Say Bob wants to buy \$30 million worth of APPL stock at a price of \$130.

He decides to use a limit order.

But posting a $30 million limit order would drive the price up and prevent him from being filled.

Obviously he must post only a fraction of this amount and then slowly top it up each time he gets filled. But what fraction? Should he post \$1 million? \$1000? or even \$10?

What variables decide what size or amount of \$ he should post? Surely there must exist an optimal amount, but what is it?

  • $\begingroup$ "How does a trader choose how to size his limit order?" - the trader picks an execution algo they like and leaves it to the algo or gives it to a broker who does the same. $\endgroup$ – user42108 Feb 4 at 16:24

Here are some alternatives:

  1. Utilize Accumulate Distribute algorithm to reduce market impact.
  2. Place an iceberg order.
  3. Place a LOC (limit on close) order to execute it at the closing cross.
  • $\begingroup$ I am aware of these. What I want to know is the intricacies on how a trader chooses which. More specifically for a limit order, how does he choose what size to reveal to the market. $\endgroup$ – Dylan Kerler Feb 3 at 12:29
  • 1
    $\begingroup$ The minimum recommended size is the round lot, so $13K in your example, to take full advantage of the order protection rule. Other inputs into algo settings include the average daily volume, the total order size, and how fast you want the order filled. $\endgroup$ – Sergei Rodionov Feb 3 at 12:52

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.