Nanex Research

Nanex ~ 11-Jul-2013 ~ Picture Perfect Phantom Liquidity

On July 11, 2013 just before the anticipated 10:30 AM release of the weekly EIA Natural Gas news, a large number of orders to buy August 2013 Natural Gas Futures show up in the order book. Every single one of these buy orders magically disappears when the price suddenly drops - without executing. It was as if someone wanted to fool others that there was large buying interest, and then pulled those orders at the very last moment. It helps to remember that almost all high frequency trading algorithms use order book size information as input into their trading strategy.

1. August 2013 Natural Gas Futures Depth of Book

2. Here is a close-up of the depth of book on the bid side (showing relative number of contracts from buy orders at each price level).
The other levels are dark blue, because we used a high divisor setting to make extremely large sizes stand out.

3. Zooming out a bit from Chart 2 (above), we see that prices fell apart less than a second later.

Nanex Research