estimate Fill Ratio dependency on the Latency in orders execution for a HF strategy, what would you do ?

(Last Updated On: April 20, 2011)

aIf you need to estimate Fill Ratio dependency on the Latency in orders execution for a HF strategy, what would you do ?

I run back-testing on e-mini S&P500 and the software takes 100% fill ratio (for my limit orders) by default which is unrealistic for a HFT. The fill ratio should depend on the speed of execution and the size of orders, but how it can be estimated before real-money tests ?

How do you simulate a fill?

For simulations based on trades:
* You get a complete fill on your limit order when your limit price is traded
* You get a complete fill at your limit price as soon as a better price is traded
* You get a partial fill at your limit price as soon as the a better price is traded with the fill size the traded size.

Or do you have market depth data you can use?

est with a 1 lot , only assume fills when the price is breached. If your system still works trade live.

et’s say, I have Omega TradeStation and I don’t have market depth data. So the only situation when I can be sure in a full fill of the limit order is one when the order was generated “relatively” (to be defined) long before the trade occured (so it was actually in a queue) + the next price after the trade was better than the price of the trade (which means the limit orders of that price were executed 100%). In all other cases the order – in reality – might be executed partially or not executed at all due to too big latency in the route … Is there a chance to find a kind of 3D empirical graph linking actual latency, order size and fill ratio? Yet, there is also a time of the session parameter

Great! This is exactly the way I usually do it. I run optimization of the limit order price and then take the number of trades (frequency) from the “more distant limit price” set of parameters while the profit per trade – from the “less distant limit price” set of parameters. Multiplication gives an adjusted TotalNetProfit. Still the problem remains if there is a need to increase the size (for instance, for a business plan) or to move into HFT area. When frequency is high the role of latency becomes too uncertain/important.

You might like this paper:

Order Book Simulator and Optimal Liquidation Strategies.
Su Chen, Chen Hu, Yijia Zhou

Click to access 2010p8.pdf

If you enjoy modeling, you could define a limit order flow model, simulate the orderflow and the orderbook, and tweak parameters untill the limit data you have and the simulated equivalent match.

If you go low latency then Tradestation is not the best tool.

ight you are. I used to work with it on slow strategies. It’s like old shoes – they do not work any more, but you still love them.

where did you get those rules? Any market practitioner would reason that you cannot blindly assume near-low-latent limit order execution. @Alexei, yes 100% (absolute) fill is unrealistic for HFT. The low-latency objective seeks to reduce slippage for flash traders. Flash traders are not seeking limit orders. Understand the assumptions in HFT. Separately, the fill-ratio is demand-supply, volatility dependent. Speed of the LIMIT ORDER’s execution would become increasingly significant in a increasingly active/volatile market, where the market is deviating from idle/low volume&volatility to active/high volume&volatility, esp. if you consider market makers moving the the price away from its center during low volume (less) and during high volume (more) periods. If I am mistaken/wrong, please provide citations / papers :: links.

NOTE I now post my TRADING ALERTS into my personal FACEBOOK ACCOUNT and TWITTER. Don't worry as I don't post stupid cat videos or what I eat!

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