This function already exists, it's called a limit order.

Wise ass remarks aside, I don't think the functionality you're mentioning is required. If you're placing market orders, slippage is the price you pay for guaranteed execution. There's already enough issue with MM's using latency arbitrage (front running). I fail to see how giving them additional powers is a solution.

I'm also of the opinion that dedicated market makers are largely useless and any halfway efficient market will do their job without issue via the orderbook.

IDK what you mean by "auctioning" slippage. If you, as whale, obliterate the orderbook, that's your fault and your responsibility to figure out how to enter your trade without telling the market.

Protect yourself with a guaranteed stop loss http://j.mp/AtForexCenter

Seeing the market depth is another answer. If you see the volume in each price level then you agree to pay the vwap, which is fair.

Simulation research suggests that frequently crossed call markets could be a worthwhile alternative to traditional exchanges on price volatility, depth and spread.

How centralized systems (today's stock exchanges) club orders together in today's market is a scattered mess if you ask me. It is basically a market design that is over 100 years old and making it lightening fast does not improve it much. It still requires traders to hand their orders off to third parties and hope for good outcomes. I believe a buy or sell order should be held by the trader until the market makes him a firm offer to fill the entire size of his order. The market should present its liquidity options to the investor clearly in real time and the investor should have a choice to accept or reject anything that is offered to them.

Market makers need better tools to granulize the risk associated with filling larger orders. If they had new tools that are interwoven into the current market, the risk to fill any size of an order could be determined. Liquidity Fee/Transaction Costs could be auctioned off to the most efficient market maker.

Market makers in the current market can be run over by large orders (coming into the market) which prevents market makers from displaying any orders of size which makes our markets less liquid. When market makers are run over; they lose money plain and simple. Market makers need to see the risk that is in front of them if the market wants them to step up and provide more liquidity. Currently they are unwilling to make markets for the larger orders due to the flawed market structure we have today. There is good cause why there are gripes regarding today's market structure. Markets need to convert to smart peer to peer technology capable of generating "size/price" discovery rather than "price" only discovery that we have today. Adding the simultaneous negotiation of the size and price together is the only solution to today's broken market structure.

If all orders are all-or-none, so no trader can receive a partial fill, then I believe you'll have ti pay for that all-or-none feature in at least some of these related effects: (i) there will be times when big orders at a marketable price nevertheless can't be filled; (ii) the market infrastructure must solve combinatorial problems like knapsack or jigsaw puzzles to match blocks of buyers and sellers; (iii) small orders or some orders that opt-in to partial fills are needed as lubricant to the math involved. I'm not sure what solutions, workarounds or tradeoffs you have already found but it is an interesting class of problems.

The issue is not piecing together smaller orders to create larger orders from the liquidity taker view; I am suggesting that the market maker underwrite the difference in what liquidity is out there and the total liquidity the liquidity taker needs filled e.g. (From the liquidity takers' prospective, when the total size at NBBO is less than the size he needs filled, this creates a problem for the liquidity taker. The only solution thus far to this problem is sit and wait in a dark pool or break the order up)

This will cost the liquidity taker a premium in price, however the exact premium will be determined by the market itself (market makers climbing over each other to achieve best price). It is all about underwriting risk and converting risk into a Liquidity Fee and auctioning off that Liquidity Fee to the lowest bidder in our case it turns out to be the lowest transaction cost / slippage for the liquidity taker. Liquidity Taker takes order to market, only providing partial information (Size/Symbol), black boxes determine buy and sell prices for that quantity (with liquidity fee built into their prices), their black boxes send quotes to the screen of the Liquidity Taker where they are sorted to achieve best price which is a live dynamic auction. Liquidity Taker has the option to accept or reject what pops up on his screen. I am only suggesting the market should have an alternative for spot prices for size. There is no market in the world that can give an instant quote for orders that are larger than the size represented at the NBBO.

(This only works if the liquidity taker gives up his current right to simultaneously sweep the market at the time he hits/;lifts the liquidity provider's quote. Liquidity provider must be able to sweep the markets before the liquidity taker does. This way he can determine risk based on what he sees pre-trade before the execution and not post-trade after the execution which is the way it is now.)

I see what you're trying to say with regards to price/size discovery but I think you're advocating something that most participants don't want. Clever traders actively try to disguise both the price and the volume they want - volume by breaking up the orders, price by working the bid/offer over a prolonged period. A liquidity auction system would probably end up with liquidity providers only offering a small amount of their real liquidity and liquidity takers only showing a small amount of the liquidity they want. The very definition of price discovery means neither side wants to show their entire hand so I think the outcome would be identical to the current system.

