1. The Eighteen Martial Arts of Ordering
At 2 a.m. in the cryptocurrency trading group, Zhang just posted an emoticon: "Market orders are like skydiving, and limit orders are like fishing." When Bitcoin plummeted last month, he quickly used a market order to buy the bottom, but ended up slipping $300, costing thousands more than expected. The neighbor Wang placed a limit order and waited for the transaction to be completed at the moment of the pin, and Zhang was envious and jealous.
In the US stock options market, the order types are even more mysterious. I know a veteran on Wall Street who always has eight order windows open on his computer: stop-loss orders to prevent crashes, trailing take-profit orders to lock in profits, iceberg orders to hide big orders... Once before Tesla's financial report, he placed 20 orders with different conditions at the same time, just like a hunter laying a net. As a result, the stock price took a roller coaster ride that night, and his order group automatically harvested more than a dozen fluctuations, making a net profit of tens of thousands of dollars.
2. Order Attack and Defense in the Secret War
Case 1: Tesla's "fishing enforcement" A market maker piled up 5,000 sell orders at Tesla's price of $230, all of which were hidden "reducing positions only" orders (Iceberg Orders). Retail investors looked at the paper-thin sell orders and thought that a breakthrough was imminent, so they bought at the market price frantically. As a result, for every 50 lots eaten up, the system automatically added 50 lots, and the price was always stuck at 230. When the options expired, these bulls found that they had been tricked by a "false breakthrough" and all the option premiums went into the pockets of the market maker.
Case 2: Bitcoin's "ghost sniping" There is a group of mysterious quantitative players on the Deribit exchange who specialize in "Fill-or-Kill" orders (either immediate execution or cancellation). When Bitcoin was sideways, they placed such orders at ten levels at the same time. One early morning, a large investor's market sell order swept the market, instantly activating three levels of FOK buy orders, and 300 BTC were eaten before the price could react. These orders are like lurking piranhas, specifically biting prey that swims carelessly by.
3. The “Zhang Liang Plan” of Order Strategy
Blitzkrieg (U.S. high-frequency trading) : JPMorgan Chase's algorithmic team has a unique skill - using "immediate-or-cancel" orders to blitzkrieg. They will launch hundreds of IOC orders on the Tesla option chain at the same time, and withdraw unfulfilled orders within 0.01 seconds. On Christmas Eve one year, they picked up cheap chips in the light market by relying on this trick, and two days later, the financial report announced a net profit of 8 million US dollars.
Guerrilla tactics (wild ways in the cryptocurrency circle) : A Southeast Asian trader invented a "chain of stop-loss limit orders". For example, when the current price of Bitcoin is 80,000, he will place a stop-loss sell order at 79,500, and a limit buy order at 79,300. After the price drops and triggers the stop loss, he can buy it back at a low price when it rebounds. This trick has been tried and tested in volatile markets, but in October last year, when the market plummeted, the stop-loss orders were triggered in a chain, almost destroying his account.
Buddha's Heart Sutra (Life-saving Technique for Old Leeks) : It is said that there is a legendary old lady in Chicago Options who has been trading only at the "Market-on-Close" for 20 years. She places orders 10 minutes before the close of the earnings report day to take advantage of the final price fluctuations. Although she can't make a lot of money, she is stable. In her words, "Trading is like making soup. If the fire is too strong, it will easily burn. Only when it is simmered slowly can it be delicious."
IV. Survival rules in the order world
1. Liquidity is king :
Tesla option bid-ask spreads are usually within $0.1, so it is OK to use a market order. However, the spread of some Bitcoin alt options can reach 20%, so it is the right way to place a limit order. I once saw a young man using a market order for a contract with poor liquidity, and ended up spending $25 to buy a $10 option.
2. Time Magic :
Don’t use market orders half an hour before the US stock market opens—market makers haven’t finished their coffee yet, and quotes may be erratic. Bitcoin players should avoid sensitive periods when Chinese and US regulators speak out, as exchanges often go haywire during this time, and orders can easily get stuck in a different dimension.
3. Order combination :
Experts love to play with "OCO orders" (one executed and the other cancelled). For example, when the current price of Bitcoin is 80,000, set a take profit of 80,500 and a stop loss of 79,700 at the same time, just like double insurance for the transaction. Last week, someone used this trick to take advantage of the sharp rise and fall of the Fed's interest rate hike, and made two waves of profit.
4. Hide your cards :
Large orders must be hidden. Last year, a fund exposed 2,000 buy orders in the Tesla options market, but was counterattacked by its opponent using a "capture order algorithm," raising costs by 15%. Now they have learned their lesson, and large orders are broken into smaller ones, like secret agents carrying out secret missions.
5. The tuition fees we paid in those years
One night when Bitcoin plummeted, a wealthy man used a market order to buy the bottom, but the exchange system was stuck and he submitted the order three times. By the time he realized what was happening, he had 3,000 more Bitcoins in his account, but the price was still falling. When he finally sold his money and left the market, he lost the down payment on his villa.
There is an even more outrageous story: A U.S. stock novice set the "stop loss order" to a "stop loss market order", and Tesla happened to crash during the trading session. When the stop loss order was triggered, liquidity dried up, and the final transaction price of the $50 stop loss order was $35, and he lost all his pants. Now he keeps telling everyone: "Stop loss orders should be set with limit stop loss, this is a bloody lesson!"
6. Next Issue Preview
Tomorrow we will unlock "Margin and Risk Parameter Monitoring"
After-class tasks :
Test the differences in execution of three order types (Market/Limit/Stop) on a demo account
Observe the Tesla options chain and find the contract with the worst liquidity experience
Leave a message to share the coolest order combination you have ever used
