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Total Posts: 414
Joined: May 2012
Posted: 2019-04-10 19:10
I am looking for some papers (or data files) showing/discussing US Futures liquidity limits, for example I had a look at a text from Galen Burghardt and Brian Walls discussing sweep-to-fill market impacts and hidden liquidity in the ES market.

They find that 1000 to 5000 ES contracts could theoretically be filled in one single order during US active market hours (9 AM - 4 PM Eastern).

Is there any particular book/paper/file anyone would suggest or share on the subject, for other US Futures markets?

I am trying to get an idea of how many contracts can be executed/absorbed in a single trade, without having to slice the order (and the answer obviously will vary depending on the market traded).


Total Posts: 364
Joined: Jan 2015
Posted: 2019-04-11 16:59
The max you can fill at one time is mostly just going to be the touch size. ES almost always quotes one tick wide. Hidden liquidity isn't a significant proportion of the book at any given time. Swiping the ask (bid), especially when the touch size is large, will almost always result in a new bid (ask) level formation at that price.

You can probably juice more by using a limit order larger than the touch. E.g. if the ask is 600 contracts, then send a buy limit at the price for 1000, and let the remaining 400 rest as the new best bid. You'll be at the front of the queue, so the probability is high that you get filled. Be aware though that this exposes you to adverse selection, particularly if your resting order is large. So, in some sense you're still "paying" more in T-Costs than you are on the marketable shares.

That being said, do you have a time window where you can wait for the best opportunity, or do you have to fill at an arbitrary time?

If it's the latter, then your answer's pretty much just what the average touch size is. Unfortunately, that's gone down a lot. As the price of the S&P rises the tick size represents a proportionally smaller bid-ask spread. Therefore the paper you read is likely to be out of date unless it's very recent. The current average touch size is around 150 contracts.

If you can fill within an arbitrary window, then the answer is pretty much whatever the largest average touch size is in that window. Just sit and wait until you see a big ask before firing off your buy order. There's some complexity over the online process of knowing when you're actually seeing the largest touch, but you should mostly hit somewhere close to it everyday.

However if you approach it from this angle, be aware that you're exposing yourself to book pressure drift. In the short-run, market direction's highly sensitive to the relative size between the bid and the ask. If you're selling when the bid is very large, then most likely the market will move against immediately after your fill. Therefore this approach imposes additional TCosts beyond the normal spread.

Good questions outrank easy answers. -Paul Samuelson


Total Posts: 414
Joined: May 2012
Posted: 2019-04-13 17:57
Well, I am afraid waiting until you see a big ask/bid before firing off an order would not make a strategy very useful.

Thanks for bringing up that article by QB, I have another article from them, from 2016, which actually discusses more in depth the liquidity topic (maybe you have read it already).

They discuss hidden liquidity as resting volume available in the order book, that is not visible in market data but that can be traded against by a suitable marketable order.

There are two types of hidden liquidity:

• Direct hidden liquidity results from orders that display only a fraction of their size (“iceberg” orders)

• Implied liquidity results from combinations of calendar and intercommodity spreads. Implied hidden liquidity arises from combinations that are computed but not displayed according to the rules of the CME Globex matching engine. It is available for immediate execution by a suitable aggressive order.

They show a way to estimate both direct and hidden liquidity, using special features of CME Globex market data and they estimate the volume of trading that executes against hidden liquidity for all major CME futures products.

What do you guys think of this study?

[excerpt image below: Hidden liquidity across products in CME, The horizontal axis is the hidden liquidity refilled volume to the daily trading volume. e.g. 0.2 means 20% of daily trading volume.]

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