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While I don't do much of it anymore, I've traded during the pre-market and after hours for almost 20 years. These were usually earnings announcements with short term liquidity. This question has to do with lack of liquidity.

Suppose the quote is $44.95 x $45.00 with a size of 8 x 5. I hit the ask to buy 500 shares at $45.00 . As fast as I click buy (milliseconds), the quote disappears and there's no fill. If I cancel the order, the $45.00 ask quote reappears. What I don't get is how someone posting a price can get out of the way if I'm a taker (buying at the ask or selling at the bid).

I can't think of any kind of counter party algo order that would prevent a fill nor do I understand why the counter party quote disappears and then reappears as soon as I cancel my order. Why bother with the blink? Anyone have any ideas?

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Read 'Flashboys' That is one of the order flags he mentions as being legal but wholly unnecessary to functioning markets.

As far as I can tell, there are two possible explanations:

  1. Those shares aren't also available for sale in another pool that the HFT algo has acces to at a price that would make the trade profitable at the time you try to execute.

  2. By cancelling their ask order, your order becomes the high bid. This movement could trigger other order ask order cancellations and/or bait buy-side algos up to higher bids (and subsequently higher asks).

(I saw #2 A LOT in crypto markets. A big market maker would issue out a lot of asks in succession, once the market was in a comfortable bid/ask and this market maker would cancel all of the asks, buy all the remaining up to a gap in the order book, and place a new huge bid as a "sell wall." This pulls the price higher. All of the competing algos and traders would adjust up to this new sell wall and now there is captive liquidity X% higher than the units were just bought for. I don't know if this kind of thing is considered market manipulation in traditional markets, but it certainly takes place in the crypto-wild-wild-west).

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    As I understand it, some ECNs offer rebates TO takers to entice order flow. HF traders post 100 share orders on either side to obtain disclosure so they can front run via other ECNs. Even if some of the volume in my Question's quote was due to phantom orders, I should at least be getting filled on 100 shares (BATS or equivalent). Keep in mind that this is off hours and there is no activity or liquidity, no second to second price change or order movement. Nada. There's just the posted quote. Again, how do they get out of the way of my order when the two of us are the current market? – Bob Baerker Dec 8 '18 at 14:26

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