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how exactly does the price of an index rise/fall?
Started:December 26th, 2011 (09:16 PM) by iPlayGames Views / Replies:1,241 / 14
Last Reply:January 4th, 2012 (03:04 AM) Attachments:0

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how exactly does the price of an index rise/fall?

Old December 26th, 2011, 09:16 PM   #1 (permalink)
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how exactly does the price of an index rise/fall?

how exactly does the price of an index rise/fall? I know the usual supply/demand answer to this, what I'm looking for is a detailed description of the underlying mechanism of price increasing/decreasing 1 tick.

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Old December 26th, 2011, 09:16 PM   #2 (permalink)
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Old December 27th, 2011, 05:18 AM   #3 (permalink)
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iPlayGames View Post
how exactly does the price of an index rise/fall? I know the usual supply/demand answer to this, what I'm looking for is a detailed description of the underlying mechanism of price increasing/decreasing 1 tick.

It is simple. It does not. It is artificial.

Basically you take an index and it tells you how it is calculated. For example one COULD say the "Bumper" indexis calcualted every second from the lat known tick of a certain groups of stocks (and the weight of my whilky glass in grams) divided by 42.

Then, every second my computer makes the calculation and publishes the value.

So, supply / dmenad etc. do not enter here. AND: at th end whoever calculates the index determines how it is done - especiall the frequency.

Dow Jones Industrial Average - Wikipedia, the free encyclopedia has some more info.

THAT SAID - there are tons of indices around. If you ever get your handls on a real CME group feed you will be surprised how many indices they publish.

Check Nanex - Symbol Lookup - then select Type "i" and submit.

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Old December 27th, 2011, 12:23 PM   #4 (permalink)
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It is simple. It does not. It is artificial.

I can assure you that the exchanges process real buy and sell orders and they have to be matched or they would lose real money.

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Old December 27th, 2011, 11:21 PM   #5 (permalink)
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NetTecture View Post
It is simple. It does not. It is artificial.

Basically you take an index and it tells you how it is calculated. For example one COULD say the "Bumper" indexis calcualted every second from the lat known tick of a certain groups of stocks (and the weight of my whilky glass in grams) divided by 42.

Have you found that changing the size of the whiskey glass gives you any trading edge?

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Old December 27th, 2011, 11:27 PM   #6 (permalink)
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iPlayGames View Post
how exactly does the price of an index rise/fall? I know the usual supply/demand answer to this, what I'm looking for is a detailed description of the underlying mechanism of price increasing/decreasing 1 tick.


How is the value of the S&P 500 calculated?

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Old December 28th, 2011, 09:13 PM   #7 (permalink)
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NetTecture View Post
It is simple. It does not. It is artificial.

Basically you take an index and it tells you how it is calculated. For example one COULD say the "Bumper" indexis calcualted every second from the lat known tick of a certain groups of stocks (and the weight of my whilky glass in grams) divided by 42.

Then, every second my computer makes the calculation and publishes the value.

So, supply / dmenad etc. do not enter here. AND: at th end whoever calculates the index determines how it is done - especiall the frequency.


Thanks for the reply. so this means that my buying/selling contracts of an index does not affect the price of that index at all, no matter how large the size I'm trading? if this is the case, then the index traders are in fact gamblers taking bets with each other, and no matter how much they bet, it does not affect the outcome of the game at all. if this really is the case, then volume study becomes absolutely worthless in index trading, doesn't it? since the volume of an index traded is actually the number of bets that had taken place, and we all know that the amount of betting has no impact on the outcome of a game. this would also put the application of price action in index trading into question, since the market behaviour seen on the chart of an index is not the result of the actual trading of that index. the implication of this is so huge and I just can't believe that this is really true.

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Old December 28th, 2011, 09:45 PM   #8 (permalink)
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actually I've just realised that we are trading the index futures, not the current index price. so we are speculators not gamblers. sorry I should have phrased my question more clear.

how exactly does the Futures price of an index rise/fall? for example, we all know that price rises when demand overcomes supply, but how exactly are demand and supply measured against each other? and how much more demand is required to push pirce up 1 tick?

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Old December 28th, 2011, 10:17 PM   #9 (permalink)
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iPlayGames View Post
actually I've just realised that we are trading the index futures, not the current index price. so we are speculators not gamblers. sorry I should have phrased my question more clear.

how exactly does the Futures price of an index rise/fall? for example, we all know that price rises when demand overcomes supply, but how exactly are demand and supply measured against each other? and how much more demand is required to push pirce up 1 tick?


Index futures are contracts. Picture it like this; You and I are sitting across from each other at a table. We each have two contracts we'd like to exchange.

I think the market is going up, you think it is going down. I write on a piece of paper that I'll buy 1 at 1250, and another at 1249. You agree to sell one at 1250, I buy it, so "price" moves to that number as a starting point.

You write you'll sell your other contract to me at 1250.25. No deal, I am at 1249, so price is stuck at the last transaction of 1250.0.

Someone else comes to the table and takes your offer at 1250.25, so "price" moved to your number, because that became the most recent transaction; Someone bought your contract.

That is how the futures index moves one tick. Anyone with computer access and a trading platform can buy or sell contracts at will, in whatever quantity they can afford. There are only so many people willing to buy or sell at a certain price, and so when those contracts are all exchanged, and there is no more supply at those prices, price moves in the direction of the majority of the volume.

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Old December 29th, 2011, 04:38 AM   #10 (permalink)
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GaryD View Post
Index futures are contracts. Picture it like this; You and I are sitting across from each other at a table. We each have two contracts we'd like to exchange.

I think the market is going up, you think it is going down. I write on a piece of paper that I'll buy 1 at 1250, and another at 1249. You agree to sell one at 1250, I buy it, so "price" moves to that number as a starting point.

You write you'll sell your other contract to me at 1250.25. No deal, I am at 1249, so price is stuck at the last transaction of 1250.0.

Someone else comes to the table and takes your offer at 1250.25, so "price" moved to your number, because that became the most recent transaction; Someone bought your contract.

That is how the futures index moves one tick. Anyone with computer access and a trading platform can buy or sell contracts at will, in whatever quantity they can afford. There are only so many people willing to buy or sell at a certain price, and so when those contracts are all exchanged, and there is no more supply at those prices, price moves in the direction of the majority of the volume.


Thank you GaryD. this is the answer I've been looking for. so the current price of a futures product is actually the price at which the last transaction had taken place. if the next done deal happens to be 1 tick above the current price, then price goes up 1 tick.

I'm still not very clear about how exactly this works. a few question come to mind. do price move in an orderly fashion? that is, does it have to exhaust supply/demand at one price level before it can move on to the next? are there any rules regarding price movement?

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