A Simple Passive-to-Aggressive Limit Order Execution Rule
Summary
The document outlines a basic execution algorithm for working a buy or sell order. It begins by checking that the best quote can absorb the order, then describes joining the same side of the spread with a passive limit order. If the order remains unfilled or prices and order imbalance suggest adverse movement, the trader switches to an aggressive limit order across the spread and follows the market as needed.
The tick-by-tick rules use elapsed time, quote movements, and imbalance as triggers: after five minutes, or when conditions turn adverse, passive orders become aggressive; aggressive orders are canceled after ten minutes or repriced as the market moves against them. These are illustrative thresholds and signals rather than validated settings. The document gives no performance data, detailed handling for partial fills, or safeguards for volatility, liquidity changes, and implementation costs, so the rules need testing and adaptation before live use.
Key ideas
- A passive order joins the best bid for a buy or best offer for a sell to seek price improvement.
- Elapsed time, adverse quote movements, and order imbalance can trigger a switch to aggressive execution.
- An aggressive limit order crosses the spread and may be repriced to track further adverse movement.
- The proposed timing thresholds are heuristics, with no performance evidence or complete partial-fill procedure provided.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.