You've never worked at a top tier firm have you? Even if true, you're talking about one deal out of thousands they did, one trade out of probably hundreds of thousands they did. Big deal. Maybe you need to re-think your own trading and stop blaming GS.
Stop thinking about "little guy" vs "big guy". Think "smart" vs "stupid". Hedge funds are much smaller than the bulge bracket firms yet still beat them regularly. And at one point almost all hedge funds started out small yet were able to get the returns required to grow bigger. The guy from Citadel started off in his dorm room!
you don't understand the point. the little guy is who they sold the change to decimalization for. they came out and said the evil pro's were capturing this big spread and the "little" guy was getting screwed. so let's change it to pennies.... then the little guy won't lose the spread. problem is the little guy participates by putting his money in a mutual fund or some other institution. the institutions have complained that given the fragmentation, not only does this hamper their own traders but it also creates more cost trying to process multiple trades due to the fragmentation of size. and let's not forget the front running by the specialist...... it has nothing to do with the hedge funds... unless you are talking about bot's at funds and then to be honest they are but a very small piece of the volume pie.
I coin hand over fist right now even with weak vol. Was long KBH into earnings today for a massive gain. As I explicitely stated early in the thread, this was for traders who were curious about black box strategies and the prevelance of shorting volatility in the market. Not knowing about these dynamics depending on capital and strategy can hurt you while knowing about the context you trade in can only help you. You are falsely intepreteting wanting to know about the influential systems you are competing against and that control the market and sub markets at times with not being able to coin or be successful in the markets. Sometimes its not a matter of winning and losing, its a matter of winning and winning big. To get to the latter, constant information and knowledge accumulation is imperative.
Obviously, you don't like to read: "This is not a loser framework: "Blame the hedge funds and Big Prop desk" thread. This is more of a "what the hell is going on" thread with the intention of enlightening the "Little" guy David as to the battleground landscape of the markets and the manipulative strategies of the Goliaths out there."
this gets funnier with each post!! maybe youd like to explain how 'goliaths' manipulate the market with black boxes? COME ON, I DOUBLE DARE YOU!!! i dont think you can. i still think you are looking in the wrong place and so will come to incorrect conclusions - which is why you feel the need to express your fantasy wins on these boards, when the real traders and winners dont. heres a thought for you - algorithms generally, are REACTIVE as they are MECHANICAL. they RESPOND to the INPUTS they are given (order book data). so they can not manipulate. to manipulate requires INITIATIVE. it requires a body/organisation to DECIDE to move prices. yes they may use an algorithm for the execution itself, but not the decision to do so. this is why your argument, thought process is so fubar. point - most people are familiar with an index arb algorithm where the cash and futures anomalies are traded. in order for such an anomaly to occur, someone somewhere has to INITIATE and push one of the markets out of line before the programmes REACT. do you get the picture now? i still think you need to go away and do some reading and thinking before you start trying to get clever with your cut n paste like you know something. im sure you will be pleased to know that i doubt ill post on this thread again as i think its pointless trying to discuss an issue with someone who is ignorant, and refuses to do the necessary work to find the answers to their problems - especially when the perceived problems only exist in their head, and the real problems lie elsewhere. good luck.
'Gunning' Plays Can Claim Victims in the Futures Pit by Elyse Tanouye 6/17/92 - reprinted with permission of The Wall Street Journal "Well-known commodities trader Richard J. Dennis says he tries to anticipate where technical traders have placed their stops and gauge the effect that activation of the stops will have on prices. "If you look at charts, you can make a reasonable guess about where the stops are," Mr Dennis says, adding that he uses this information to avoid those areas. "They're a little bit like land mines going off, and you don't want to walk into the mine field." "Some Wall Street "rocket scientists" have honed the quesswork more precisely. They are able to identify which technical system is prevailing at the moment and what signals the system will give out at different price levels, Mr. Nichols says. These sophisticated traders then use that insight to devise trading strategies accordingly, he says." In terms of combating and attacking the black box strategies for profit, most likely would be going down the correct path by looking at the second paragraph. "These sophisticated traders then use that insight to devise trading strategies accordingly, he says." This article was printed in 1992. http://www.webtrading.com/articles/trading1-9.htm 'Gunning' Plays Can Claim Victims in the Futures Pit by Elyse Tanouye 6/17/92 - reprinted with permission of The Wall Street Journal Just a few minutes before trading closed on New York's Commodity Exchange one sleepy autumn afternoon, all hell broke loose. Another of the many games traders play was afoot. In the cooper futures pit, a surge of buy orders cascaded onto the floor. Normally such late activity barely budges prices. But on this day, 10-8, so many top dealers and left early for the London Metal Exchange's gala annual dinner that there weren't many sellers around to accommodate the buyers. Copper prices soared nearly three cents a pound. The few junior traders still at their posts quickly concluded that someone was trying to exploit the market's inattention to push cooper futures prices about $1.07 a pound, a level deemed crucial by traders who use technical analysis. A price move above $1.07, it was widely assumed, would trigger "buy" signals amount trend-watching commodity funds, prompting the automatic execution of a heap of standing purchase orders. Such ahead-of-time orders are known as "stops," which is why this game is called "gunning for stops." The idea was to induce a flood of buying above $1.07, whereupon cooper would soar even higher, at which point the trader who started the game could sell out at a profit. The game probably fails more often than it works, traders say. In this case, the price touched $1.07, but didn't rise any further; it fell back a penny at the close. That's the risk people run in gunning for stops, traders say. Yet the game can pay off handsomely, and it is much in evidence in many of today's commodity markets. Gunning can work because so much of futures trading nowadays is based on systems that use widely available technical indicators such as moving averages and momentum yardsticks with authoritative-sounding names such as relative strength and stochastics. In some cases, traders can guess from market talk and by looking at price charts where the key levels are. And they know that traders usually place stops around those critical areas. Money managers and other futures traders have complained privately for years about floor traders engineering price movements to trigger stops and computer-generated signals to buy and sell. But in this and other cases recently, they suspect, very large players were trying their hand at the game. If so, they say it is a disturbing development. "This is a very controversial issue," says one commodity futures money manager. We're very, very unhappy about it." Who gets hurt by traders playing the game? Anyone whose stop was triggered artificially. Those people may be forced to take profits too early, sustain losses they wouldn't otherwise incur or take positions based on false price signals, traders and analysts say. And when those traders are money managers, their investors get hurt. Technical traders are particularly vulnerable to getting whipsawed by these short-term price swings, says Fred Demler, metals economist at PaineWebber Group Inc. Sumitomo Corp's Yasuo Hamanaka later confirmed he had placed buy orders at the end of the 10-8 session, but denied they were speculative. Mr. Hamanaka has a reputation as an aggressive trader. He made similar denials - met with skepticism - when he was rumored to be behind squeezes in the London market last year. In recent years, Middle Eastern syndicates are thought to have used the stops-gunning strategy in precious metals markets. And some people think big U.S. commodity funds have figured out how to profit either from riding the coattails of other players using the strategy or by doing it themselves. Traders won't admit they gun for stops. And regulators say it's next to impossible to prove that a price move was the result of manipulation, which is illegal. But few people in the market deny that it goes on, and some say they've noticed it occurring more frequently in the past year. "It happens all the time," says a sugar trader. In the past year, he adds, he's seen more investors "getting stopped out" by a sudden-moving market that triggers their stop orders. That could simply be the unorchestrated result of a choppy, thinly traded market, he says, but people are blaming traders for gunning their stops. "When it's happened to me, I've been extremely angry," says George Milling-Stanley, precious metals analyst at Shearson Lehman Brothers. Trade recommendations he has made to individual investors have lost money, he says, because traders went gunning for stops. For example, suppose he thinks gold will rise and recommends clients buy it at $335 an ounce - adding that they should put in a stop-loss order at $333 in case he is wrong. Then suppose some traders gun the market down to the stop levels, which sells the investors out of their positions at losses, and the price subsequently rises above $335 as originally expected. "You feel like someone's stolen the march on you," he says. Jeff Nichols, a Boca Raton, Fla., precious metals consultant, says a well-capitalized floor trader can occasionally pull off such a move in small, thinly traded markets, particularly if other traders sense what's going on and join in. But in larger markets, such as currencies, it takes a lot of money to gun for stops successfully because the player has to be able to buy or sell contracts in significant quantities, Mr. Nichols says. Well-known commodities trader Richard J. Dennis says he tries to anticipate where technical traders have placed their stops and gauge the effect that activation of the stops will have on prices. "If you look at charts, you can make a reasonable guess about where the stops are," Mr Dennis says, adding that he uses this information to avoid those areas. "They're a little bit like land mines going off, and you don't want to walk into the mine field." Some Wall Street "rocket scientists" have honed the quesswork more precisely. They are able to identify which technical system is prevailing at the moment and what signals the system will give out at different price levels, Mr. Nichols says. These sophisticated traders then use that insight to devise trading strategies accordingly, he says. One futures money manager thinks stop-gunning traders neither guess nor use computers, but instead are learning through their brokers and other sources where the big orders are sitting. "I wonder if this were the securities industry, if (traders who gun for stops) wouldn't be in jail for this type of thing," he says. Brokers who disclose such information would be violating federal regulations and exchange rules. But there are more subtle ways the information leaks out, traders say, such as through winks and nods and euphemisms. "They don't come out and say "I have an order at six," says a former New York trader. "They say, I think there's good resistance at six." In the crowded trading pits, traders can also find out about stop orders when they catch a glimpse-accidentally or intentionally-of other brokers' order cards, says an analyst. Because they have little hope of a regulatory crackdown, gunning victims say they have learned to accept it as just another risk in trading commodities. "If you want to play with the big boys, that's the way it works," Mr. Nichols says. To avoid being stung, many money managers no longer place stop orders, says Jane Martin, executive director of the Managed Futures Association. Other market players, says Mr. Milling-Stanley of Shearson, have learned to protect themselves by placing stops further away from current prices. Experienced traders recommend moving stops when activity looks suspicious. Market users must be especially alert during slow-trading periods, such as during banking, international or religious holidays, says Mr. Demier of PaineWebber. Still others try to take advantage of the strategy without actually playing it. Malinda Pinson, partner of Fundamental Futures, an Ankeny, Iowa, money management firm, says her firm watches for such things as gunning stops for opportunities to execute trades that it would have made anyway. "We have learned to wait until the technical traders' stops are triggered," she says. As the "big machine traders" start selling, her firm starts buying, she explains.
