Execution Hygiene: Hotkeys, Size Guards and Borroweric

This is part fourteen of the ASX order book series and the last post in the business-of-trading track. After fewer trades, better months, this one is about something less glamorous: making sure the trades you do take are executed the way you intended.

Reading the journals in full, I was struck by how many expensive days had nothing to do with market judgement. The read was right. The keyboard, the platform or the paperwork was wrong. These incidents showed up in every journal, at every level of experience. More experienced traders didn't stop making them entirely. They built systems that made them rarer and smaller.

The catalogue of execution errors

Here are the categories that came up, all of them more than once and in more than one journal.

Size guards: the most important setting you'll ever change

The single most expensive category was the fat finger. A trader means to buy 5,000 shares and sends 50,000, or 500,000. At market. In a thin stock. The fill walks up the book and the loss is immediate.

Defences, in order of importance:

Hotkeys: speed with guard rails

Scalpers depend on speed. Several journals complained bitterly about platforms without good hotkeys, especially for the open, where a few seconds decide whether a trade is good or bad.

Good hotkey design:

• Buy and sell at preset sizes relative to the bid and offer.
• Flatten the current position instantly.
• Cancel all open orders in the current stock.
• Join the bid / join the offer for passive entries in front of protection.

Map them consistently, practise them in a simulator or with tiny size, and never map an aggressive market order to a key that's easy to hit accidentally.

Reconcile after every action

The "wrong side" error happens when you lose track of your actual position. You think you're short, you hit buy to cover, and you were actually flat or long. Now you're long double.

The fix is boringly simple: glance at your position window after every fill. Make it big and visible on your screen. Some traders colour-code long and short positions so the state is obvious at a glance.

Pre-open order hygiene

The opening auction creates its own class of errors, covered in the opening auction post. The rules the traders converged on:

• Write down every order you place in pre-open, and cancel anything you've stopped watching.
• Don't place "placeholder" orders to hold a borrow or a queue position unless you're certain you'll manage them.
• Don't amend aggressively as the stock opens. Decide before the auction, or wait for the open and act on the result.
• Limit the number of auctions you trade at once. Trying to manage several matches in the same opening window produced some of the worst mornings I read about.

Short selling and borrow

On the ASX, short selling of shares generally requires that you have arranged to borrow the shares, and brokers have their own rules and availability. For the opening auction, that means borrow must be in place before pre-open ends. On days when everyone wants to short the same sector, borrow can run out. Several traders described missing the best short of the day because borrow wasn't available, or because their broker's short limit had been reached.

Many active traders moved to CFDs for shorting, partly to avoid borrow friction. CFDs bring their own considerations: the provider's own short availability and limits, financing costs on positions held overnight, counterparty risk, and different tax and regulatory treatment. Read the disclosure documents and understand what you're trading.

Plan for outages

Every journal had at least one morning where the platform, the data feed or the broker's app failed. Usually on a busy day, because that's when systems are most stressed.

An outage plan:

That last row came up a lot. Several traders traded from their phones during work or travel, and nearly all of them concluded that mobile trading should be at much smaller size, if at all. Their mobile days had noticeably more errors.

The pre-market execution checklist

Before the open each day:

None of this makes you money. All of it stops you losing money you've already earned.

That ends the business track. Next, the series moves into psychology and development, starting with why the first couple of years of trading feel the way they do.