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Improved fills for long term not time sensitive equity strategies

Improved fills for long term not time sensitive equity strategies

Some strategies are not intraday time critical, if the stock is expected to rise 2x inside a year, it does not matter materially if the stock is purchased 9:55 AM or 11:55 AM
however, for thinly traded stocks, if a strategy has 100 followers, 100 market orders even just a few hundred shares, will move the market momentarily because the market makers have not stacked up enough bids and asks to take the sudden surge in volume. They or their algos might detect the coordinated action early on and just back away, giving many of the copiers a pretty bad fill, only to reduce the spread afterwards, leaving copiers with bad expensive fills. All because everyone sent market orders at the same time to a thin(ish) market.

A normal fund or home office that wanted to enter a similar trade, would put in orders for say 500 or 1000 shares and fire them off at random points in time during the day, filling perhaps 50 orders of 1000 shares, getting 50000 shares without getting bad fills.

a collective2 similar setup would send 50 orders of 1000 shares all at once and after the first few 1000 share orders have cleared the ask, the rest would perhaps be filled at really bad prices, possibly a 2% or 5% or 10% or more loss due to rapid fire emptying of the level2 ask (in case of buys) combined with algos and market makers backing away when they see lots of stupid money coming in

It would be very nice if the trade leader had an optional order type that indicated to the autotrade systems that this order should be filled inside XYZ minutes, but sent from each account at a random point in time inside this XYZ minute window.

This would mean that instead of the ask being cleared by 50 orders of 1000 shares inside seconds, the ask would get time to be filled up in the several minutes that was between each of the random trades. from the various accounts. people would, as a wole, get much better fills.

I think if such an order existed, it would be possible to handle larger amounts of NAV that was following a infrequently trading strategy in lowish volume stocks, and it would make people following such a strategy make more money, as they did not risk exhausting the ask in level2 when buying (and bid when selling)

people running a strategy would then be able to mark a trade as (random timed entry, 300 minutes) for instance, if they feared that they, and all their followers would trade through the inner spreads if they came to the market all at once.

Right now, traditional funds and home offices have a giant advantage over collective2 funds, as a traditional fund can use algo orders to go long over a period of time, avoiding busting the ask. A collective2 trade leader and his followers have no way of avoiding that, except if the trade leader himself split up his trades - but then everyone would also have their trades split up, and that would multiply their fees as each trade usually have a fixed fee.

Interactive brokers have some algo orders that can buy shares during the day witohut overwhelming the order book, they might be used instead of handling things at collective2.

another way that might also work would be to allow the trade leader to have partly filled limit buy orders to stay longer in the markets, and allow trade followers to also use limit orders. This would make a buy limit @ $11 order create a wall of say 100 buy limit orders @11, but these would then stay there all day, and probably be taken out over time, would not move the markets materially in the short term, like 100 buy market orders would.

This could be done by having an order type made specially for this, where the trade learder marks a buy such that it will stay a limit order till EOD even if it is partially filled, and auto trading systems should do the same, buy limit EOD

The downside with the limit solution is that there is a risk that some followers will not get filled, thus more tracking error. price might never get back to the limit price set.

The downside with the market at random times solution is that there is a risk the market moves in general and people get filles at prices that are somewhat different than the price the trade leader got. However, this risk is already here, if a trade leader has a decent following and they all throw market orders at a thinly trading stock, many will get pretty bad fills. probably much worse and much further in a bad direction from the trade leader than the case where trades are spread out over time.

A third solution is not to trade in thinly trading shares, or to set really low limits to the number of people you as a trade leader allow to copy your trades. It’s just a pity if you have to limit to 10 followers, 1M AUM when a random-timed-buy apporach might be able to handle 1000 followers, 100M AUM

It would be possible to offer these kinds of trades as an experiment and evaluate if subscribers lose less to bad fills with these kinds of trades.

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That’s some good points. C2 should work on improving the basic things like order types and getting good fills. Instead C2 has added all these not too useful features like smart portfolios. Even C2 Star seems to have been a bust. Almost no system is able to stay in C2 Star for more than a few months.

It’s improving the basic things that will add long term value to C2 rather new gimmicky features.

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