No way to get to know your order before it is placed. But it is possible for execution algo’s that are at Colo to place an order as soon as yours gets placed on the exchange. From the time your order gets placed on the exchange, it will take a few milli seconds (0.001second) before it updates on your market depth as you connect via internet. But the algo’s at the Colo can potentially execute orders in micro seconds (0.000001 second) and hence you might feel as if the order was placed just before your order. In low volume stock, there might be people using these execution algo’s to buy/sell with as little impact cost as possible. So these algo’s might be wired to place small quantities at best bid or best offer all the time.
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@nithin
Thanks for the detailed reply for my previous question regarding account size.
I have a doubt regarding what you said about impact cost. Have any one done any study on this in Indian context- The effect of impact cost on strategy implementation. Also if I am doing some paper trading to analyse effectiveness of a trading strategy and I want some some simple methods to understand effect of impact cost on this strategy. What would you suggest? Will adding a certain expense component serve the purpose. If yes how much would be the optimal expense component(in percentage size of trade or so).
You can look at the contract your are trading to figure what typically impact cost could be for the size you are trying to trade (bid - ask spread). You can add that spread to your expense.
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@nithin hi, I have tried discretionary trading before and have failed terribly . So I am trying to develop a rule based system. I was working on a strategy in NSE equities (intraday). I got some back test data and tried to simulate random combination of back test data over 1000 times. When I keep expense below 0.2% simulation output is great(across a number of simulation). But when it goes above 0.3% we get some negative cumulative sum periods but overall still good. Above 0.4% and above it is totally negative. But one confusion I am facing is that the system assumed entry at open price of the day which is very difficult for a retailer like me. Due to sharp volatility. So how should I take impact of entry price in this case? Should I take it as normally distributed noise. I mean in long run negative impact days and positive impact will cancel out each other or should I treat it as negative all ways in which case. the system will be terrible in real market condition?
At open price is tough to catch for anyone, not just retailer. Many times at open price are stray ticks that you may never be able to catch. Maybe it is a better idea to look at weighted average price of the first min of trade as part of your strategy (if you are taking positional trades, maybe even first 5min average). If you are relying on Kite for candles, an average of OHLC for the first minute. Maybe then you can assume that in the long run, the negative and positive impact days will cancel out each other.