Dumb finance question thread of the day - I'm going to try & explain how IEX's D-Limit order works below. For those who know more than me, please tell me if I'm close to right or completely off-base. Thanks in advance:
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Upside of D-Limit Order: - prevents HFT firm from profiting off latency arbitrage Downside of D-Limit Order: - doesn't really lower costs for Big Buyer which is goal in the first place
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Is this right? Am I dumb? How would you describe the D-Limit Order? I appreciate any & all feedback.
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roughly correct. note that CQ is kind of proprietary and can be implemented differently by different firms, with varying degrees of effectiveness
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it’s basically just trying to guess when the book will move first, which is kind of the whole game in hft anyways
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The goal of D-Limit isn't to reduce the cost to the big buyer. that could be accomplished by them routing so that their orders hit simultaneously. The goal for D-Limit is to protect the market maker posting on IEX from latency arbitrage when the big buyer routes sequentially
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said differently, D-Limit rewards passive market makers over fast market takers...?
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That's about it. The methodology can be changed but min price variance being enforced more by the market than anything else, the downside about someone using them to gamify the price seems expensive and liquid intensive if not impossible.
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It is the seller that benefits from posting on IEX. They may make slightly more money if the quote is crumbling as they sell. Cheaper than offering rebates for posting liquidity if it actually has a non-trivial effect.
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Need to look into D orders. but if you want a detailed expl of what the HFT's do these days, DM me
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Big fan of IEX and D-Limits, but it also comes with an opp cost to the liquidity provider / maker in lower fill rates. So great product, just needs to be used appropriately. It's not for every order / order type.
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Wait, did the firm cross the spread and come to IEX last even though IEX typically has more midpoint liquidity than other exchanges and IEX is cheaper to take (free for retail) than other exchanges. So why did the broker pay more explicit cost and avoid midpoints?
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You missed the upside for the maker, who is repriced to a better price and avoids adverse selection/neg markout - it doesn't just penalize HFT. Also you don't need to have prices at different levels at each exchange, I feel like that muddies the water in the example.
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Hot damn. This conversation gets me hard.
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