3. Let me give you an example. In the fx market, a thomson financial fx analyst told me that he knew exactly how much it would take to move the dollar/yen 3 pips at a specific time in the asian session, meaning he knew exactly how much capital it would take to move the market and how much it would move it. tomcole: "FX analysts are at the low end of the food chain. They crank out reports to be read by other low enders. Nobody cares." I guess the chief analyst I talked to at Thomson who talks to dealers and traders at the major banks doesn't have a clue. 4. Or a bank in collaboration with a hedge fund client defending an option they sold to other players preventing the market from passing that level until the option has expired and the capital allocated to defend it has been used up. " This statement makes no sense whatsoever" Try some reading, maybe it will make more sense. "Pushing the edge Gunning the spot market to get it to trade 113 might, of course, be one alternative. But as shown by the experience of Merrill Lynch and several large hedge funds in 1995-involving a knockout level in Venezuelan bonds-this is sometimes easier said than done. In that instance a number of large hedge funds bought puts that only "appeared," or knocked-in, should a given level in the price of the bonds be touched. After buying the puts, however, the hedge funds then bought large quantities of bonds in such a manner that they hoped to actually cause the knock-in level to be reached. If the trade had worked, the hedge funds would have earned a high coupon on their Venezuelan bonds with no price risk, since their puts would have "appeared" to protect their principle investment. Merrill Lynch, the seller of the knock-in options, had different economic interests and valiantly worked to prevent the knock-in level from being reached. In the end the price of the bonds collapsed without the knock-in level clearly having been breached, and the hedge funds and Merrill Lynch ended up in court. " http://www.derivativesstrategy.com/magazine/archive/1995-1996/0796fea3.asp Barrier grief: hedge funds INDEXTERMS Financial markets|United States, hedge funds, barrier-option controversy;Options|UnitedStates, hedge funds' use DATE18-Mar-95WORDS713NEW YORKWHEN does legitimate speculation become illegal market manipulation? That question has beenasked before of hedge funds, which have gained notoriety by placing big, one-way bets onmarkets and making large profits - and sometimes equally large losses - on them. Now thequestion is being asked with increasing insistence because some hedge funds have been usinginstruments which give them a huge incentive to manipulate prices in their own favour. The instruments at the heart of the controversy are 'barrier options'. These are variants ofstandard financial options, which give their owners the right to buy or sell an underlying asset atan agreed price in future. They come in two types: a 'knock-in' option, which is activated onlywhen the price of the instrument or market underlying the option reaches a certain level aboveor below an agreed range; and a 'knock-out' option, which becomes worthless if the price of theunderlying asset or market reaches a pre-agreed point. Barrier options can be useful hedging instruments. Imagine an American company that isworried that if the dollar falls below YEN97 it will suffer an intolerable loss of earnings.However, if the dollar were to rise above YEN102, the company would cease to worry about itsforeign-exchange exposure. It could hedge this risk by purchasing a knock-out option thatwould protect it below YEN97, but would expire worthless if the dollar reaches YEN102. The chief advantage of barrier options is that they are considerably cheaper than normal onesbecause the probability that they will be exercised is lower. This endears them to hedge funds,which thrive on achieving the biggest bang for their buck. When a barrier is breached in theirfavour, the funds make a hefty return on the relatively small amount of money they pay forknock-in or knock-out options in the first place. The problem comes when prices move close to a barrier option's trigger point. The buyer of aknock-in option has a big incentive to push them above that point to ensure a pay-out; theoption's seller has an equally big incentive to keep prices below that level. In the case ofknock-out options, the incentives are reversed. The temptation to nudge prices can be hard toresist if the result will make a big difference to hedge funds' performance, and hence to the feestheir managers earn. In the case of a huge and liquid market such as foreign exchange, a single investor might judge ittoo risky and impractical to try moving prices. But if enough big investors have the sameinterests, they can certainly exert significant pressure on the market. And in less