Who are the participants in Futures?

Pelt

Pelt

Who are the participants in a given market and WHY/HOW do they trade?

I'm sure we've all heard various explanations as to who the participants really are in a given market.

There have been chartist explanations such as BreakOut Traders vs Support and Resistance Traders. Pullback Traders, Mean Reverting traders or Trend Traders..

Another description and likely more useful, being related to the motivations of the trade may include speculators vs investors.

Of similar vein, related to durations of a trade, there could be day-traders vs those that prefer to buy and hold an index for a longer period of time to capture the premium paid out for investing in a diverse index that generally rises over time.

A description from a popular book talks about how trading is a zero-sum game, whereby not everyone trading is necessarily doing so for a direct profit from the market. These where described as "Utilitarian Traders" who may be investors or borrowers who are simply looking to move money from the present to the future, and may/may not include a premium for doing so. Also included are hedgers, tax avoiders or asset exchangers who are looking to mitigate risk,reduce their tax burden or exchange an asset such as a commodity. There are other Utilitarian traders described as well.

Opposite the Utilitarian Traders, described where the Profit Motivated traders which include various types of speculators trading based on their perception of 'value' of a security... or Dealers who expect to be paid a premium for providing liquidity at all times.

Many different descriptions of the participants, has anyone given much thought to this at some point? How important is it and how does it relate to short term speculation... given that likely a large amount of money put into a market could be for utility other than a direct profit beyond a small premium paid for investing money?

Is all money put into a market done by Utilitarian traders, whereby savvy speculators are simply taking a 'vig' out of that money for providing liquidity at any price?

Are there anymore useful/practical explanations of the 'participants?' Other thoughts?
 
The idea that the market is a heterogeneous mix of participants with different investment horizons (from pension funds to hft) is central to the fractal market hypothesis (also known as the investment horizons hypothesis)
 
Pelt said:
Who are the participants in a given market and WHY/HOW do they trade?

I'm sure we've all heard various explanations as to who the participants really are in a given market.

There have been chartist explanations such as BreakOut Traders vs Support and Resistance Traders. Pullback Traders, Mean Reverting traders or Trend Traders..

Another description and likely more useful, being related to the motivations of the trade may include speculators vs investors.

Of similar vein, related to durations of a trade, there could be day-traders vs those that prefer to buy and hold an index for a longer period of time to capture the premium paid out for investing in a diverse index that generally rises over time.

A description from a popular book talks about how trading is a zero-sum game, whereby not everyone trading is necessarily doing so for a direct profit from the market. These where described as "Utilitarian Traders" who may be investors or borrowers who are simply looking to move money from the present to the future, and may/may not include a premium for doing so. Also included are hedgers, tax avoiders or asset exchangers who are looking to mitigate risk,reduce their tax burden or exchange an asset such as a commodity. There are other Utilitarian traders described as well.

Opposite the Utilitarian Traders, described where the Profit Motivated traders which include various types of speculators trading based on their perception of 'value' of a security... or Dealers who expect to be paid a premium for providing liquidity at all times.

Many different descriptions of the participants, has anyone given much thought to this at some point? How important is it and how does it relate to short term speculation... given that likely a large amount of money put into a market could be for utility other than a direct profit beyond a small premium paid for investing money?

Is all money put into a market done by Utilitarian traders, whereby savvy speculators are simply taking a 'vig' out of that money for providing liquidity at any price?

Are there anymore useful/practical explanations of the 'participants?' Other thoughts?
More...

Have you ever considered since birth of man there has been trading going on? One sharp rock for a squirrel or gold for bag of wheat or buying a car and getting price down for so much bucks. People think trading only occurs in exchanges but it is an everyday deal.

What do you trade when you want dinner? And why? I think we just forget sometimes when it comes to anything outside of the markets.
 
So the theme of my post was an attempt to categorize different types of possible participants. There are a few types listed.

I was also thinking that there could just be 2 or 4 players who are interested in a way to devise some order to what is going on.

In the case of 2... you would simply have buyers and sellers, at any NOW point in the market. Each taking from the other. I.e. given some relative reference point(that prior NOW), the wins/losses relative to each at any point in the future would always add up to zero.

In the more complicated case of 4... All 4 of these groups would already be LONG/SHORT from some relative reference point(not necessarily NOW), 2 would be MAINTAINING there current positions, and 2 would be EXITING their positions. At any point these groups wins/losses would again sum to zero.
 
The idea of dividing participants as buyers and sellers, while intuitive, is misleading. Since most participants will change from buyers to sellers and back at different points in time. Classifying them by how often they change from buying to selling, or their investment horizon, may lead to better analysis.
 
eusdaiki said:
The idea of dividing participants as buyers and sellers, while intuitive, is misleading. Since most participants will change from buyers to sellers and back at different points in time. Classifying them by how often they change from buying to selling, or their investment horizon, may lead to better analysis.
More...

How could one approximate this? What are some assumptions one could make to infer time horizon?

Ex: If price breaks or is rejected from a major visible level, one can infer that this action has caused longer time horizon players to update their thesis.

Ex: If a large trend move occurs, but most of the volume transacted is heavily weighted to the beginning of the move, can one infer that the longer time horizon buying/selling has already finished?
 
Most long term participants are not active on a daily basis, they only move when the fundamentals change.
Everyday moves are usually caused by participants that have a shorter time frame, liquidity providers, hft's, market makers, swing traders... or by long term participants moving slowly to accumulate/distribute positions.
But when you have a market panic, that's when you can really see their foot prints. See the attached article where Kristoufek uses continuous wavelet transforms in an attempt to separate the actions of participants by timeframes.
(it is not an easy task since the markets are anonymous, so it must be approximated with a lot of math)
http://www.nature.com/srep/2013/131004/srep02857/full/srep02857.html
 
eusdaiki said:
Most long term participants are not active on a daily basis, they only move when the fundamentals change.
Everyday moves are usually caused by participants that have a shorter time frame, liquidity providers, hft's, market makers, swing traders... or by long term participants moving slowly to accumulate/distribute positions.
But when you have a market panic, that's when you can really see their foot prints. See the attached article where Kristoufek uses continuous wavelet transforms in an attempt to separate the actions of participants by timeframes.
(it is not an easy task since the markets are anonymous, so it must be approximated with a lot of math)
http://www.nature.com/srep/2013/131004/srep02857/full/srep02857.html
More...

Thanks for the article.
 
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