Working an Order

[barjon]

OK, your client has asked you to buy 1m shares in GSK (average daily volume 5m) and given you free rein to fulfill that order for him.

1. How do you think your client is going to judge whether you have done a good job for him?

2. How are you going to manage that order?

 

[Emini-mouse]

OK, your client has asked you to buy 1m shares in GSK (average daily volume 5m) and given you free rein to fulfill that order for him.

1. How do you think your client is going to judge whether you have done a good job for him?

2. How are you going to manage that order?

First I would buy a shed load of GSA futures for myself
Then I would buy the clients shares at market all in one go
Then sell my futures on the spike

 

[China Diapers]

Does the client give a maximum price they are willing to pay? I think the client will judge you on the average price they end up paying and whether it is above or below what they expected.

I would execute the order in smaller chunks so as not to alert other market participants that somebody with deep pockets was buying up GSK.

 

[China Diapers]

Does the client give a maximum price they are willing to pay? I think the client will judge you on the average price they end up paying and whether it is above or below what they expected.

I would execute the order in smaller chunks so as not to alert other market participants that somebody with deep pockets was buying up GSK.

So the opposite of what emini-mouse would do, because I'm a nice guy

 

[barjon]

First I would buy a shed load of GSA futures for myself
Then I would buy the clients shares at market all in one go
Then sell my futures on the spike

..................and hope you'd made enough to compensate for losing a client.

 

[barjon]

...............I would execute the order in smaller chunks so as not to alert other market participants that somebody with deep pockets was buying up GSK..................

so what might you see in the price action while this was going on?

 

[China Diapers]

I like to think it looks something like this:

http://www.trade2win.com/boards/trading-journals/183492-breakouts-back.html#post2285616

Price bobs up and down in a range as the buyer doesn't want to bid up the price too high

This is something I am quite interested in as I am not always sure if these patterns actually represent accumulation or not.

 

[China Diapers]

It's bit like me being careful how many posts I make so I don't end up on the top 10 posters of the week list

 

[tar]

First I would buy a shed load of GSA futures for myself
Then I would buy the clients shares at market all in one go
Then sell my futures on the spike

Is there GSK futures ?

 

[barjon]

I like to think it looks something like this:

http://www.trade2win.com/boards/trading-journals/183492-breakouts-back.html#post2285616

Price bobs up and down in a range as the buyer doesn't want to bid up the price too high

This is something I am quite interested in as I am not always sure if these patterns actually represent accumulation or not.

........including false break-outs, maybe

 

[China Diapers]

dbpheonix had a thing or two to say on the subject. I have his book which I hopefully will get round to reading at some point.

Here's something I am wondering, what happens when you see one of these patterns in the forex market, are we to believe somebody is hoovering up all the Yen in existence. You would have to have pretty deep pockets.

 

[DionysusToast]

OK, your client has asked you to buy 1m shares in GSK (average daily volume 5m) and given you free rein to fulfill that order for him.

1. How do you think your client is going to judge whether you have done a good job for him?

2. How are you going to manage that order?

Over what period of time?

 

[Jack o'Clubs]

OK, your client has asked you to buy 1m shares in GSK (average daily volume 5m) and given you free rein to fulfill that order for him.

1. How do you think your client is going to judge whether you have done a good job for him?

2. How are you going to manage that order?

Assuming the client doesn't have specific orders, the usual target will be to beat (or at least meet) VWAP while trading max 10% of volume. So in this case you'd need two days to execute the order. The client may well want it done in a day (which should be possible with minimal market impact, generally below a 3rd of volume is feasible), or have specific price instructions (ie 'close').

 

[China Diapers]

Assuming the client doesn't have specific orders, the usual target will be to beat (or at least meet) VWAP while trading max 10% of volume. So in this case you'd need two days to execute the order. The client may well want it done in a day (which should be possible with minimal market impact, generally below a 3rd of volume is feasible), or have specific price instructions (ie 'close').

Interesting, thanks. It's good to be reminded every now and again that I know next to nothing about how financial markets work.

 

[ZEN archer]

OK, your client has asked you to buy 1m shares in GSK (average daily volume 5m) and given you free rein to fulfill that order for him.

