John W Elite    Posts: 654 Joined: 10/11/2012 Location: Sydney, NSW, Australia  User Profile | Originally written by edowns on 3/14/2013 12:55 PM 2) Our trades are a TINY percentage of the market. Even with about 400 users in OmniVest, unless some people are trading multi-million dollar accounts (which I doubt) we are very unlikely to affect the market at this point.... I see a lot of concern in this thread without a whole lot of empirical evidence... Ed, I think there is empirical evidence that if OV trades its position all at once that it is likely to affect the price of smaller traded symbols and as OV grows this is likely to become more pronounced. I had a stab at this on Feb 8 Post #23570 http://www.omnitrader.com/currentclients/omnivestforum/thread-view.asp?threadid=4277) and also on Jan 24 Post 23195 http://www.omnitrader.com/currentclients/omnivestforum/thread-view.asp?threadid=4243). If my numbers below are wrong re the average OV account size then please adjust my attempt at quantifying this so that the empirical data is better. On 8 February I wrote: "In another thread on January 24 I mentioned that in the Russell 1000 I ran an OmniScan to find out how many stocks on average traded less than 1000K, 2000K and 3000K per day [e.g. Avg(C,14)*Avg(V,14) < 1000000]. I’ve run that again today and there were 44 in the less than 1000K category, 156 in the less than 2000K category, and 258 in the less than 3000K category. Using my belief that 3% is the maximum to trade before the price starts to move then 3% of these 3 categories is 30K, 60K and 90K respectively. So let’s take the higher example, the 3000K/day traded stock. At the moment there are 400+ members in this forum. Let’s imagine a really popular strategy is followed by 50% or 200 OV users. Let’s imagine the average account size is 50K, and that 10% or 5K is the normal trade size. So at a particular time 200 OV users place 5K on stock ABC at market open (or the next bar open on a real time strategy), and sell it another few days (or bars) later. This is more than 3% of the daily traded volume to be placed by a group of OV users acting as one at one point in time. My belief is that this will cause a gap in the price for the 258 stocks in the less than 3000K category, bigger gaps in the 156 stocks in the subset trading less than 2000K and even bigger gaps in the smallest 45. My other belief is there will be the fall off in performance of the particular OV strategy in play in the smaller symbols lists because now the group of OV users trading this strategy as one will experience a gap up when they buy and a gap down when they sell, lessening returns over time. It’s not hard to imagine that some people trading OV may put on larger trades than the $5K example, that the number of OV users could exceed 1000 or even 10,000 (one competitor claims more than 65,000 members!), and even hedge funds and other big players may be attracted to OV. The 100K traded on single stock could grow massively which will cause many of us to re-evaluate our returns on smaller symbol lists. If the number of users using OV jumped to 1000 then the cut off in my example is 6500K and only the top 500 stocks have the possibility they will avoid some form of slippage caused by OV users acting together. At 10000 users only the top 62 stocks escape the possibility of OV induced slippage if we all act together as one! In summary I'm saying that it may be a waste of time building a slippage model for a single account. There won’t be observable slippage caused by that single account, just gaps and future performance issues in smaller lists in particular. The way that I’m hoping Nirvana plans to combat this is to consider adding many more strategies and introduce other data sets such as futures and options, even FX and different time frames, even other country lists, limit orders and other Elite strategies offered by others to keep growing the universe of available alternatives so that as the number of members in OV grows the risk of opening gaps is kept manageable so as not to damage the future performance of OV. Nirvana could also introduce random small purchases throughout the day in the same manner as the big players in the market, and also could limit membership or the number of strategies to be traded. Ed has already mentioned some of these alternatives so I’m firmly in the camp that the guys in the control room at Nirvana have a path mapped out, and over time the building blocks will come together." John [Edited by John W on 3/14/2013 6:55 PM] | |
