Should all traders be placing futures orders through a D.O.M. Panel? What are the advantages and disadvantages to doing so?
For those who are unfamiliar with the D.O.M. (Depth of Market) panel, it is simply a platform feature that enables traders to view the “trading book” of a particular futures market while providing quick and efficient order entry capabilities. The trading book is purely the collective working limit orders of other market participants at various prices surrounding the current market price. Please note that stop orders are not included, and market orders are executed immediately so they never become part of the “book”.
The D.O.M. panel has become increasingly popular among day-traders because of the belief that it offers users an “edge” over other market participants due to the visibility of your competitor’s working limit orders. Nonetheless, I argue that in today’s environment; nearly everyone has access to D.O.M. trading capabilities and therefore there really isn’t an edge at all. Similarly, savvy traders executing large trading size have developed methods to disguise the true size of their orders through the use of “Iceberg Orders” (discussed in the June column).
Perhaps the true advantage to using a D.O.M. panel is the ease and quickness at which traders can execute orders. Although each platform will have slightly different logistics and designs, nearly all of them offer one-click order entry, drag and drop order modification, a panic button that exits all positions and cancels any working orders, and strategy orders such as brackets or OCO orders (One Cancels the Other).