Data Mining

[pedro01]

All

OK - so we know that some brokers data mine for your stop loss order to get themselves or their clients a nice fill.

We also know that by placing lots of limit orders outside of the price range, the price can be pulled up or down without placing a trade.

So - how far can data mining go and how prevelant is it ?

For instance, lets say I brought a stock at $53, it is now at $57 and I have a $53 break even stop. My broker can't simply put in a bid of $53 & snatch my stock can they ?

I guess what I am getting at is how far can data mining go ? How far can a price be pulled down in order to take you out.

Also - how prevelant is this data mining ? Does it have to be done by your own broker or can other people data mine stop loss orders that you place at your broker ?

Cheers

Pedro

 

[dcraig1]

A. Use a reputable broker such as IB.

B. There are lots of other more important things to worry about.

C. It is quite meaningless to throw about figures like $53, $57 etc without reference to a specific
market and it's liquidity.

 

[pedro01]

a - I use Tradestation as a broker. Perhpaps someone can supply some information about the practice of stop loss data mining. One of my questions is to whether only my broker could data mine the stop loss or whether it is visible to anyone outside of my broker. I am here seeking information is all. Is it only my broker that can do it ?

b - not if you are currently working on the stop-loss portion of an automated trading strategy, then it is actually quite important. On one hand, you can manually set a stop loss by constantly monitoring the price but that has the limitation whereby you are screwed if your system crashes, also I think you will encounter more slippage that way. On the other hand, a stop loss passed to the broker is safer in that respect.

c - it's quite a simple example. Unfortunately, I had not foreseen that a certified pedant would be the first to reply. Let me clarify for you:

Let's say that in a liquid market - say RIMM, if I brought RIMM at $53 and it was up to $57 on a very liquid day, let's say the price was now ranging between $56-$57. ACan the data miners get you or does the price action have to be fairly close to your stop price anyway ? Once they know my stop loss can they just match it with a bid & take me out - or do trades have to occur at that level to take me out ? If so - can they not just make a trade of 1 stock at that level to take me out ?

I do not understand the mechanics of it and I would very much like to if someone would care to explain.

 

[dcraig1]

IB's description of stop orders:

http://www.interactivebrokers.com/en/trading/orders/stop.php

In general when the last traded price touches your stop, then your stop order is converted to a market order.

Many exchanges don't support stop orders, so they are simulated by the broker. The broker is the only one who knows your stop. Eurex has native stops but they are not visible to other traders.

I quite agree that it is much better to have orders resting with your broker or at the exchange than on your own ATS.

If stop hunting does go on, it it probably more to do with anticipation of stops placed at certain prices (round numbers, pivot points, HOD etc etc) rather than knowledge of actual orders. A hard way to make a crust IMHO.

 

[spinalwiz]

A couple of details regarding movement of price:

If there are orders at a given bid/ask then Market Makers must trade at least 100 shares/1 contract at that price before moving to the next level.

Generally speaking, Market Makers can only move bid/ask by 1 ticksize at a time (i.e. 1c) - assuming there are orders at these prices.