Question

Why is it generally a bad idea to leave resting limit orders with a small probability of execution over the next five minutes sitting the market for a long time?

Answer 1

Resting limit order is one where the buy limit price is lower than the lowest offer price and sell limit price is greater than the highest bid price and it is waiting to be executed. The reason why it is not a good idea to leave such orders open is that other participants will be able to see the order book and level 2 data and then it will drive the price of the security in either direction. Let’s say a large investor places a large quantity order, now if that order is visible to other participant then they will also place the order assuming something big is about to happen and this can drive the prices of the security in any direction so most traders when trying to put such orders they either do it through dark pools where there order is hidden or they do it immediate or cancel so that there position is visible to other traders for very small amount of time.