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anyone who's traded ES/NQ/YM/RTY knows that during the last 30 to 60 seconds before market close at 4:00pm EST, there's a huge surge in volume with the price moving all over the place.
i've always wondered why this occurs.
if it's traders closing their positions in order to not exceed overnight margin requirements, then why necessarily wait all the way until a minute before 4:00pm to close?
can someone chime in on what's actually going on here?
I think that is exactly right. I would hazard that many algorithmic trades are executed Market-on-Close which causes a surge of volume in the last few seconds of the cash session.
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There's probably lots of different reasons but the biggest is probably market on close. The time window you are talking about is when they closing or settlement price is determined. Institutional Trading desks have huge exposure to the closing or settlement price and have to mitigate this. Today the easiest way to do this is through the TAS or Trade at Settlement products. Before these products existed you had to manage the exposure yourself manually. Market Makers/Algo's make markets in these TAS products because its easy for them to make a tick. They then need to hedge/unwind these trades during the settlement window.
Real Life Example. I've worked on a Crude Oil Trading Desk at a very large energy trader, that was one of the larger desks for producer hedging. We would always be long what are called 'Calendar Month Average Swaps' which we had bought from producers. Each day a percentage of that swap expires or settles versus the closing/settlement price. (Eg in a month with 20 trading days, 5% of the position would settle each day). Since this position was hedged with short futures, we needed to buy back those futures every day at a price as close as we can to the settlement price.
This thread triggered in me to ask a 'similar' Q regarding 11:30 EST (less frequently and markedly 11:00). Don't know should have started a new one but here goes.....
There is often noticeable price action, activity, volume, market reversal etc. at this time of day. Often behaving quite similarly to EOD.
I've read a few ideas & posited a few of my own - such as London, Amsterdam, Frankfurt, Euronext Session Close, and LSE Futures (@11:00), confluence of timeframes' bar close/new bar 5, 15m, 1hr traders and the like.
But here's the thing - we recently passed through the DST/BST 'mismatch' when, for a couple of weeks US clocks go forward ahead of Europe's. I happened to notice that that which is discernible seemed, to some extent, to 'stick' with 11:30 EST (making it occur at 3:30pm in Europe rather than 4:30pm). Couldn't be sure and haven't spent hours analysing, only takes place for a couple of weeks a couple of times a year and it's not a big deal for me - but I do take notice of the 'European Session' range, hence my curiosity.
If anyone can shed any light, it could hasten the demise of a newly introduced brain-worm...
