Following agency broker Bloomberg Tradebook’s global launch of its ‘Hide and Sweep’ algorithm on Monday, the firm is now planning to introduce a related algorithm, ‘Hide and Fire’, internationally.
“Very shortly, we will be extending Hide and Fire, currently available in the US, to the global markets,” Gary Stone, director of trading research and strategy at Bloomberg Tradebook, told theTRADEnews.com.
Hide and Fire is essentially a derivative of the Hide and Sweep algorithm, but it allows users to tailor the aggressiveness of the strategy.
Hide and Sweep, which had been running in the US for three months before its global launch, allows traders to hunt for liquidity on trading venues while keeping their order hidden to avoid information leakage and market impact. It allows users to set a time limit and a ‘fire quantity’ for the strategy – essentially a target amount of stock that needs to be displayed on the target exchange before the algorithm will execute.
The algorithm then allows the user to choose whether to ‘overfire’ or ‘underfire’ this amount to hunt for hidden liquidity. With overfiring, the strategy will only execute if it can find more than the target quantity displayed on the order book. With underfiring, users only take a portion of the target displayed amount, enabling them to see if the liquidity replenishes after the trade, giving them the opportunity to trade again. The algorithm can also be modified to execute only if there is a specified block quantity at the exchange.
“A number of markets have hidden liquidity – native iceberg orders. This order type allows you not to post, rather – based on a trigger quantity where a certain size represents itself – you can ‘overfire’ and take whatever’s there. Or we give you the option of overfiring for a block quantity and it will only satisfy your trades for that block quantity,” explained Jim White, head of global equity electronic trading product development at Bloomberg Tradebook.
According to Stone, the strategy can help users trade illiquid stocks with reduced market impact. “If you are dealing with an illiquid stock or a stock where displaying may have adverse impact or information leakage, this order type is perfect,” he said.
White claimed the algo is
also useful in transparent markets that enable other traders to gauge intentions more easily – or example by displaying broker identities. Examples include Turkey, some Scandinavian markets, Canada and Hong Kong.
“This order type allows you to be aggressive about how you go out into a marketplace, but you are going out with IOC [immediate or cancel] orders so you are never displaying and taking liquidity,” said White. “In Turkey and other markets that are very transparent, when you put up an order with a broker, everybody knows about it. In markets like that, where the display of the underlying broker is tantamount to someone running ahead of you, being totally hidden is a really valuable.”