Natural markets and hybrid markets

Discussion in 'Financial Futures' started by steveosborne, Nov 7, 2005.

  1. The purpose of this thread is to identify theoretical differences between various financial and commodity markets and to determine how trading systems should be adjusted to take account of those differences. I separate markets in two groups, natural markets and hybrid markets.
    <p>1. Market participants in <i>natural markets</i> are <b>private agents</b> maximizing profit or minimizing risk (with options for example) where the price of goods/assets <b>continuously</b> reflects the information available and expectations derived from it.</p><p>2. <i>Hybrid markets</i> include both <b>private and public agents</b> where the participating public entity <b>occasionally intervenes</b> to set or influence the price of some of the goods/assets traded.</p>Bond markets where the price of money (interest rate) is established are hybrid markets due to the occasional participation of a central bank that exercises its power to set a price -- the bank rate or the discount rate. Because of the existence of private agents trading on the basis of their expectations, the other prices (bills, notes, bonds rates) usually incorporate the expected action from the central bank before it intervenes. The power of one market participant to set or influence prices is enough to make the behavior of that agent the most important variable to anticipate so the timing of its actions (set by a calendar in the United States) becomes the boundaries within which expectations are formed. Other important boundaries are, by extension, release dates of key statistical data used by the central bank to make its decisions.

    <b>The existence of time boundaries means that price expectations will form over a time segment bounded by important key dates. The formation of market expectations within time segments instead of price discovery over a continuous ad infinitum timeline should be taken into account when trading reversals in hybrid markets because any reversal in sight will have to be timed with time boundaries.</b>

    The foreign exchange market is also a hybrid market because of the direct influence central banks and fiscal authorities have over the value of assets traded.

    The stock market and the oil market on the other hand are natural markets, also influenced by time boundaries but to a much less direct and much smaller extent.
  2. it sounds like you've lost your ass and can't figure out why....
  3. At least I don't blame the markets, but don't you worry about my ass, it's gonna be riding a nice little rally –- 10 Yr Note back to 112.
  4. Ok,

    you're up against fat white guys with forests full paper and barrels full of ink and empowered by an unsuspecting populace.....

    if imperialism ever goes out of style, we may make some money.....

    until then, make sure you can meet your margin calls.......
  5. No margin calls in my world. Options only.
  6. But surely, all markets could be either- or.
    How is a crop report that different from an interest rate decision-and how is a "big" private player, in real terms of "setting" a price (on a low vol stock for example) actually different from the fed doing something-which as you state, everyones jockeying around for positions on anyway?

    I dont know, but if your looking for theoretical differences between markets, you only have the chart behavior to go on, surely.
  7. landboy


    A rally to 112 won't be very "little." What's your reasoning mister?
  8. the probem is that if you don't know the number before it hits the market, you are basically a retail chump..............

    goldman knows the number, fvcking pickers are guessing.......

    how did Hillary do a $1K cattle option trade into $100K overnite gain?? easy....she was shown how to chunk the market.....

    the real question is why didn't she try it again? we'll let you answer............
  9. Welcome to my world.
  10. I was hoping somebody would post this to allow me to clarify. The crop report and even OPEC's quota modifications reflect supply and demand in the ECONOMY while the Fed's decision, which also reflects supply and demand in the economy is a DIRECT ACTION ON MARKET PRICES.

    Fed's rate decisions can be forecasted and happen on specific dates, which creates a time structure for trading, while the big player's decision are unknown in advance by others, happen unexpectedly, usually don't affect trends and are therefore "shocks" in the market.

    All markets are different and they all have their specific constraints. For example, you'll very seldom see liquidation of long positions in the oil market ahead of a weekend because there are not a lot of surprises that could happen over the weekend that would bring prices down on Monday, while for stocks it's very different. Another example of constraint would be, and this one seems to be in all markets, that rally tend to start on Mondays or Tuesdays but seldom on Fridays (because of the weekend's interruption).
    #10     Nov 8, 2005