Smallcaps only

macrotrader · Mar 31, 2012

Hello,

anyone trading smallcap equties only? Would be interested what your experience is. My reasoning is simple: big players don't trade smallcaps and therefore it is easier to find an edge. For example most stocks have perhaps 0-2 analysts following the company and therefore news drive a lot of momentum. On the downside, these companies are often intransparent, fraud and deception rule the game.

Regards
macrotrader

Bob111 · Mar 31, 2012

---My reasoning is simple: big players don't trade smallcaps and therefore it is easier to find an edge----
wrong

as been mentioned by me and many others here-HFT is rampant on small caps. prepare yourself to royal torture at entry and exits(and stops). even if your position size $1000.
since you did not specified your time frame and this forume is about active trading-i assume you talking about day trading small caps

PHOENIX TRADING · Apr 1, 2012

Small caps are great investments if you study Fama/French, trading them is akin to gambling and you're not "the House".

macrotrader · Apr 2, 2012

Quote from Bob111:
as been mentioned by me and many others here-HFT is rampant on small caps.

I don't think this makes any sense. First of all, every market nowadays is algo driven. Second of all, most HFT traders don't care about smallcaps, because absolute PnL is tiny when compare to S&P500, which is why liquidity is not very deep in these markets. If you want to provide liquidity that is a good thing. If you want to trade on information that is a bad thing, because you pay the spread.

Anyway, I was asking people who are in fact trading smallcaps, not about speculations how it might be like to trade them. Be it swing-trading or daytrading or higher frequencies.

Rationalize · Apr 2, 2012

Quote from macrotrader:

I don't think this makes any sense. First of all, every market nowadays is algo driven. Second of all, most HFT traders don't care about smallcaps, because absolute PnL is tiny when compare to S&P500, which is why liquidity is not very deep in these markets.

bzzzz .. wrong answer.

macrotrader · Apr 2, 2012

Thanks for this deep analysis. If you have anything to share, post it. If you don't, please just go elsewhere.

Rationalize · Apr 2, 2012

Quote from macrotrader:

Thanks for this deep analysis. If you have anything to share, post it. If you don't, please just go elsewhere.

To rephrase: you may have overlooked the spread earned vs the volume foregone.

macrotrader · Apr 2, 2012

What is that supposed to mean exactly?

Rationalize · Apr 2, 2012

Quote from macrotrader:

I don't think this makes any sense. First of all, every market nowadays is algo driven. Second of all, most HFT traders don't care about smallcaps, because absolute PnL is tiny when compare to S&P500, which is why liquidity is not very deep in these markets.

To spell it out .. Your assumption is wrong. The typically wider spread earned in small caps makes up for the lower volume.

macrotrader · Apr 2, 2012

So? What you are trying to say I guess is that a trader earning the spread will earn less, because even if he makes a higher percentage, the total profit will be lower, because turnover will be lower. Well, that depends on your capital base. If you are talking about algo trading, it is better to be talking about total PnL. And total PnL is low, so big players are not into this game, at least AFAIK.