BBO Quoting and High-Frequency Statistical Arbitrage
Summary
The document outlines two high-frequency approaches for Chinese markets. In its BBO strategy, traders place small orders near the best bid and offer when the order book has a liquidity gap and large orders on both sides. The idea is to earn from incoming trades while those larger orders provide support; if price breaks through, the strategy exits quickly, with the source describing the intended loss as at most one tick.
The second approach measures spreads between highly correlated instruments and trades them within statistical channels, selling high and buying low. It mentions iceberg orders and single-leg BBO execution as ways to reduce market impact. The source says this strategy was suspended due to exchange limits on cancellations. It refers to tick-level spread charts and small-account live equity curves, but provides no detailed data, methodology, or performance figures. Both descriptions are brief, and the source withholds implementation details, so they are concepts rather than independently verifiable trading rules.
Key ideas
- BBO quoting places small orders around liquidity gaps when larger orders appear on both sides of the book.
- The BBO approach aims to capture trades while exiting quickly if price breaks through the apparent support.
- Statistical arbitrage compares spreads between highly correlated instruments and trades deviations within estimated channels.
- Iceberg and single-leg BBO execution are cited as ways to limit market impact.
- The source says the statistical arbitrage strategy was paused because of exchange cancellation limits.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.