Working an Order

[teflon142]

This could be a good thread, don't let the pedantry p!ss all over it.

If I was the guy given responsibility for this, notwithstanding what JOC said, I would consider the following:

* putting a few bots to work, possibly outsourcing other bots depending on their nature and the legality
* buying SSF and holding till delivery
* buying calls and exercising
* getting funky in similar stocks

I want to say "obviously", but the truth is I have no idea whether an order like this could be done by a point and click trader. On one hand it strikes me as a massive amount of volume to pick up, but I suppose I'd have the concomitant size to swing about, and I've never been in a position to trade that way.

I wait with baited breath anything more than JOC has to say on the matter.

 

[DionysusToast]

It's not pedantry.

Executing each individual trade at VWAP or below doesn't mean you have good prices if you are the one causing VWAP to rise. So I think there's some buts & ifs even about that. Devil is in the details, right?

If you were an institutional trader, wouldn't your first port of call be trying to find a counterparty that is looking to offload shares before going to the open market? Then reporting it as a block trade?

 

[barjon]

It's not pedantry.

Executing each individual trade at VWAP or below doesn't mean you have good prices if you are the one causing VWAP to rise. So I think there's some buts & ifs even about that. Devil is in the details, right?

If you were an institutional trader, wouldn't your first port of call be trying to find a counterparty that is looking to offload shares before going to the open market? Then reporting it as a block trade?

So put it round the other way then. If you were the client what benchmarks would you want and expect him to meet.

ps: you didn't reply to my "presumption".

 

[teflon142]

It's not pedantry.

Yes it is.

Executing each individual trade at VWAP or below doesn't mean you have good prices if you are the one causing VWAP to rise. So I think there's some buts & ifs even about that. Devil is in the details, right?

The only reason VWAP has any place in this discussion is because JOC has given it credence (and it's been mentioned on CNBC, so it's gotta be legit). If he hadn't, it would be arbitrary, and we could be saying the same about some VWMA or VPOC or any other measure one might care to pick from the clouds.

I appreciate your point - there's no point in playing if you don't know how to win. But so far that's all you've said, so hurry up and sh!t or get off the pot.

If you were an institutional trader, wouldn't your first port of call be trying to find a counterparty that is looking to offload shares before going to the open market? Then reporting it as a block trade?

I had actually written that my 1st port of call would be the research dept. to conjure up some reason to sell it. Then I'd warm up the sales desk so they could get their hands on some. I deleted that reply because I thought it missed the point of the OP by a country mile.

 

[teflon142]

(Yes, it would also be illegal)

 

[DionysusToast]

(Yes, it would also be illegal)

What would be illegal?

 

[Giovan]

First I would buy a shed load of GSA futures for myself
Then I would buy the clients shares at market all in one go
Then sell my futures on the spike

As unethical as this might sound, I second you. would probably do the same

 

[tar]

As unethical as this might sound, I second you. would probably do the same

Infact illegal ...

 

[DionysusToast]

Infact illegal ...

 

[Jack o'Clubs]

So, coming back after there's been some further debate, I can only contribute to the first part of the question - how I, the client, will judge a good job has been done - because I sit on the buy side and so have the client's perspective. The bit about how you would work the order is a sell side problem, so I don't know, but certainly any reasonable size of trade you'd expect the broker to be calling round his counterparties looking for blocks, or using off-exchange liquidity pools etc.

I still think that VWAP is a reasonable target, or to put it another way at least, it's the one we use. The reason why ordinarily we would limit trading to 10% of volume is that it should be tradeable without having a market impact, so price changes from our activity should not be materially impacting our target. If a stock is relatively illiquid and I'm worried about moving the price I might give an additional instruction that I want the order pulled if the price moves more than x% in the direction of the trade.

Incidentally, a two-day trade at 10% of the volume is not a big trade by any means from the brokers' perspective so apart from the question of legality, the idea that they might ask research to issue a sell note etc, is just silly in practical terms. A trade like that is common-or-garden enough that it could simply be part of a larger programme trade, it would not get special treatment.

I'd also be interested from a sell-side traders' perspective on the detail on how they would work the order in the market.

 

[DionysusToast]

So, coming back after there's been some further debate, I can only contribute to the first part of the question - how I, the client, will judge a good job has been done - because I sit on the buy side and so have the client's perspective. The bit about how you would work the order is a sell side problem, so I don't know, but certainly any reasonable size of trade you'd expect the broker to be calling round his counterparties looking for blocks, or using off-exchange liquidity pools etc.

I still think that VWAP is a reasonable target, or to put it another way at least, it's the one we use. The reason why ordinarily we would limit trading to 10% of volume is that it should be tradeable without having a market impact, so price changes from our activity should not be materially impacting our target. If a stock is relatively illiquid and I'm worried about moving the price I might give an additional instruction that I want the order pulled if the price moves more than x% in the direction of the trade.

Incidentally, a two-day trade at 10% of the volume is not a big trade by any means from the brokers' perspective so apart from the question of legality, the idea that they might ask research to issue a sell note etc, is just silly in practical terms. A trade like that is common-or-garden enough that it could simply be part of a larger programme trade, it would not get special treatment.

I'd also be interested from a sell-side traders' perspective on the detail on how they would work the order in the market.

Which VWAP would the customer be looking at though?

Just that each execution was below VWAP at that particular point in time?

Or looking at the average price overall?

 

[Jack o'Clubs]

Which VWAP would the customer be looking at though?

Just that each execution was below VWAP at that particular point in time?

Or looking at the average price overall?

Average price for the trade to be better than VWAP for the duration of the trade.

 

[DionysusToast]

Average price for the trade to be better than VWAP for the duration of the trade.

Duh - still not clear - excuse my dumbness.

So average price for the whole position less than VWAP?

Let's say you fill it in a day. If the stock is going down in price that day, so will the VWAP, so VWAP at the end of the day will be lower than the start of the day.

So will they be looking at the VWAP at the end of the day, the start of the day or something else?

Seriously interested how they would look @ it...

 

[Jack o'Clubs]

Duh - still not clear - excuse my dumbness.

So average price for the whole position less than VWAP?

Let's say you fill it in a day. If the stock is going down in price that day, so will the VWAP, so VWAP at the end of the day will be lower than the start of the day.

So will they be looking at the VWAP at the end of the day, the start of the day or something else?

Seriously interested how they would look @ it...

Sorry, been away. So... VWAP is measured across any two points in time. Let's say I put the trade on at 10am and it completes at 3pm. My average price for the trade needs to be equal to or better than the VWAP over the same period. Of course there's a degree of circulatory because my trades are going to be contributing to the calculation, but if I'm true to my other criteria of staying below 10% of the volume it's not going to be material.

An example. I want to buy Exxon. I put the trade on at 9am US time, and it's done by midday. VWAP over that period was $93.965. Did my average price beat $93.965? If so, job done, if not stern words.

 

[theno1patrick]

I'd wait for price to drop, then post a bid of 100 lot, and slowly push price up, once someone took out my shares, I'd expect price to drop again, then I'd do the same thing until the order is filled. Or if you're hyper active bid 100 shrs at every penny at the highest rebating ecn

 

[Stargunner]

Phone up every spreadbetting firm in the country going long on sizes that don't outright cause the firm to hedge it straight out.

Place iceberg orders on the physicals in order to at least get a half decent price. If I do a crap job of it, the spreadbets will cancel out the problem.

Buy up 1 million shares, then tell the press my client has bought GSK and feels the company will do very, very well.

Close the spreadbets.

Escape the country.

Become the Wolf of Threadneedle Street and live off Quaaludes like they're cereal.