Techniques For Getting Better Prices 🎯

Hey everyone! 👋

Last week, we posted an idea about the three main order types that market participants use: Market orders, Limit orders, and Stop orders.

This week, we thought we’d take it a step further, and discuss some of the more advanced techniques that professional traders use to get better prices, using those three order types. 🎯


Technique 1: Use Limit-Thru orders instead of Market orders 📈

This is a popular technique among traders in nearly all scenarios. If you’re looking to “take” liquidity (you’re the aggressor in the trade), using a Limit-thru order is almost always a better option than using a Market order. Limit-thru orders are so-named because they are Limit orders - “I would like to purchase shares at this price and no worse” - but the aforementioned price is above the best offer.

For example, Let’s look at AAPL again. Let’s say the stock is bid at $175.01 and offered at $175.03. A buy Limit-thru order could be priced at $175.05. A Limit order like this is “thru” the price of the best offer, and is thus “marketable”.

The reason that Limit-thru orders are often better than market orders is because of market microstructure.

If you place the Limit-thru order as described above, then you might not get a full fill, but you won’t pay drastically more than you expected. With a market order, the market maker might fill you on your first set of 100 shares, and then move up offers on other exchanges where you get the rest of your fills.

The BATS exchange is closer to Manhattan than the NY4 datacenter, which houses a lot of the bigger exchange servers. This means that your order may hit BATS before the other exchanges. If a market maker knows that there is buying interest in something, they will fill the first 100 shares of something, then out-run your order to other exchanges that have more liquidity and potentially move up their offers, getting you a worse price.

This doesn’t always happen, but the way the markets are set up allows for antics like this. Pros will often use Limit-thru orders (where the order price is offer+0.02c, for example) to sidestep these issues. The same is true when reversed for selling assets.


Technique 2: Work your orders. 💪

Fun Fact: The Orderbook you see may not be the real Orderbook. It’s true!

When it comes to the market for any given security, there are two types of limit orders: “Lit” orders, and “Dark” orders. When looking at the depth of market, you are only seeing some of the picture!

Sometimes, there will be hidden orders in between the price you want and the price that’s shown. By placing your order within the spread, it’s possible to get better prices than you would have otherwise from dark orders / pegs / etc.

Additionally, if you place your order in between the spread, you become the new best price on your side. This may encourage someone looking to take the opposite side of the trade to come and meet you where you are. This is especially true in options markets where spreads are often wide and slow moving. Working your orders (posting them, and moving them around) will almost certainly get you better fills than hitting the best posted price on the other side of the trade.

Just make sure you don’t miss the move while waiting to get filled!


Technique 3: Use the Orderbook to your advantage. 🧾

It’s rare when it happens, but occasionally non-sophisticated market participants will “show their hand” in the market. This typically involves one large lit limit order that sticks out like a sore thumb in an orderbook. If this person begins to signal aggression, you might be able to score an awesome price on the assets you’re looking for.

For example: Let’s say that you’re looking to buy some AAPL stock, and you pull up the orderbook (depth of market). From here, you can see that there’s a massive sell limit order that is slowly moving it’s price lower and lower in an attempt to get filled. This kind of obvious sell pressure can lead to a significant price move as the market front runs all of the liquidity the whale is looking for. This may continue for some time until the whale starts getting paid. When this happens, the stock has likely found a local area of demand, which is probably a much better price than what you were expecting when you pulled up the order ticket. Bottom line, it can make sense to take advantage of these situations if you see them before sending out orders.

That’s it! Some tips and tricks for getting better prices using orders and the orderbook.

-Team TradingView 💘



If you missed it, this was the beginner idea from last week: