Flickering Orders and Feedback Loops in Limit Order Books
Summary
A flickering order is an order that is repeatedly submitted and cancelled, or rapidly modified. Such activity may occur at or away from the best bid and offer. The document distinguishes this behavior from spoofing, which involves displaying an order without intending it to trade in order to influence others’ expectations. It also notes that rapid order changes can be associated with quote stuffing, though the explanations offered differ on whether disruption is the purpose.
One proposed cause is an unintended feedback loop: a trader’s model reacts to its own order appearing in the book and cancels it, then reacts to the restored book by submitting again. Suggested ways to reduce this are to limit rapid resubmission and cancellation, or to filter the trader’s own orders from the book data used by the model. These are explanations and suggested controls from a discussion, not empirical findings about how often flickering occurs or why it occurs across firms.
Key ideas
- Flickering describes repeated order submission, cancellation, or rapid modification.
- An automated strategy can create flickering when it reacts to changes caused by its own orders.
- Filtering a strategy’s own orders or limiting rapid resubmission may interrupt this feedback loop.
- Flickering can be associated with quote stuffing, while spoofing involves deceptive displayed liquidity.
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Full text
# What are flickering orders? # What are flickering orders? I am reading a paper for my bachelor thesis, Queuing Uncertainty in Limit Order Market by Bart Zhou Yueshen who is the new AP at INSEAD. In the abstract, the author said: "Flickering orders manifest in equilibrium: Book depth first overshoots and then immediately reverts to the stable level." I am new to the market microstructure and low latency trading. Could someone explain to me what a flickering order is? ## Answer by Chris Taylor (score 6, accepted) https://quant.stackexchange.com/a/26050 A "flickering" order is one which is repeatedly submitted and cancelled (whether it's at the top of book or not). The answer from @chollida mentions that "the goal typically is to either slow down competitors quotes by flooding the gateway interface with noise" but I don't think that's necessarily true. Rather, I think many flickering quotes are caused by an unintended feedback mechanism - the trader submits an order, thereby changing the displayed order book. Their model processes the new book and tells them to cancel the order, which they do. Now the book looks the same as it did previously, and their model tells them to submit a new order, etc etc. The solutions are typically - - Hard-coded rules to not repeatedly submit and cancel orders in a short period of time, or - Filtering the order book so that your model does not process your own orders. Not all firms do either of (1) or (2) and so they will accidentally quote flicker from time to time. ## Answer by chollida (score 1) https://quant.stackexchange.com/a/25441 I couldn't find the paper linked but typically "flickering" an order, is a special case of quote stuffing where the trader either puts out and cancels an order as fast as they can or CFO/modifies an order up and down by a penny when it is outside of the top of book quote. The goal typically is to either slow down competitors quotes by flooding the gateway interface with noise from the constant quote changes that don't really affect the top of book quote. This is typically considered a separate case from order spoofing where the user shows a large order on one side of the quote, that they have no intention of being filled, in an attempt to make people think the likely next tick is away from that side.
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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.