Why are US index futures so choppy?

S

scriabinop23

On continuation of the same concept from my HSI thread, like the title of the message says ...

It seems all of the US index futures make their big move in instants, then spend most of the rest of the time randomly moving. And the big moves aren't really easy to catch - they happen in a very small window of time.

I rarely see smooth trending days. Looking for technical or behavioral reasons why the US markets function this way, while many others don't.

Does it boil down to too many traders and system programs being involved with these markets?
 
Quote from scriabinop23:

On continuation of the same concept from my HSI thread, like the title of the message says ...

It seems all of the US index futures make their big move in instants, then spend most of the rest of the time randomly moving. And the big moves aren't really easy to catch - they happen in a very small window of time.

I rarely see smooth trending days. Looking for technical or behavioral reasons why the US markets function this way, while many others don't.

Does it boil down to too many traders and system programs being involved with these markets?
More...

One word: derivatives
 
Quote from stock777:

Why do you say that? There are many explanations for this behavior without derivatives being involved.
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Let's do the math.

Take the SP 500:

You have:

the SP 500 Futures (big contract)
the ES mini Futures
the SPY ETF
Options on the big SP
Options on the ES mini
End of month options on the SP (EW)
SPX options (cash index)
SPX weekly options (cash)
SPY options (ETF)
OEX options (SP 100, american)
XEO options (SP 100, european)

That's a lot of derivatives on one single contract. Everytime one of them trades, there is an offsetting arb in one of the others. One cannot move with the others not being traded against. This creates friction. Friction slows down velocity and speed. This creates chop by its very definition.
 
1) The notion that there is an offsetting arb every time theres a trade is not necessarily true.

That's like saying an option trades every time a stock trades.


2) The question was why does the futures move in spurts and very quickly.
 
Quote from stock777:

1) The notion that there is an offsetting arb every time theres a trade is not necessarily true.

That's like saying an option trades every time a stock trades.


2) The question was why does the futures move in spurts and very quickly.
More...

Dynamic hedging
 
The ES lately has been very rangebound at times, while the ER2, NQ, EC and/or QM are not as rangebound. Personally for me, the ES is becoming less enticing as it feels like squeezing moves out of it while watching the other markets mentioned provide good profit opportunities.

So just looking at the ES may be part of the problem - take a look at some of these other markets. They may not be as liquid; however unless you are trying to move hundreds of lots, you should be ok.

Exactly why this is occuring can be answered by much smarter people than me. I simply try to roll with the markets and if the ES right now is not providing enough movement, I will focus elsewhere. An example was with the ER2 - about a year or so ago, it became very, very choppy and it was hard for me to trade it so I stayed away. Now, it's not as choppy and I am back trading the ER2 while I am not looking to place many ES trades. I think some people focus exclusively on the ES simply b/c of the volume. That's an important consideration but I'd rather be trading 5, 10 or 20 lots on the ER2 and making nice profits vs. trading 50 or 100 on the ES hoping to squeeze a point or 2 out of it. But, that's just me.
 
Quote from stock777:

1) The notion that there is an offsetting arb every time theres a trade is not necessarily true.

That's like saying an option trades every time a stock trades.


2) The question was why does the futures move in spurts and very quickly.
More...



dynamic manipulation. You're either in the move or you're against it getting skewered. Better to trade with the governments agents and only trade the long side.
 
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