ES Journal Archive (2009 - 2010)

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Quote from Lawrence Chan:

A simple buy program at the value of $5 mil on 10 big caps can move ES up by 5+ pts in busy time. And during thin mkt environment, you get better bang for the buck like 8 pts.
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LC, do you mean $5 mil for each company or all ten?

Thanks (in advance) for the clarification.
 
Quote from pcvix:

LC, do you mean $5 mil for each company or all ten?

Thanks (in advance) for the clarification.
More...

Hopefully I can post it here once and in the future everyone can refer back to this to save time.

First to answer your question, $5 mil per stock. And it is based on current market activities like average volume, etc. For example, face value of $5 mil is about 1.5 minute average total volume executed on MSFT. Using institutional leverage, that can stretch to 5 minutes after 10 am, and 10 minutes around 1 to 3 pm.

Unlike some people's thinking, most programs are not "evil". They are there because someone need to buy/sell a basket of stocks, that's all. And the more advanced programs, utilize bots, to buy/sell stocks in the basket in stealth mode to avoid a shock to the current price. i.e. breaking the total order size into smaller chunks, sit those orders at the bid as oppose to chase the offer, etc.

These normal programs are used by many large institutions all the time because it is proven to be more efficient then hiring a rookie trader to do the execution. Very experienced traders who help institutions doing blocks can beat these bots to get even better prices. But there are not many of these guys around.

Now, the market making bots come into the picture and the reason why the indices are moved.

Using various ways to measure how orders arrive to the price ladder, smart MM bots detect the intention of accumulation or distribution. They then fake a move so that these normal bots have to chase the price (up or down) to finish their jobs.

So given enough capital, a buy/sell program to scoop all liquidity within a short period of time, say 5 min, can effectively send the indices in a single direction run as the MM bots will join in to the chase. It is like dog racing with the electronic rabbit running in front of them. =)

In old days, it rarely happens because you do not have funds with capitals doing just that to make money. Now, there are enough large funds playing markets worldwide, it becomes part of everyday life in trading.

Calling it names - manipulation, or whatever, does not change what they do.

Judging them, is the job of the authorities, and if you do not like it, then reflect your point of view so that laws can be introduced to cap these actions by limiting their position size to a small % of the average daily volume.

For traders, just learn and accept their existence, and find your way to deal with them.
 
Quote from Lawrence Chan:

Hopefully I can post it here once and in the future everyone can refer back to this to save time.

First to answer your question, $5 mil per stock. And it is based on current market activities like average volume, etc. For example, face value of $5 mil is about 1.5 minute average total volume executed on MSFT. Using institutional leverage, that can stretch to 5 minutes after 10 am, and 10 minutes around 1 to 3 pm.

Unlike some people's thinking, most programs are not "evil". They are there because someone need to buy/sell a basket of stocks, that's all. And the more advanced programs, utilize bots, to buy/sell stocks in the basket in stealth mode to avoid a shock to the current price. i.e. breaking the total order size into smaller chunks, sit those orders at the bid as oppose to chase the offer, etc.

These normal programs are used by many large institutions all the time because it is proven to be more efficient then hiring a rookie trader to do the execution. Very experienced traders who help institutions doing blocks can beat these bots to get even better prices. But there are not many of these guys around.

Now, the market making bots come into the picture and the reason why the indices are moved.

Using various ways to measure how orders arrive to the price ladder, smart MM bots detect the intention of accumulation or distribution. They then fake a move so that these normal bots have to chase the price (up or down) to finish their jobs.

So given enough capital, a buy/sell program to scoop all liquidity within a short period of time, say 5 min, can effectively send the indices in a single direction run as the MM bots will join in to the chase. It is like dog racing with the electronic rabbit running in front of them. =)

In old days, it rarely happens because you do not have funds with capitals doing just that to make money. Now, there are enough large funds playing markets worldwide, it becomes part of everyday life in trading.

Calling it names - manipulation, or whatever, does not change what they do.

Judging them, is the job of the authorities, and if you do not like it, then reflect your point of view so that laws can be introduced to cap these actions by limiting their position size to a small % of the average daily volume.

For traders, just learn and accept their existence, and find your way to deal with them.
More...

Many thanks, LC.

Very clear, informative and educational. I'll certainly send the link to my trading buddies.
 
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