Post-Only Orders and Flickering at the Inside Market

# Why would a trader quickly flicker an order immediately preceding a tick away?


# Why would a trader quickly flicker an order immediately preceding a tick away?












The Setup

Assume the inside market is $15.15 \times 15.16$ and there is a very large bid order imbalance. For example, 30,000 shares bid across 100+ orders, 200 shares offered across 1 order; however, it is not always this extreme.

Approximately 10-1000$\mu$s prior to a tick up I've seen numerous occasions where a single order is "flickered" at the bid very quickly. By flicker I mean an order with the same size is quickly added and canceled, over and over again.

The flickering persists until the spread widens and the market goes to $15.15 \times 15.17$. Orders then rush to improve the bid to $15.16$ narrowing the spread back down to $0.01$. I've noticed that an order with the same size as the order being flickered at $15.15$ joins the new bid level very quickly after the tick, often achieving a queue position of 3 or better. Sometimes the new level is joined with an $Add Order$ and sometimes with a $Replace Order$, presumably to coincide with the state of the order being managed at the time of the widening of ths spread ($Add Order$ if the order was deleted immediately prior the widening, $Replace Order$ if the order was added immediately prior to the widening).

Additional observations and notes:

- While the flickering is happening the market is relatively quiet making it easy to "see" the effect if one is scanning data visually.

- The venue involved seems to always be INET (Q). At least, when I have noticed or gone looking for the flicker this is where I always see it. I've not done an exhaustive search.

- In line with the above, I've not searched across more than CSCO for the flicker. It may behave differently (or not be present) in other symbols.

My Question and Ideas

What purpose does flickering the order serve? Or perhaps it serves no purpose and it is simply an order execution algorithm unsure about where to place the next bid?

It would seem to be disadvantageous to do this because it resets the priority of your resting bid. Granted, the tick up is very probable given the imbalance at the inside, but it is not guaranteed. Further, resetting priority works against the trader if the midpoint reverts quickly after the tick up.

Perhaps there are latency advantages to doing the flicker, but I can't puzzle out what they might be. One could simply leave their order unmolested, wait for the tick, and proceed to do a $Replace Order$ improving the bid and joining the new level. However, perhaps there is a small latency advantage to using $Add Order$ over $Replace Order$ on INET and the flicker allows the trader to sometimes be able to do this: use $Add Order$ if the tick happens immediatley following a $Cancel Order$, and the flicker serves to allow the trader to stay at the bid while hoping for the right timing of the tick.

Finally, some might suggest quote stuffing, but the amount of traffic generated by this one order is inconsequential in the grand scheme. No ticker plant worth its salt would care about a few hundred more messages that might be caused by this flicker.

What other possibilities are there? What's the best motivation to flicker an order in this fashion? Of course there is the simplistic explanation of: it serves no purpose and happens due to negligence (bug in the trader's software) or is meant to be confusing, and without a better explanation I suppose I must accept this. However, I'm curious if there is a more positive motivation for this order execution behavior.

## Answer by Kevin Schmit (score 10, accepted)

https://quant.stackexchange.com/a/4560

The flickered orders are postonly bid at 15.16. The exchange slides it back to 15.15 to avoid a locked market. Submitting firm sees the slideback and cancels. Then tries again. When the 15.16 offer is executed or cancelled out, the offer moves to 15.17 then the postonly bid at 15.16 goes through at the targeted price and gains good queue position.