesn't change the facts. Fact is when you say " I know we created a better software then you" - it just goes to show you use Jigsaw as a benchmark.

Now - you really want a long drawn-out internet "argument" about it or can we actually discuss the art of trading?

Maybe you should actually read what's in the CME handbook, which states right above that the CME does not support stop market orders but only stop-market with protection orders. It states right above that such a stop order becomes a limit with a protection range. And, we're trying to figure out what this means. The only way you get a stop market order is if your broker simulates it because the CME doesn't support it. But, you'll also see above that the CME doesn't true market but only market with protection.

PS: Yes, I do trade live and yes I experienced 3-4 points slippage on a stop loss order. So, yes I've an interest in understanding the details which you can't be bothered with. I'm interested in what happens in the other 5% of the time. Also, if the stops are held at the CME then how do you think a HFT trader will get the order in first? This is what we're trying to understand because it absolutely matters. If news breaks and the CME has queued your stop then understanding how that exchange stop executes is very important. If your stop isn't held at the exchange but sent when price reaches a level and it takes your broker, 300 MS to execute and it takes 10 MS for HFT to execute then it absolutely matters.

THE TRADING DISCUSSION!!!! Not to be confused with competing order flow products.

If you have 3-4 points slippage on a stop order on the ES, then you need to change brokerages. This is not something that will occur 5% or the time or even .00005% of the time. The only way that could possibly occur is during a crash (flash or otherwise). Even a scheduled news event is unlikely to do that. HFTs don't cause 4 points of slippage. Of course, spread betting, CFDs etc are a different kettle.

The underlying premise here is that an HFT can see your order and step in first. Yet this premise has not been validated. It is in fact, incorrect.

The CME is a single exchange. Let's say your broker holds your stop. Then that stop order becomes a market order OR a limit order. Your broker would need to be in Asia for it to take 300ms for an order to reach the exchange. You say that an HFT can get there in 10ms - but how exactly would this HFT know that your broker was about to send the order?

To front-run an order, you would need to know it existed. If the order is at your brokers, then the broker would need to tell them or they would somehow need to be monitoring the connection between your broker and the exchange.

What the HFTs can see on the CME is trade execution data before everyone else - they cannot see your in-transit market order or your in transit limit order "on the way" and step in front of it. So an HFT can know about your stop triggered market order being executed AFTER it has been executed BEFORE other people know it has been executed.

Don't argue this with me though - let's get an independent viewpoint: http://www.zerohedge.com/news/2013-05-01/grand-theft-market-high-frequency-frontrunning-cme-edition (well, as independent as Zero Hedge can be)

Disparate markets like NASDAQ can have a sort of front running because price can change on one of the NASDAQ exchanges before it is caught up on the others. So they can see a price change on one before others are aware.

But the fact remains, that no-one can see a retailers 1 or 5 or 10 lot market order en route to the exchange. If they could, there would still be zero point stepping in front of it unless it was about to consume the last liquidity available at that level.

There is almost always NO EDGE in front running an order because most orders do not effect a price change.

Consider that your stop gets triggered because 1 lot trades at a level, unless your stops are where a lot of other people's stops reside, then there is usually enough liqiudity at the level for your stop to trade against. Then there is ZERO benefit in front running you because there would be no edge in front running you.

If the offer was 1850 and you had a buy market order lift 1850 and after that the price was still 1850 - anyone front running you is now offside 1 tick. Zero edge there.

In effect, this research you are doing is based on an invalid premise. That HFTs can see your order en-route to the exchange and that there would be benefit in stepping in front of it.

Changing the order type you use for exits will not materially impact your trading.

What will materially impact your trading is exiting a trade before it gets to your stop because the order flow is against you.

Now we get back to that software thing

 

[OrderFlowDashPro]

DionysusToast, I only mentioned the software because it shows your true motivation in this thread which is too create a negative impression of me behind the guise of offering friendly help.

Back to the topic, you've demonstrated your ignorance of CME order handling here at the low level. Hey, I admitted that I didn't understand these details by starting the thread. But, I didn't claim anything otherwise! I've noticed that its easy to take an authoritative sounding position on the internet and fool the unsuspecting.

More over, you've also demonstrated a complete lack of understanding of the topic which has absolutely nothing to do with HFT being able to see or front run or in anyway care about my orders.

I will walk you and anyone else who's trying to follow along through this logic and why you are absolutely wrong when you write, "Changing the order type you use for exits will not materially impact your trading. "

The scenario is that the HFT blast in market orders due to an event which would most likely be breaking news or a scheduled report of some sort.

If your stops aren't held at the exchange then what will happen is that all of this buying or selling will take place before your broker even gets a chance to get your order in. So, you'll get a terrible fill on your stop order.

If your stops are held and queued at the exchange, however, they'll be hit and you'll get filled at or near your stop price because your order had priority over the incoming HFT orders which were placed after yours. Even if that weren't the case, if your order is held on the exchange server then your orders should hit the server as fast as possible ensuring a good fill.

The above scenario is what we're critically concerned with which has nothing to do with the nonsense that you suggested. As for my 3-4 point slippage on ES, yes I agree it is rare, and I've been hit before with breaking news and never had that anything like that happen which is why its so critical that I figure this out and make sure that my stops are held on the exchange server and not on IB.

And, while I'm still looking to hear from real experts, the following represents my current best understanding:
I believe IB has a log that will show whether the order is sent to the exchange or not. I'll be looking into this. I'm assuming that the stop market with protection "exchange held" order is actually a stop limit with the limit set to the exchange specified threshold. As such, I suspect that submiting a stop-limit with the same specified threshold will act in an identical way. The data suggest that one should always use a stop-limit at IB for stop-loss because stop-markets which aren't exchange supported will be held until price is touched, submitted to exchange, then converted to the same stop-limit that would have been exchange held.

More over, from the CME's website, the concept of a "market" order really doesn't exist but rather market orders are actually "market orders with protection" which is actually a type of aggressor limit order -- that will fill at all prices up the protection limit and then, if any orders remain, will be converted into a passive limit order at the protection limit.

 

[A Dashing Blade]

. . .It states right above that such a stop order becomes a limit with a protection range. And, we're trying to figure out what this means. . . .

Dunnno what part of DT's reply you found difficult?