liquid markets,say options dealers, that pressure may be enough to move prices artificially. As one banker puts1 of 21/4/99 3:37 PMBarrier grief: hedge fundshttp://www.economist.com/archive/view.cgi -------------------------------------- ------------------------------------------ Page 2 it: 'You reach the stage where you are no longer hedging or even speculating, you are simplyrigging the market.' Emerging markets, which are relatively small and illiquid, are particularly vulnerable to this. In atleast one case, such a market has already seen a fierce battle between a buyer and seller ofknock-in options. In late 1994 and early this year, Merrill Lynch, an American investment bank,and a fund managed on behalf of Michael Steinhardt, a well-known hedge-fund manager,slugged it out in the market for Venezuelan Brady bonds (repackaged debt partially backed byAmerican Treasury bonds). The fund owned a knock-in option and was trying to push up prices by buying huge quantities ofbonds. Merrill, which had sold the option, used all of its muscle to keep them below the point atwhich the option would have been triggered. This may explain why trading volumes in thisotherwise obscure market soared: on December 9th, at the height of the battle, some $ 1.5billion-worth of the almost $ 7 billion of outstanding Venezuelan Brady bonds changed hands,pushing up prices by 10%. Merrill Lynch eventually won this titanic struggle, but at a considerable cost. The Securities andExchange Commission, which can oversee the trading of foreign bonds by American investors,is said to be investigating the affair. Even if it finds that these options make it a little tootempting to manipulate the market, it will find it difficult to knock out knock-outs. © 1995 The Economist Newspaper Limited. All rights reserved 2 of 21/4/99 3:37 PMBarrier grief: hedge fundshttp://www.economist.com/archive/view.cgi 5. There are mechanisms in place where the market is "fixed", like a slot machine in Vegas. Of course, You can walk into the casino knowing how to count cards at the BJ table or just pull down the trigger on the slot machines and hope for the best. I am more inclined for the former. "Yet more silly comments" If I had enough capital, depending on the float and you showed me your portfolio and I picked an "attractive" stock to fit my strategy, I could keep the stock down if I wanted to, period. So, regardless of near term fundamentals of the company, if I wanted it down, the stock would be down. Period. Of course, this is depending on the float and how capitalized I would be, but I could fix the a sub market for a period of time. In reverse, again, depending on the float and how well capitalized I would be, if I wanted to "walk" a stock up, I could. I could fix a market regardless of fundamentals. Do you debate this?If you don't understand that there is a lot of "fixing" in the market, you are simply naive, moronic, overly optimistic in the ethics and nerve of your peers or all the above. I am a profitable trader but with more information and more context as to the "real" and "ghost" market dynamics, this information would only help someone's trading depending on their style and system. >>Profitable traders never talk about it, they simply say I've done this for x years. Hmm, I guess all those bright guys in Market Wizards were not that profitable. LOL Or when Soros and his "allies" gunned the pound/cable/sterling down on a massive score talked to the London Times and bragged and blabbed "We did short a lot of sterling and we did make a lot of money, beacause our funds are so large. We must have been the biggest single factor in the market in the days before the ERM fell apart" Soros: "Our total position by Black Wednesday had to be almost 10 billion." We planned to sell more than that" "In fact when Norman Lamont said that just before the devaluation he would borrow nearly $15 billion to defend sterling we were amused because that was about how much we wanted to sell." I guess Soros bragging to Anatole Kaletsky in the London Times negates how great of a trader he was. I have to quote this again because it is so funny: ">>Profitable traders never talk about it, they simply say I've done this for x years." By this metric, I guess Soros wasn't profitable! 6. (1) Faking size on L2, (2) naked shorting, (3) intentionally paying a superior or inferior price for a stock to sweep and gun at stops and buying and selling into the covering or forced selling, etc (smalltime stuff vs unkown bigger and influential strategies) "Again, all very different trades. This comment simply shows your lack of experience. Running stops, naked shorting, doing sweeps are all profitable, high risk trades" Again, you are not following. Certaintly, these stategies and weapons can be profitable. Where did I say these strategies were not?