Quote:
Originally Posted by PeterFM As I understand it, a major order may have to be filled in stages due to the need to keep a level of secrecy or simply due to the available orders resting in the market. |
Agh, I vowed I'd sit out on this thread but Peter, I always liked your posts, so briefly...
"As I understand it, a major order may have to be filled in stages due to the need to keep a level of secrecy or simply due to the available orders resting in the market."
Yes - all you're trying to do is lever in a large position at the best possible price. Hiding identity and size is crucial to this.
Getting into position might be done over minutes, hours, days or even weeks, and accordingly different tactics are required depending on your size.
There are many ways of doing this - averaging being the least proactive. If you're trying to leverage in at the best price, you're only after one thing - liquidity. You either generate your own liquidity by convincing everyone price is heading one way, or you head for existing pools - aka banks of orders.
And even once you've decided how, there's the small matter of execution; it used just to be iceberg orders and not a lot else. Nowadays there are hundreds of execution algos for this very purpose, all operating with a minute edge and with the aim of disguising how big an order really is, and to minimise price going against you. On the flip side, there are hedge funds reverse engineering those algos to determine trade size (and therefore extent of informed trades)... but that's another ballgame.
If you as a retail trader follow suit and average in as well, what are you doing? OK you're literally front running, but to what advantage?
Hope this helps a little