Order Aggressiveness, Trading Patience, and Trader Types in a Limit Order Market

Abstract

This study examines the order aggressiveness and trading patience of foreign institutional traders, futures proprietary firm traders, individual day and non‐day traders in the Taiwan index futures market. We consider order choice given a completely transparent limit order book. Our empirical results show that individual (foreign institutional) traders use a more aggressive (patient) order submission strategy than the other trader types. We find significant differences among trader types in the timing of order aggressiveness and trading patience over the intraday time period. Both top and rest‐of‐the‐order‐book activities affect traders’ order submission decisions. © 2016 Wiley Periodicals, Inc. Jrl Fut Mark 37:1094–1123, 2017

Trader types and fleeting orders: Evidence from Taiwan Futures Exchange

“…Since order cancellation involves only limit orders, it is conceivable that institutional traders have a greater propensity to cancel orders than individual traders. Indeed, this is exactly what Chou and Wang (), Raman and Yadav (), and Chiu et al () find. Because fleeting orders are those quickly cancelled after submission, they are actually a subset of cancelled limit orders.…”

“…Previous studies show that different trader types may differ in several dimensions: Trading motives, trading strategies, possession of information, and technological and financial resources . Chou and Wang () and Chiu et al () find that individual traders in Taiwan futures markets adopt a more aggressive order submission strategy by placing more market orders than their institutional counterparts. In other words, while individuals place more market orders and enjoy a higher fill rate, institutional investors mostly submit limit orders with a lower fill rate.…”

“…See Grinblatt and Keloharju (), Chou and Wang (), Huang and Shiu (), Hendershott et al (), Kuo, Chung, and Chang (), and Chiu, Chung, and Wang ().…”

Institutional high frequency trading and price discovery: Evidence from an emerging commodity futures market

“…For example,Lee (2015) selected the nearest-to-maturity contracts to study the KOSPI 200 index futures market, andChiu, Chung, and Wang (2017) used the nearby contracts to study the order aggressiveness in the Taiwan index futures market. For example,Lee (2015) selected the nearest-to-maturity contracts to study the KOSPI 200 index futures market, andChiu, Chung, and Wang (2017) used the nearby contracts to study the order aggressiveness in the Taiwan index futures market.…”

“…10 This is different from the stock index futures in which the most actively traded contract is the nearest-to-maturity or nearby contract. For example, Lee (2015) selected the nearest-to-maturity contracts to study the KOSPI 200 index futures market, andChiu, Chung, and Wang (2017) used the nearby contracts to study the order aggressiveness in the Taiwan index futures market. Moreover, the most active contracts in the DCE are only rolled among contracts with maturity months in January, May, and September.11 The call auction starts 5 min before the opening.…”