estrader's saying that based on typical commissions and price fluctuations, the market is no longer attractive. Markets that aren't attractive to speculators will soon become unattracive to traders with longer time frames. Volume will decline. Traders will move onto other things. In commodites, the exchanges have long been capable of defining an infinitesimal tick. Why haven't they? Have the futures exchanges been mistaken all these years? OK, so the stock exchanges price their stocks in decimalized dollars (to three places!). Why did they think it was also a good idea to define the tick that small as well? For example, in the S&P contract, the size of the point is 0.01 of the index. However they defined the minimum tick as 10 points (for the big contract) and 25 points (for the emini). The stock exchanges forgot to establish a minimum fluctuation size. Whats the point of allowing traders to take the other side of meaninglessly small price moves, absorbing price fluctuations so small that they make no economic difference, quenching moves before they can begin? The result is markets that don't move. Markets that don't move, die. The whole point of trading is to have the price move through different levels so that all participants get a chance to trade at their price. By defining a minumum tick, you are saying that if the market moves, it must move at least a distance that matters economically, otherwise keep things right where they are. If price changes are the information which tells the story of a market, then a minimum tick assures that each data point is a change that mattered economically to some group of traders at a particular point in time. You are basically quantizing the market at the minimum packet size considered significant.
The futures exchanges know this. They know what makes a product attractive. What the SEC does is not going to encourage the CME to jump off the cliff as well. I mean whats the point of having a spread which does not even cover the typical transactions costs of the trade? Its becoming clear that futures are the proper trading vehicle while stocks are the ownership/investment vehicle.
>>Is it just me, or are you complaining about not being able to make money with the same methods the much-maligned market-makers use? Number one - I never complain. I am outraged at somebody trying to change something for the sake of change while nobody is asking for this change. Sounds just like a government method. I am making money, its just that it has become slow and boring to trade stocks because they are now more smooth. I dont know how you trade, but I sell at the price higher then I buy minus commissions. After the decimalization was introduce, I now have to wait longer for more ticks to break even. Regarding your comment about "much-maligned market-makers" - you sound like a socialism - if you cannot make money, nobody should? I personally dont care if they make or lose money, I know that bigger spread is best for me, and I dont need anybody to tell me that it is not, because I KNOW it is. >>Narrowing spreads implies that traders have to make an effort at price prediction (even at the 1-5min level), not just be quick on the keyboard exploiting an ARTIFICIAL, RULES-BASED structural barrier to 'true' price discovery getting premia for capturing noise. You are talking about traders that have $5000 accounts, the same ones whining about PDT rules, that dont know what they are doing anyway. "ARTIFICIAL, RULES-BASED structural barrier to 'true' price discovery"?!?!!? How is 1 penny not artificial? Why not go all they way to 0.000000000001 of a penny spread? In fact smaller spreads benefit large institutional players, because they can afford to buy in bigger volume to cover commissions and break even. >>I sympathize with your frustration, but this is life and we all know the rules: "Adapt or die." I already moved away from stocks. You got your thin spread stocks, leave me alone with my futures.
That news release was from June 13, 2000. Any other "breaking news" you want to give us? Perhaps Limberg crosses the Atlantic or J.P. Morgan dies in his sleep.
ok, well then, you're right. How'd that happen? It was on the CME home page when I opened it this am. Don't trade nq so I didn't pay any attention to it. At any rate, I like this argument you started, it won't go away. You know me, I'm a big tick man, but the other side has something to say also. I'll let you know when Grand Coolie breaks.
The issue to ponder is why does the CME think that INCREASING the tick size is a good thing, while the SEC thinks that decreasing the tick size to zero is good? My guess is the CME knows more that an appointed SEC head about how to make a market attractive and profitable.
Much-maligned just means "everyone complains about them". I'm not saying they're bad or good. I'm certainly not advocating socialism, nor am I a socialist. Exactly. My point was this: One's trading method is either based on exploiting discontinuity (larger tick vals), or is enhanced by greater continuity. The larger trend in markets around the world is that of narrowing spreads. If spreads go narrow (or more correctly: tick values go small), one has to learn to trade directionally instead of exploiting price discontinuity. No I'm not. I'm talking about efficient price discovery within the context of econometrics, and how large minimum tick values are a structural impediment to said discovery. Smaller spreads (and tick values) can benefit anyone who trades on a timeframe longer than the bar they're looking at. Institutions trade directionally-- they have so much money that capturing a tick is impossible. As tick values get smaller, we have to trade directionally (and more like the institutions-- disregarding their arbs, etc). I'm talking theoretically-- there are certainly factors with regard to contract popularity that the exchanges have to keep in mind. Sure, happily (I trade es anyway). But tick vals will never get larger. Some day, the game will be over and everything will trade like spot forex (0.0000). Regards, laz ps. spot Au @331 woohoo
Apples and oranges here. On the spot exchange you are buying something real (a currency) that you think is cheap and you want the minumum price possible, especially if you have a large position. You'd want a zero spread. In futures you are not buying or owning anything. You making side bets and scooping up points as the price changes. There is no benefit in having increments smaller than the cost of the transaction. Products that are sized too small and dont trade in good increments become too costly to trade in relation to the transaction costs and are unattractive. At the MidAm there are (or were) mini versions of grain contracts (which are already fairly small). No one trades them except for some guys with 2K in their accounts. The people who sit on the bid/ask spread are providing liquidity for those who trade directionally. The person who makes the market is not being a parasitical middleman who does nothing useful. Do you really think the ES bid ask size still would be 300 by 500 if the tick were .05 instread of .25? How attractive would the less liquid market be for the more noble and intelligent directional traders? Market makers in stocks have a bad reputation because they have systematic advantages over all other classes of traders. This should not imply that making a market is a useless activity if done in a fair and equal environment like a futures market.
Very good points... I agree totally. I am a directional trader and smaller ticks would most definitely be beneficial to myself. When I wish to enter, I normally use a market order especially with small tick values. When the tick grows then a limit is in order. So, if the tick drops on the eminis, great, I don't have to worry about my market order being overly priced. And in system backtesting, the slippage affect will be reduced to a negligible amount.