I think these sorts of discussions stem from this idea that 'real' traders in the market are at a disadvantage and that speculators and market makers are bleeding them dry through slippage. It might be true but I think the real issue is that big institutional investors haven't kept pace with execution technology. HFT and market makers have a competitive advantage in execution and rather than trying to alter the rules 'real' traders need to invest in those same technologies to even the game.

one way to underwrite that risk is to have the exchange create a product that would pair investors with mm to agree on how much slipage in cents they agree on. this is used already for vix settlement products which allocates trades between participants x cents away from bid ask average. so if uou want to buy that product at 2 cents over nbbo, that means you would be garanteed nbbo average plus 2 cents regardless of liquidity.

I think you all look at it from the wrong perspective, instead of trying to change the market around you, you got to live with it and adjust; or become a market maker.

There are so many order types that could help you, however the real issue is that you can not predict the effect that your order has. The larger the order is the larger the effect. The shorter the time frame you use, the lesser is your chance to get the price you want.

And how do you backtest all that on a tick level or even on a one minute level???

-TIMELY QUESTION-

*Liquidity: Bid/Ask spreads are often opportunist and will drive the success of the transaction.

*Challenge: is to manage buyer/seller execution expectations while realizing if a "Black Swan" event occurs you will temporary lose trade entry exit privileges.

*Tools: per suggestions above, your market orders can be placed with desired execution price levels but don't always insure the entire order will trade.

*Liquidity Valuation Software: You may also consider building or buying liquidity diagnostic software that will throw a live signal when spreads tighten.

*FYI: "SOLUTIONS WITHOUT ANSWERS" presents a new computer learning approach that is evolving from concept to application. I believe this application has a variety of potential trading application including being able to enhance liquidity execution. *Link: https://www.linkedin.com/pulse/solutions-without-answers-james-monachino?trk=prof-post

I have found a way to make slippage irrelevant. We put up a video at www.babson trading.com that shows how.

If I am trading in big size I call my broker and say, "Hey, where can I buy $10m XYZ." The broker either makes me a risk price or says 'nothing doing' in which case I call them names and then call another broker. Someone always steps up to the plate. Most trading occurs off exchange for this exact reason. Indeed this is why the buy side talk to the sell side. You are suggesting that exchanges could replace this relationship that has existed for hundreds of years. That aint gonna happen. In any case the reason low liquidity exists in small stocks is simply because they are small stocks or have a small freefloat. You can't trade a $100m block of a company worth $50m no matter what breakthrough flushing technology you develop.

To Mr. Wild's comment, yes when traders want to buy and sell blocks of stock there will always be a place for manual solicitation and response from brokers to facilitate the formation of capital to fill block orders, however there is a lot more efficiency that can be achieved by further automating the markets that we have today in the area of formulating capital when it is needed. The current system where investors throw their orders into pools which can be dark pools or standard stock exchanges (third parties) is inefficient because it provides poor tools to determine the slippage/transaction costs prior to an investor committing to a block trade. We really need to get the size of an order into electronic negotiations to trade financial instruments as a whole. If that is achieved then we can have more efficient markets for block trading. Again, the largest of orders will always be manually negotiated. I am sure that will occur for another 1000 years. I would argue that the bar could be raised significantly on the size of orders that can be done electronically without having to break the orders up.

With new technology that is not currently deployed in the market, however it exists, institutional investors like yourself could force the sell side to fight for everyone of your block orders on your screen and in real time. Why should you have to go to the sell side when the sell side can come to your screen in a market structure that makes them compete against each other in real time in order to fill your block order. You and your clients are paying the commissions and slippage. Lets look at what institutional investors currently pay to get their orders filled.

"Equities trading revenue at the five biggest Wall Street firms slipped 1.3 percent to $25.3 billion in 2014." Bloomberg Jan 29, 2015

This also does not include the billions and billions of dollars that is lost through slippage/transaction costs. Simply put block trading is different than trading 100 share lots and there should be better markets for electronic trading that are specifically designed to trade blocks.

There is room for further automation in this space is all I am saying and that is what my Company Deep Liquidity is trying to achieve.

if you have slippage you don't have a well thought out trading plan. you should always get your price or better. embrace the falling knife you catch and become an expert at it or bleed to death one small cut at a time.