paysense (posted from another thread, but not answered) Registered: May 2007 Posts: 1074 09-10-08 03:07 PM Joe, maybe you can help me with this. I know I am fairly successful with trading furtures contracts - but I should know this. We all know stock rise and fall in price based on demand. Furthermore indexes rise and fall based on the select stocks ever-changing prices. If futures are based ion these indexes how can anyone "move" the futures without the underlying stocks in the index also changing in price i.e. being bought and sold?!? Also overnight and weekends these futures move so I take it an even smaller sample of stocks traded on other world exchanges dictate what the price of ES, NQ & YM are - since I am sure they don't ALL catch a bid?!? Or can Johnny Futures-Mover come along and place a big order and move the ES up 10 points?!? phewww!!! go figure
Buying drives the price of stock index futures up and selling drives the price down. Works the same way in all futures markets.
thanks guys (or gals). So the individual prices of stocks in the indexes must come into alignment with johnny moving the futures - am I missing anything?!? Gilbert
When the cash market opens for trading the index arbs make certain that the index futures and cash index are in line with one another. Read the index arb information at www.indexarb.com and www.programtrading.com
I'll take time and check out the sites. It sounds like stock prices move the futures during market hours and overnight futures move the price of stocks by the "arbs" at the open. Which is which (wagging the dog)?!? gA
Posted buy rake? This is just a rough example . An institution may have say a dozen different portfolio managers , who wish to execute various trades the following day ,some want to buy and add to exsisting portfolios , others wish to sell to trim exsisting portfolios or go to cash , whatever the reason does not matter , fact remains that there are x amount of shares to buy that day and x amount to sell . Either at the institution execution desk or at the brokerage they will seperate the buys and sells into baskets and see how they correlate with each other . If they correlate pretty well together, that means that the buyside list will act as a hedge for the sell side list and so the market impact costs of trading both baskets can be minimized, all this is done through algorithmic programs. If the two baskets are heavily weighted in favour of say the buy side list or just one side exsists then the ES futures can be used to hedge as long as its tracking error is low compared to the S&P 500. THat is where we get a heads up in pre-market ES . The gap between the previous days close 4.00pm (stock market close) and the current ES price as it gets widder it suggests that instituions are buying the futures to hedge against the upcoming stock buy orders . The bigger the gap suggests there is a greater imballance between the buy and sell side lists . Obviously this is just a basic example and there are many different reasons why the ES does what it does in pre-market ...
Posted by Gutsy trader Large institutions don't do their own trading. Instead they use firms that specialize in price improvement. The general method they use is to first build a basket of the securities they want to buy. They analyze the current inventory of stocks and build another basket usually with 1-2 times the volume of securities they want to buy. They then develop the corr. to a futures index and come up with a weighting for the first basket. How many futures contracts for the basket to trade. Then they wait for a semi-quiet time in the market. They then sell the second basket to take out stops in the securities they want to buy. They also hope to trigger momentum short positions. Immediately after that they buy the futures contracts to lock in the total value of the shorted securities and the securities they plan on buying. Then a few seconds later they execute the first basket and buy all the securities they planned in addition to all the securities they just dumped. Then they exit the futures contracts once again hoping to have triggered some momentum futures traders on the long side. All this to avoid slippage. One of the things he told me was about the different market players in terms of a western. 1). The individual trader rides alone. No one notices their movements and they can seldom do much harm to any of the other players. If they don't team up, they have very little chance of staying in the game. 2). The large speculator is like a gang of bandits. They go where they want and cause havoc on a routine basis. If they run into the individual trader, the individual will get whacked. In fact they love to have individual's in the market. Each one is easy prey for their silling trading movements. 3). The institutional traders are like the calvary. Wherever they go, they bring others. They have the resources to deal with the large speculators and take them on whenever they get out of hand. They move with force and you can be sure where they go the markets will follow. Ride with the calvary and your trading will be easy.
Here is a friggin' classic case. Every day on another thread Joe Baker calcualted his LITSD (Line in the Sand) and Breakdown and Breakout levels along with his targets. Low and behold the Es (and other instruments) routinely hit these targets exactly. Pre-market saw weakness unfold the breakdown trigger and the low reached corresponding to the "Ultimate Target". Then throughout the day it looked like the market would eventually roll over as it advanced without much conviction. THEN it seems futures traders FORCED the ES up to the target or 1251. Now that they are happy, it likely will roll back down. Don't stock trades have anything to say about this? I thought stocks moved up and down based on demand from buyers and sellers and thus moved the "indexes" at least during market hours. But it is the other way around?!? Gilbert