SmartPricing is Option Alpha’s proprietary technology that uses timed intervals to dynamically adjust pricing to optimize your entries and exits.
SmartPricing places timed limit orders in a sequence, traversing the bid-ask spread until you reach your final price.
All order actions now include our SmartPricing controls. By default, order pricing is set to Normal SmartPricing and 100% of the bid/ask spread. You'll want to confirm your bots’ SmartPricing settings and change them for your bots if you want to have more control over the pricing of your trades.
The SmartPricing update also improves paper trading in the platform. Bots in paper trading mode will behave more like live trading and go through progressions of pricing that you can watch happen inside the Option Alpha platform.
Though paper trading is never exactly like live trading, we aimed to make the bridge shorter between paper and live trading, making paper trading as realistic as possible using smarter technology.
What is SmartPricing?
SmartPricing analyzes the bid/ask spread of a position, makes calculations to determine intervals and pricing timelines, and sends limit orders in a fire and kill fashion across the bid/ask spread, starting with the best possible price available. This means, when you place an order with SmartPricing, you allow yourself an opportunity for better pricing.
How does SmartPricing work?
SmartPricing works within the limits of a trade’s bid/ask spread. It selects a sequence of prices to try for a trade.
It starts by sending an order to your broker for the best price in the sequence and waits a predetermined amount of time to see if the order is filled. If the order does not fill, it tries the next price and waits again.
There are a number of elements of SmartPricing that can be used to control the limits, timing, and sequence length at work.
For a debit type trade, SmartPricing views the overall bid/ask spread as ranging from 0% to 100%. The bid is the best price to buy (0% of the range), and the ask (100% of the range) is the most unfavorable price to buy.
What are the SmartPricing settings?
SmartPricing has four options: Normal, Fast, Patient, and Off. Each setting has various price sequence lengths, limits, and time periods. Each will wait to see if an order fills before moving to the next price.
Normal calculates a starting point near the mid-price of the bid/ask spread, or approximately 50%, and works its way to the 100% limit (the ask) with a maximum of four price steps.
It will wait 10 seconds to see if a price step order has been filled, then move to the next price.
The four price steps are evenly distributed between the 50% and 100% points in the bid/ask spread.
Fast is very similar to Normal. It uses the same starting point near 50% and 100% for its limit but has a maximum of three price steps.
It will wait only 5 seconds for a fill before moving on to the next price. The three price steps are also evenly distributed between the 50% and 100% levels.
Patient is somewhat different. It can use a maximum of five price steps beginning at approximately 33% of the bid/ask range, continuing up to 100%. It is very patient, waiting 20 seconds at each price for a fill.
The price steps are not evenly distributed like they are for Normal and Fast. Patient starts with small steps and expands the distance between each as it moves toward its 100% limit.
Off does not use a price sequence. It simply places an order at 100% of the bid/ask spread, i.e., at the ask.
There is always the possibility of price improvement when the broker executes the order, but by setting the price limit at 100%, it indicates a willingness to accept the current ask price.
Normal Settings Example
This debit spread order uses Normal SmartPricing.
The price sequence starts at the mid-price and goes up to the ask price in three evenly distributed steps.
The X on the first price step shows the initial order was not filled within that limit price.
The order was filled at $2.31 on the second step. The third limit order was at $2.32, so there was price improvement on the order.
Can I change the SmartPricing settings?
The default SmartPricing setting uses 100% of the bid/ask range as the limit for the price sequences. However, you can modify the upper limit.
The Final Price level can be set anywhere from 50% to 100% of the bid/ask range.
It can also be set as a fixed dollar amount.
The Final Price replaces “100%” in the SmartPricing behavior described above.
Note that for narrow bid/ask spreads, the distance between prices in a sequence can become compressed. With very narrow spreads, there may not be enough of a price range to use all of the typical SmartPricing steps.
Choosing a final price level can also compress the bid/ask range used for a trade. If a 50% final price level is selected for SmartPricing sequences that begin at 50%, only a single order price or two prices just 0.01 apart might be used.
Are the SmartPricing settings for closing orders different?
There is a third Final Price choice that can be used for closing orders in bots.
SmartPricing can use a math operator and a value to modify the position’s opening entry price to arrive at a final price limit to use for closing.
What does that mean?
A x 1.15 multiplier would close the trade with a 15% or better profit for a debit type trade.
A + 2.50 addition would close the trade with $250 or better profit per contract for a debit type trade.
A x 0.50 multiplier would close the trade with a 50% or better profit for a credit type trade.
A - 0.75 offset to the position’s opening price would close the trade with a $75 or better profit per contract for a credit type trade.
Is the SmartPricing range reversed for credit type orders?
For credit type trades, the start and end points in a bid/ask spread are reversed from those for debit trades.
The 0% level is at the ask price, and 100% is at the bid price. So, Normal-type SmartPricing for a trade that sells for a credit will begin its price sequence near the mid-price (50%) and move down to the bid (100%) in four evenly spaced steps.
Other SmartPricing types also observe this 0%-100% range for credit-type trades.
Does SmartPricing use rounding?
SmartPricing levels have been described above in terms of near and approximate prices. The exact prices used are selected with awareness of the allowed prices for an equity or option.
Starting and final targets may be offset to an allowed price one increment away from a bid or ask level. Percentage targets will be subject to calculation rounding.
SmartPricing tries to achieve better pricing on your orders, leveraging the power of technology to adjust orders based on your settings.
SmartPricing is flexible, customizable, and powerful. See it in action in the Option Alpha platform.