Slippage on Central Exchange

[rightbyleft 10]

i can understand slippage, with an unregulated market, with multiple market makers,

but at a central exchange how does that work?

 

specifically a limit order on the price ladder, suppose news event

such that many buyers and few sellers. now if you have a limit order to

sell, each step of the ladder has to get filled before the next price increment

up... or am i wrong in that assumption? otherwise, it would be like

waiting in line, and someone cut in front of you... so what is the reason?

wether or not there is an imbalance of buyers and sellers,

each price level has to be filled in order, right?

[NetTecture 10]

::or am i wrong in that assumption

 

Exactly that you are.

 

Every relevant ORDER has to be filled. Not every step may have orders, and expecially not in enough volume to get you executed.

 

I suggest watching the YM futures contract - it is not exactly a HEAVY market compared to the ES. Then watch before major news, and you will be surprised. I have seen the next 5 steps of the latter in each direction consist of less than 10 contracts TOTAL, normally you have 40-50 on one price each.

 

If there is noone on the other side, for the matching price, then the price can gladly move without.... any trading.

[rightbyleft 10]

::or am i wrong in that assumption

 

Every relevant ORDER has to be filled. Not every step may have orders, and expecially not in enough volume to get you executed.

 

 

yes every order needs to be filled, so why the slippage, if the step does have an

order placed?

[NetTecture 10]

::or am i wrong in that assumption

 

Every relevant ORDER has to be filled. Not every step may have orders, and expecially not in enough volume to get you executed.

 

 

yes every order needs to be filled, so why the slippage, if the step does have an

order placed?

 

Because the order needs a matchuing opposite order.

 

If you have a stop, it is NOT in the ist of orders to execute at the stop price. Once a trade (the first) happens at the stop price, the trigger is removed and the stop order turns into a MARKET order. It goes then into the END OF THE LIST OF ALL MARKET ORDERS.

 

If at that point there are more market orders in the list than limit orders on that price, the opposite orders get eaten up, the price moves and then you execute.

 

Example: You have a stop at (YM taken, nice points) 9500. There are 51 asks to sell there. Price is triggered - your stop (of 1 contract) turns into a market order, there are (without new asks coming in) a maximum of 50 now there (because one had to sell to trigger the stop. If you go into the end of the list of market and limit orders (and where you go there may depend how old your stop is - older stops have priority) at position 60 (all one lot, to keep things easy).... you dont fill at that price... because the price od 9500 is eaten up by the orders in front of you. Now, if the market is really thin, the orders in front of you may eat up a couple of ticks.

 

Trick here is:

* Your stop turns market order and goes into the end of the trade list.

* Stops are evaluated in historical orders, so someone putting his stop in BEFORE YOU.... gets into the market before you.

* I am not sure how that is handled for modified orders. Would be fair to put a modified order to the end of the list, at least when it contains a price change.

 

Slippage naturally happens when the amount of orders triggered and processed in the market overwhelms the resistance price.

 

Seriously, this is not something for a technical laboratory - that is total beginner stuff. Get a book like "Trading Futures for Dummies".