Scrolling thru a CL chart (probably other instruments also) there are often times where volume is just dead on each 1-minute bar (100, 156, 87, 172, 110).......................then out of nowhere the next 1 minute bar has a huge range with volume of 1500. Does anyone know what accounts for situations like that? Why would a large firm dump a bunch of contracts or short sell all at once & most likely get bad fills? I would guess it's something to do with hedging or options or something other than just plain outright selling, but I don't know. Does anyone know or know of any resources which explain the background/mechanics of the CL market? (This is not a news event I'm talking about, at least not any news event that I know of).
Can't find the example I was looking at earlier, but here's a few: 1/15 2:14 ET bar. Avg of 300 volume per bar jumps to 3100 volume. 12/27 12:03 ET bar. Volume goes from under 200 avg the last 20 bars to 1659. 11/14 10:11 ET bar 5500 volume. Are there that many traders that all panic at the same time, or is it something more complicated having to do with hedging or options or whatever else the big guys are involved in? It would be cool to get a readout for a day of who placed all of the trades & the reason for the trades just to get a better understanding of how it all works, but I don't think that's going to happen.
Not an answer to your question, just interesting reading on CL Futures http://www.eia.gov/finance/markets/financial_markets.cfm
Is it possible that your data provider is including exchange supported spread volume ? A similar phenomenom happens when I enable synthetic spread volume into the Trading Technologies volume prints. The spreads will trade much higher volume at a given price than the flat price futures when the exchange's internal order matching algorithm fills an exchange spread.
That could be any number of things. Someone hedging fixed price. Someone spec'ing via a big position. An option market maker laying off deltas. A swaps market maker laying off risk. There's really no way of telling for sure.
Do you know of any publications which talk about the different operations that go on in the futures markets? I know very little about hedging & have no idea what "laying off deltas" means, or what a "swaps market maker" is. I think it might be helpful to know a little background on how the markets actually work. The EIA website had some interesting reading.
I don't really know of any publications detailing the exact make up of the global system. The CME market alone has counterparties from every continent. If you want a decent foundation, get a Series 3 license (you don't need a sponsor and you will learn vast amounts). There is a relatively large over-the-counter energy market that operates outside Globex. To spec in this market you need $10m, to hedge in this market you need $1m. Hedgers are the Conocos, Shells, and utilities of the world. They use the OTC swap market to hedge their price exposure to natgas, coal, crude, jet fuel, electricity, etc. Speculators are hedge funds and trading firms either trading directionally, trading spreads, or otherwise looking to trade and are not defined as "bona fide hedgers" by the CFTC. An option market maker makes option markets in the OTC world. They show a bid and an ask and usually for much better size than the screen. If they trade, then need to hedge their risk by trading the deltas against their position. For more on delta and the rest of the Greeks, look into Natenberg or Hull. A swaps market maker is a firm who trades the OTC swap products against the screen listed futures products. Like the option MM, they show a bid and an ask, and if they enter a trade, they hedge it with futures according to their pricing models. This is probably more confusing, but hope it helps.
If you are already in your position and on the right side when you see those 1500 volumes shoot off. Good time to take some or all of your position off the table