2013issue C0327
Taking liquidity to offset HFT queue priority
Faster participants can reach the front of the book first, so later resters often miss the inside increment. The archive workflow treats that lost queue slot and the bid-ask spread as one implementation-cost problem: take the posted quote, then screen for names whose inside spread is already tight.
- Faster participants can reach the front of the queue through speed, special order types, or subpenny pricing, so later resters often miss the inside increment.
- Taking liquidity, buying the offer or selling the bid, removes dependence on winning that queue race. The spread paid is the explicit hft-toll for the change.
- A liquidity filter that favors names already quoting a one-cent inside spread is the screen used to keep that toll small.
- Testable pairs-trading rules and a planned same-session hold were treated as more useful than market-center proliferation or a weaker standalone closing-auction strategy.
Queue position and the spread are one cost
Faster participants can reach the front of the order queue first through speed, special order types, or subpenny pricing. Later resters often miss the inside increment.
TradersWeek editorial reading: treat queue position and the bid-ask spread as a single implementation-cost problem. The hft-toll is the extra implementation cost non-priority traders pay when faster participants reach the front of the queue first.
Take the posted quote instead of joining it
Taking the posted quote, rather than joining it, is presented as the main style change that removes dependence on winning that queue race. Taking liquidity means buying the offer or selling the bid so a fill does not depend on resting at the inside quote first.
The spread paid when taking liquidity is the explicit toll for that adjustment. The procedure therefore favors names whose inside spread is already very tight.
Keep entry rules testable under live constraints
Pairs trading is a rules-based long-short procedure whose entries, exits, and abstentions can be tested as one system under live execution constraints.
A planned same-session holding rule is treated as a different procedure from older unplanned day trading, because high-frequency queue pressure and subpenny pricing forced the change.
Opening-only play concentrates risk around the open rather than holding a rest-of-day inventory plan. Opening-only procedures were still in use among the strongest desk traders and were described as having become more workable again after a weaker stretch.
Older standalone plays were judged weaker
A closing-auction strategy is a signal that trades published close imbalances. Usefulness is judged by whether the market still leaves a testable edge after costs. Close-imbalance procedures were judged weaker than in earlier years as a standalone system, even if watching a familiar stock list could still show some patterns.
Market-center proliferation is the growth of extra matching destinations whose advertised differences may collapse once national best-price rules apply. A glut of those destinations was not treated as a proven edge, because national best-price rules make systematic venue differences hard to keep.
Cash buffers cut carrying costs
Larger cash buffers in trading accounts were highlighted as a way to cut interest and other carrying costs over a year, with a doubling from 25000 to 50000 used as the illustration.
All readings on this track · 10 readings
- 2003Listed auction accommodation and open-book execution
- 2004Reading auction signals to choose an open, a close, or a VWAP path
- 2006A leftover clock that licenses offset-only market-at-close
- 2007Carry-adjusted index premium for auction execution
- 2008Two clocks on a public small-cap membership reset
- 2008Opening gap limits and close imbalance orders
- 2010Closing auction snapshots, fair value and pivot levels
- 2012Listed auction imbalance and market-on-close execution
- 2013Taking liquidity to offset HFT queue priority
- 2014Sizing opening and closing auction orders to volume