In my trading window, I usually display future contracts (say SP500, DAX, HSI, SPI, etc) of different maturity dates. Watching them closely, I noticed their price movement pattern. The prices (both bids and ask prices) of these contracts move simultaneously in either direction even if they are not trading. I am wondering who moves prices? Is it automated by the exchange house? Thanks
Market makers, traders, brokers, etc. Scenerio 1: Most markets are electronic. Say I have an offer on the screen of 100. A retail guy enters 99 bid. He then enters 99.5. them 99.8. I say, you had your chance now I'm 101 offer. 2: I'm a market maker, I've got an automated bid/ask in the system for a future. No trades take place but some of the components in the index tick or trade. The underlying cash increases and I just move by spread higher in relation to the fair value of the future. 3: A combo/roll market is entered in for a future. If one month ticks/trades higher, the other months will follow in order to maintain the combo prices. (ie. if I'm willing to pay 5 for the roll then a bid will be made 5 points higher in the second month off of the active front month future. 4: I make a market in 5 different futures. Say SPX and ES to make it simple. If we trade the SPX, we'll move our ES along with our SPX price. 5: Europe rallies, US moves, vice versa 6: etc.
Thanks def for the explanations! I am still wondering why Hangseng Index future makes a sudden leap (up or down) when wallstreet makes a big move? There is no smooth transition between previous day's closing price and following day's openings price...As HSI jumps wildly, I rarely keep it overnight.
It doesn't trade overnight thus the market takes into account overseas moves while the market is closed. For example, HSBC is 29.8% of the index. It trades in London and the US. At a minimum, the future will reflect the HSBC overnight move.
are the bids and offers overnight various firms , hedge funds , competing with each other or is it one or two well capitalized funds making a market and sometimes just moving prices up and down to hit stops and produce profits for them ?
Some exchanges frequently calculate 'fair' settlement prices for calendar spreads and OTM options that may not have traded for say, the last hour of trading. Quite common. I think it's necessary for SPAN clearing.
I'm certain they don't do this for SPI and HSI. They only disseminate markets if there is an actual market being made.