What is the best way to trade low-volume (ie. lightly traded) markets such as the mini-ags? Are there any advantages of trading a low-volume market over a high-volume market?
Speculators believe they are able to profit from the markets because the markets are inefficient. Wouldn't that imply that trading low-volume markets would be more profitable than trading high-volume markets because they are less efficient? General consensus in other threads seems to be "stay away from low-volume markets".
IMO inefficiencies are the human way to do things, humans(the majority) rely on emotions rather than the rationality in relation with their money, its an innate concoction of greed and fear. To avoid to many details the more the people, the greater the mob, the more the inefficiencies. Where as with low-volume stocks/markets the best play is a pump and dump, and in this case the person with the greatest buying power usually wins.
1) If you can't comfortably margin a 1-lot of the 5000-bushel grain contracts, don't bother with the minis at all. 2) There are no advantages to trading a low-volume market. A high volume market gives you better opportunity to turn your money over more quickly and reduce slippage.
Thanks for your answer. What about strategies using limit orders? Can market makers profit from these kind of markets, or do they too prefer high volume markets?
I guess that if there were profitable strategies in low-volume markets, then people would flock to them and they would cease to be low-volume markets. The question is then, who trades these low-volume markets like mini-ags and what strategies do they use? The problem is, we probably wont get an answer from one of them because there are so few.
According to Ernest Chan, there is an advantage in trading thinly traded stocks: you dont have to compete with the big funds. http://www.traders.com/Documentation/FEEDbk_Docs/2009/07/Interview.html He also thinks there are opportunities in trading low-priced stocks.
Yes there are more inefficiencies in regards to pricing, but low volume makes it tougher to hold a position since you will find the market gets pushed around easily.