A little trick I use to gauge the order book resistance without having to watch it all the time is to have a real fast tick chart (mine is 15 tick) to look at orderflow. And use a "cumulative delta" indicator.
Doing this, When the ES is in a very tight range sideways consolidation, you can clearly see is people are net delta buying or selling. Then I just watch the spring coil up and I can get my timing on the tape narrowed down sometimes to the second.
Dont make the mistake of trying to predict which way it will break. This is why some traders think CD is useless.
If you see CD falling and and price holding in strong, that is telling you that the orderbook is taking it well.
This trick takes a lot off your plate mentally.
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Just a general question here. If anybody knows the answer, please reply
Are the stock(etc.) exchanges a source of income for the large institutions?
1. What %age of their annual income comes from trading stocks,futures etc?
2. Do you think that these large institutions will quit operating on these trading vehicles someday in the future?
Last edited by rocky9281; March 26th, 2012 at 10:16 AM.
There is no such thing as a typical large institution.
There is a variety of larger actors that participate in the financial markets. Those actors include investment banks, brokers, pension funds, hedge funds, producers such as oil companies or grain and livestock manufacturers , commodities trading companies and many more.
Each of them probably has a policy for their investment and trading activities, so it is obvious that there is no general answer to your question. The percentage of income directly derived from trading really depends on the business model of the fund or corporation.
Whether large institutions will continue trading depends on risk adjusted returns. After all there shareholders or the customers of their funds will not allow them to gamble unless there is an appropriate reward. The risk adjusted returns depend on both market outlook and taxation. If a transaction tax is introduced, this may adversely affect risk adjusted returns and lead to reduced volume on stock and futures exchanges.
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Consider someone like Fidelity. They set up a mutual fund, set up the 'rules' or 'style; for it to follow - e.g. Emerging markets. Then they find a 'benchmark' from a company that sells indices (like S&P). Then they get someone to trade the style and attempt to beat the index.
They actually don't really care if the fund makes money or not. They run hundreds of funds and will always have some for the 'financial advisors' aka salesmen to show off.
They do care if they outperform the index - which is something totally passive and you could argue completely arbitrary. If the index loses 30% and the fund loses 28% - they did their job and will pat themselves on the back and take 4-5% off their customers.
Now - do they really give a crap if they made money or not? Not at all. They do this for the 4-5% of capital they charge their customers each year.
Salesman makes money
Fidelity makes money
Exchanges make money
Customer loses money
As they say in the industry - "three out of four ain't bad".
Hedge funds are a little different in that they only make money if the customer does. Trouble is, after a losing year, it's a lot easier to fold a hedge fund than to work your ass off clawing back prior losses before you can get paid again.
So - for these institutions, I am sure they will exist forever.
Institutions such as prop firms exist to make money and I see no reason they can't continue.
For other institutions, I only know 'gossip level' info. Such as Goldman having a big group of traders that suck $$$ out of the market. I have no idea idea how accurate such information is though.
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This is my last question for the time being: There are some stocks that consistently move 1-2% everydayin a particular direction (giving rise to nice trends) while others don't.
1.Why is this difference?
2.Will we continue to have this behaviour of those stocks well in the future too?