That type of program trading that you speak of is called "Stock Index Arbitrage" which accounts for 10.5% of the volume.
How I understand it is that program trading contributes to intraday volatility from the buy and sell programs going off throughout the day - programs sell futures and buy stocks, and sell stocks and buy futures repeatedly. If you can tell when a big buy program is going down you can catch a quick move in price. If this is incorrect post your info.
my theory is that eventually the markets will go totally flat for an extended period of time, as an end result of the quant driven program trading machines. this time may last 10-20 years and it may begin very very soon..... surfer Surf- From what i've read most of the quant based funds that use these type of trading programs trade commodities, futures, and currenices. It seems like from what i've seen most of them shy away from stocks, because it is more difficult to get in and out of them as qucikly and with the amount of size they need to exploit any innefiencies, without pushing things back to (their precieved)equilibrium. But I think i agree with you too a certain extent, the low volume combined with the increased quant programs may be what is killing market volatility with the VIX being so low and showing no signs of improving any time soon. I know you're one of the few people on this site that actually knows what their talking about, so I'm interested in hearing more about your idea of the market going totally flat for extended periods of time, and other effects of the quant funds.
ROFL! After the 1987 crash, Rep. Markey etal accused program trading of exasperating the unprecedented volatility. Now fabled neo-Gann theorist Market Surfer says QUANT driven programs will doom ES into a continual abyss of 3pt ranges for DECADES! Wow, just as I was testing a momentum based breakout strat. Guys. There is NO CORRELATION between program trading volume and volatility. None. Zilch. Program trading was as dominant 18 months ago as it is today and the indices had unprecedented day to day volatility. What's happening is that while futures are occasionally trading out of equilibrium to cash allowing either index arbs to whack the futs back into fair value or as Waggie points out programs are choosing the cheapest instrument to buy, whether it be futures or stocks. Nothing new. Treasury futures are as widely arbed as stock index futs. No shortage of movement there. Someday portfolio managers will once again buy puts for insurance. Options MM's will one day have down side risk and actually sell futures, and maybe just maybe, futures will lead a sustained trend day. This like all cycles will pass. Ain't nothing new under the sun in terms of repeatable market patterns.
Since we always hear about NYSE program trading, I'm wondering if program trading is performed to an equal extent on NASDAQ issues or if the figure are substantially different. Anybody have any info on this?
agree to a point...however programs are just part of the equation. Government regulation and intervention into the markets combined with microspreads will make the markets move like paint drys. It will definitly be the death of the bandit scalper who trades in and out for pennies.