I Trade the spy's mostly and lately the spread on Island is widening (lets say dropping for this question) before the SP500 futures pit bid drops. The bid will drop out of site before an order is sent to the SP500 pit. I listen to the SP500 pit live and watch a chart of the spoos right beside a Rediplus SPY level II and the prints. Before the pit can call the bid lower. The SPY bid on Island has already dropped out. How is this possible?
Funny you bring this up Tradesman. I trade NQ more than ES, and QQQ rather than SPY is on my screen. For the past few days i've noticed the same thing. When I see the QQQ bid drop, I get very antsy if I'm long leaning on the NQ bid, cause there's a good chancr it's gonna be gone a second later. More and more I've been thinking that futures don't always lead the market.
Although somewhat unusual, it is not impossible [obviously.] The "cash" will sometimes lead the futures. nitro
One of the reasons for the bid dropping, is that there are traders in the S&P pit arbing against the SPY in realtime, and also the NAZ futures against the QQQ. So they will eat up the first couple levels of the inside price of SPY/QQQ before you'll see it reflected in the eminis or the squawk from the pit. Plus we've been having lower than usual volume lately, so you will see less bid/offers on the inside market. noego
I would be curious if the same thing is happening with the big index stocks, ie MSFT bid drops- QQQ bid drops--NQ bid drops.
My guess is: definitely YES! If you're an arb trader in the pit, and it's getting tougher and tougher to even get a fill, when arbing/trading between the eminis and the regular contract, why not go where there actually are some sheep still left!? Also, some people might not know this, but since the big S&P contract trades in 10 cent increments and the S&P emini contract trades at 25 cent increment, some of the traders work together, i.e.. as a team, where one tries to get a favorable price in the pit, i.e buys 10 contracts at 900.10 and the other globex trader sells 50 emini contracts at 900.25, they are able to lock in an almost riskless profit of 15 cents on 10 contracts which equals to $375 minus fees . Of course they can only do this because they're members/member lessees and trade with extremely low commissions, plus, for this to work, they need to know the actual/realtime supply/demand in the pit, and thus know which side to lean on. Oh, and that is part of the reason why the CME doesn't give out the actual/realtime BID/ASK size to the public, so the members ar able retain their edge, if not for this edge all the locals would be no better off trading upstairs, and the pit would seize to exist. =)
i may not have this correct but could the reason the be ones electronic vs human ... where theres more slippage in the pit??
Yes the cash will occasionally lead the futures. This phenomenon, however, is not the cash leading the futures. The cash would be GE, MSFT etc., while SPY for scalping purposes is just like another kind of futures contract. It is only logical that SPY and QQQ on ISLD move very early since ISLD (although being run by corrupt circus monkeys) provides very fast executions.
How would Island consistently know which direction to move before the futures pit knows. Don't the SPY take their direction from the futures? One might speculate that persons trading the SPY's on Island have to know the order flow that's getting sent before it gets sent to the pit. I don't know I am guessing. or if not the answer might be the futures are taking direction from the SPY's (which is a combined cash).