[tape reading] SPI200 Futures (or Futures in General) & Algorithmic Trading?

[alwaysLearning 10]

Note: I refer to the SPI a lot in here, but you could substitute the SPI for the E-MINI S&P 500. (Same questions apply)

 

I'm still reading widely at the moment and came across something interesting. The website URL is here:

http://www.camron.com.au/algorithm.htm

 

How much of this algorithmic trading is actually going on out there do you think? Is this website quote accurate?

 

What proportion of the SPI traders would be like us--sole traders(disclaimer:I only paper trade), if you will? Are we a tiny tiny proportion of the number of conracts that get traded? (Which is what I would imagine to be the case but it doesn't hurt to gain confirmation).

 

My second question is, how accurate are thse depth of market indicators? I've read that brokers can manipulate the DOM such that the viewer gets a bluff or misrepresentation of if there is more buying then selling taking place or vice versa.

 

How widespread is algorithmic trading in all markets across the ASX? (or NYSE etc)--Is this of concern to traders like us on Traders Lab?

 

Here is a quote:

The SFE-SPI200 futures market is dominated by algorithmic trading systems.

 

The ability to recognise algorithmic activity is an essential skill for retail SPI200 traders.

During slow periods of intermitent activity, where the market maker simulates action with offset orders, filling the order book with spoof (tease) orders, a retail trader can execute an order, get filled, and 30 seconds later find themselves 8 points under water. In these modern electronic times the need for "small" retail traders to learn the art of tape-reading has increased, not decreased. It's essential.

 

The skill is the recognition of the market-maker on both sides of the order-book. Before the electronic market, "locals" performed the function of market-makers. They've been replaced by a single computer system which can populate, de-populate and re-populate the order book in a nano-second. Re-arranging the order-book instantly.

 

lone-wanderer

The lone-trader must be able to detect when the market-maker is the sole occupant of both sides of the order book ("market depth"). During this time the market-maker will know when they have filled a lone-wanderer, immediately withdrawing 10 levels from the order-book, pulling the rug out from underneath the lone-trader, testing their resolve.

 

If we were developing an electronic-algorithmic trading system, that's how it would be done.

See the screenshot below. We would know the total depth. We would know how many were ours.

If someone bought one off us at the front of the ask queue, we would pull our buy orders out, and sell 1 lot, 10 levels down, to see if the buyer had a stop entered.