What happens when the lots size gets uber-big? | Forex Factory

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What happens when the lots size gets uber-big?

  • #1
  • First Post: Aug 23, 2012 3:44pm Aug 23, 2012 3:44pm
Let's just say that someone had and account balance of $5,000,000 and felt strongly about a particular move on the E/U so they decided to take out a 5% risk position matched to a 10-pip stop loss.

This would be a $250,000 bet and would require, by my calculations, a total of 2,500 standard lots in order to pull it off.

Is a single 2,500 lot trade something that the market can absorb? Or is this pretty much business as usual?

Would you have a hard time finding someone to take the other side of that type of trade? I'm talking ECN environment, not Market Market platform.
  • #2
  • Aug 23, 2012 9:21pm Aug 23, 2012 9:21pm
Quoting FXAssassin
Let's just say that someone had and account balance of $5,000,000 and felt strongly about a particular move on the E/U so they decided to take out a 5% risk position matched to a 10-pip stop loss.

This would be a $250,000 bet and would require, by my calculations, a total of 2,500 standard lots in order to pull it off.

Is a single 2,500 lot trade something that the market can absorb? Or is this pretty much business as usual?

Would you have a hard time finding someone to take the other side of that type of trade? I'm talking ECN environment,...
$250.000.000 is quarth of a yard which isn't that big but in combination with such a small stop it could have some impact when closing the trade. It always depends on: the liquidity in the market; time; pair. Such a trade during the asian session in august would impact the market for a couple of pips in your disadvantage. When it's november during the London/NY overlap and much data is coming out then the trade would not impact the market.
  • #3
  • Aug 23, 2012 9:39pm Aug 23, 2012 9:39pm
Thanks for the info Swingtrader.

Can you tell me why it is that the fall months have so much more movement? I know that August is the traditional month in which the Europeans take holiday....but I don't get why the other months get such a big boost. Is it because all the other countries needs to exchange in order to get funds back in their own currency after having shipped out so many goods for Christmas?
  • #4
  • Aug 23, 2012 9:46pm Aug 23, 2012 9:46pm
Quoting FXAssassin
Thanks for the info Swingtrader.

Can you tell me why it is that the fall months have so much more movement? I know that August is the traditional month in which the Europeans take holiday....but I don't get why the other months get such a big boost. Is it because all the other countries needs to exchange in order to get funds back in their own currency after having shipped out so many goods for Christmas?
- Shipping has almost no effect on FX because >90% is based on speculation and hedging.
- They don't have much more movement, only in the past the showed to trend more. Funds have to make a return each year and when the year almost ends people tend to wind up positions. Just as in january, people tend to take more positions after a break but don't get your hopes up. The whole year was quiet and it will continue because of the low prices of stocks in Europe and the economy is weak. The stronger the economy is the more money there is to be exchanged.
  • #5
  • Aug 23, 2012 10:39pm Aug 23, 2012 10:39pm
Most people looking to push that kinda volume would break it up into smaller orders and space it out over a period of time. They wouldn't put a 10 pip stop on it either.

If you had a $5M account, and wanted to risk 5% in one trade (because you're a clearly crazy millionaire who clearly doesn't care about his capital) then you'd probably be looking at a much smaller position, broken into multiple tickets, with a much larger stop loss.
FXGears.com
  • #6
  • Aug 23, 2012 11:59pm Aug 23, 2012 11:59pm
Getting it on is not the issue, even if you can't execute it all at once (which you would probably not want to do). In the case of a buy you could work it in by buying it up and selling it down a little less to get an average price below the market.

You would rather have trouble getting it on because if the market soaks it all up it probably means there is a seller.

The stop would be the problem. Firstly you would not want to have a stop that could be seen, secondly you would need to account for slippage.

Also if you can get it all on at once it would have to be a extremely liquid market because when they see an order go through that is too big for the current liquidity they will push the market against you just to see if you will puke.
  • #7
  • Aug 24, 2012 12:31am Aug 24, 2012 12:31am
Quoting Jack_Larkin
Most people looking to push that kinda volume would break it up into smaller orders and space it out over a period of time. They wouldn't put a 10 pip stop on it either.

If you had a $5M account, and wanted to risk 5% in one trade (because you're a clearly crazy millionaire who clearly doesn't care about his capital) then you'd probably be looking at a much smaller position, broken into multiple tickets, with a much larger stop loss.
Spot on. Theoretically, for large orders, you'd break it up and take a "cluster" of smaller trades in a predefined "zone". This would be the only way to go. With good management, you could achieve an average entry price lower than what you'd get if you tried to dump it all at once.

You would not wish to excite the market (lest it takes off without your full position in place), but you could perhaps quietly help maintain a support level(s), and keep buying off that.

If your support level fails before your full position is in, then the benefit is you don't have full exposure, and you've learned that your initial idea is not valid.

If you support a level carefully, you might even create an illusion to other retail traders, that a break to the upside is imminent (but you'd need a huge order to tickle the market like this). This could help break the trade in your favour, but it's a tactic for the big boys, not for us little guys.

I'd also be wary of buying huge all in one go and finding an all-too-willing seller! Who's the chump?

Bottom line though is that the position size you're talking about is not really large enough to massively effect the market, unless it is very dry.
  • #8
  • Aug 24, 2012 4:46am Aug 24, 2012 4:46am
Absolutely. It's not only theory, it's practice. It's mathematically proven, that by splitting up huge orders into smaller "packets", one can achieve a better average price, than by tossing the whole trade in at once.

Quoting ToeCutter
Theoretically, for large orders, you'd break it up and take a "cluster" of smaller trades in a predefined "zone". This would be the only way to go. With good management, you could achieve an average entry price lower than what you'd get if you tried to dump it all at once.
forget about tomorrow, just steal away into the night
  • #9
  • Aug 24, 2012 7:18am Aug 24, 2012 7:18am
Thanks guys. You're really helping me get some perspective on this.

The only question I've got about breaking up the orders is this...what if you're only hoping to hold the position for 20 to 30 minutes and your strategy is to hold the pair only for 20 to 24 pips (vs a 10 or 12 pip stop loss)??

If the market runs your way "enough" using such a scenario, but doesn't run much farther, then couldn't scaling in positions create the effect that the second half of your orders end up not reaching the profit target?

My thought was that it would make sense to simply break up one's balance and spread it across multiple brokers and then use software such as FX Synergy to have all the orders entered at pretty much the same time with one pull of the trigger. There are issues with that idea too though. Technology limitations.
  • #10
  • Aug 24, 2012 7:33am Aug 24, 2012 7:33am
as long as have a big TP and BE its ok, necessary for recover all stoplosses hits :nerd:
  • #11
  • Last Post: Aug 24, 2012 8:13am Aug 24, 2012 8:13am
Quoting FXAssassin
Thanks guys. You're really helping me get some perspective on this.

The only question I've got about breaking up the orders is this...what if you're only hoping to hold the position for 20 to 30 minutes and your strategy is to hold the pair only for 20 to 24 pips (vs a 10 or 12 pip stop loss)??

If the market runs your way "enough" using such a scenario, but doesn't run much farther, then couldn't scaling in positions create the effect that the second half of your orders end up not reaching the profit target?

My thought was that it would make...
Professional dealing platforms contain technology for this. See for example http://www.currenex.com/

If this is a practical problem for you, go ahead and contact a sales representative for Currenex or one of their competitors. They are sure to have people with bank dealing experience who can explain things to you.
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