So what exactly moves the market again? | Traders Hideout


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So what exactly moves the market again?

  #5 (permalink)

North Carolina
 
Trading Experience: Beginner
Platform: NinjaTrader, Tradestation
Favorite Futures: es
 
Posts: 644 since Nov 2011

@Revan
You have a certain model of how things work. It is not precisely accurate. In the futures market, all buys and sells are matched and equal. It is the aggressive trade that moves the market: the market order. Actually, if you think about buyers/sellers on the limit order there are always buyers/sellers in a liquid market but they aren't willing to cross/pay the spread. They are passive and thus normally do not move the price (though they can determine it). Also, not every trader will trade the same size: you could have 1 trader who wants to sell 1000 and 1000 traders who want to buy 1 lot. Does it mean the trader who wants to sell 1000 will move the market? Only if they are willing to cross the spread.

In simple terms, it helps to think about a supply/demand curve. There is going to be more supply and more demand at higher and lower prices respectively. In other words, there is limited supply/demand at any price and time. Price and time is key because everything can change from moment to moment. As such, the thought of a supply/demand curve does not really tell you how the market works even though it is a good start.

Imagine a market with only 2 traders and one transaction. The market trader buys at market and the limit trader sells at limit. The market order trade moved the market. All of that information is now priced in. In this model, neither trader can close for profit unless one decides to take a loss or a new buyer/seller enters the market. It is the new information, new trader, that moves the market primarily. It is possible to go a lot deeper into understanding these dynamics. It helps to understand markets can also move without a lot volume. For example, if some very negative or positive report or news came out, it might cause both the limit and market order traders to change their perception of value.


Last edited by tpredictor; May 10th, 2018 at 12:55 PM.
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