1. How do you think your client is going to judge whether you have done a good job for him?

2. How are you going to manage that order?

vv

 

[Shakone]

OK, your client has asked you to buy 1m shares in GSK (average daily volume 5m) and given you free rein to fulfill that order for him.

2. How are you going to manage that order?

I'd start by short-selling GSK

 

[DionysusToast]

OK, your client has asked you to buy 1m shares in GSK (average daily volume 5m) and given you free rein to fulfill that order for him.

1. How do you think your client is going to judge whether you have done a good job for him?

2. How are you going to manage that order?

Apart from the fact that you haven't specified the duration over which you have to make this transaction of 20% of total daily volume, you have a more fundamental issue.

In any business, you cannot make a customer happy without knowing what benchmarks they will use. "Good Job" is a totally subjective term.

Whilst VWAP has been mentioned and is most likely the benchmark that would be used - it would be foolish to take on a job for someone without first understanding what they would consider to be a "good job".

 

[barjon]

Apart from the fact that you haven't specified the duration over which you have to make this transaction of 20% of total daily volume, you have a more fundamental issue.

In any business, you cannot make a customer happy without knowing what benchmarks they will use. "Good Job" is a totally subjective term.

Whilst VWAP has been mentioned and is most likely the benchmark that would be used - it would be foolish to take on a job for someone without first understanding what they would consider to be a "good job".

Oh. come on, toastie, that's a bit picky isn't it if you read the post properly.

I didn't specify the client's benchmarks because the idea was for you to say what you thought they would be (ie: how he would judge you).

I'd be thinking that my client would be wanting the order satisfied as quickly as possible and near the current price. As the client, I reckon I'd be pretty happy with Jack o'Clubs if he brought it in in a day or two below VWAP - in a day, below VWAP and near (or below) the maintaining price when I put the order in and I'd be buying him a beer - much above VWAP and he'd be off my Christmas card list.

Jack o'Clubs hasn't said how he would work the order to achieve this and it's maybe interesting to speculate on what "footprint" clues he might be leaving in the price action (and/or order book). After all, buying pressure is more about what's waiting in the wings isn't it?

 

[DionysusToast]

Oh. come on, toastie, that's a bit picky isn't it if you read the post properly.

I didn't specify the client's benchmarks because the idea was for you to say what you thought they would be (ie: how he would judge you).

Nope - not picky. Just realistic.

I'd be thinking that my client would be wanting the order satisfied as quickly as possible and near the current price. As the client, I reckon I'd be pretty happy with Jack o'Clubs if he brought it in in a day or two below VWAP - in a day, below VWAP and near (or below) the maintaining price when I put the order in and I'd be buying him a beer - much above VWAP and he'd be off my Christmas card list.

That proves my point. You would look at VWAP at the price you called your broker, set that as a benchmark, not tell him and be unhappy because you didn't get it.

VWAP is a moving target. Expecting to be filled at or below the VWAP at the time you make the call is unrealistic.

Jack o'Clubs hasn't said how he would work the order to achieve this and it's maybe interesting to speculate on what "footprint" clues he might be leaving in the price action (and/or order book). After all, buying pressure is more about what's waiting in the wings isn't it?

No he didn't. He said he'd try to buy below VWAP which is a moving target - that does not mean the average price would be below VWAP at either the time the customer made the call or below the VWAP at the time he called the customer to say it was filled.

 

[barjon]

Nope - not picky. Just realistic.



That proves my point. You would look at VWAP at the price you called your broker, set that as a benchmark, not tell him and be unhappy because you didn't get it.

VWAP is a moving target. Expecting to be filled at or below the VWAP at the time you make the call is unrealistic.



No he didn't. He said he'd try to buy below VWAP which is a moving target - that does not mean the average price would be below VWAP at either the time the customer made the call or below the VWAP at the time he called the customer to say it was filled.

toastie

It's a bit of a red herring argument we're having . The point of the thread was merely to get people thinking about what sort of performance criteria traders would be working to in managing such a large order, how they might go about working it and how what they are doing might show up in the price action.

I presume that if you knew there were a large number of ES buy orders waiting hidden in the wings then you wouldn't be too keen to be on the short side and quite keen to determine when those orders would likely come into play.