Futures volume may be dropping and more people may be trading OTC forex, but the CME group is more profitable than ever, so things are not likely to change anytime soon. I am purely speculating, but the commission structure for futures is probably such that volume is intentionally concentrated in a few instruments and they really have no desire to detract from that volume, especially in favor of micro instruments, unless people are willing to pay a stiff premium to do so.
It is quite obvious that we are not we are not seeing the large, concerted liquidity moves with the attendant price volatility and velocity, we had gotten used to in past months. Of course, it is way too early in the new year to panic, but the market may once again be morphing; this time to lower volume and thinner market conditions. Not unlike, the effect the Volker Rule had on liquidity, by restricting market -making activity, the Fed’s recent announcement that it would substantially adopt the Basel III recommendations for bank regulations, may have has caused many banks to re-think the scale and scope of their U.S.-based operations and, in some cases, to pull back from business and market-making. Ironically, monetary policymakers in virtually every corner of the globe are furiously pumping liquidity into the world’s economies increasing monetary liquidity, while the the markets appear to be losing transactional liquidity.
from my "Liquidity Shock" thread...
Decimalization eliminated the majority of market makers willing to provide liquidity in the equity arena, while the end of open-outcry and the migration to electronic trading, eliminated futures market makers. The majority of liquidity is now being supplied by unregulated high-frequency traders, who according to the TABB Group, are responsible for 56 percent of the NYSE’s volume (includes proprietary trading shops, market makers, and HFT hedge funds), while institutional traders comprise 17 percent (mutual funds, pensions, asset managers), hedge funds-15%, and retail-11%. In an Orwellian twist of fate, the business model of the stock exchanges may have been permanently altered as a result of the exchanges going public. Now driven by their own shareholders’ need for returns, capital formation appears to have taken a back seat, as the exchanges roll out new technology to attract even more high frequency traders.
Investors have yet to return in full force since the “flash crash”, leaving the market vulnerable to the machinations of the algo-bots, indexers and other short time-frame traders. In 1960 the average holding period for stocks was 8 years, in 1970-5yrs., 1980-33 mos., 1990-26 mos., 2000-14 mos., 2010-6mos, and in 2011 just a little over 2 mos ( NYSE Factbook). In addition, markets have become fragmented. Mary Shapiro stated, as little as five years ago, the NYSE executed nearly 80 percent of volume in listed stocks. Today, the NYSE executes approximately 26 percent of the volume in its listed stocks. The remaining volume is split among more than 10 public exchanges, more than 30 dark pools, and more than 200 internalizing broker-dealers. 30 percent of volume in U.S.-listed equities is executed in venues that do not display their liquidity or make it generally available to the public.
Last edited by tigertrader; January 31st, 2012 at 09:55 PM.
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Just my opinion and experience which probably doesn't mean anything in the grand scheme of things. I have noticed the 6E drying up. Sure there were some nice move periods last quarter but mainly during the greece and euro news upheaveals then now this long stretch of seeming drying up, then sometimes spasms of volume when you don't expect it probably by the banks and HFT.
CJ Booth has disappeared. Our little group no longer has a room host. His setups were getting harder and harder to find. Like one would have to be on guard duty 24/5 to wait for a setup. Then even where there is a setup it doesn't go that far anymore before being run over by some strange volatile new ensuing movement. I have since moved on to scalping the ES, YM or CL and using Brook's pa and other ideas much more than waiting for the right confluence of indicators used in CJ 6E's thread.
Brooks wrote in more detail about HFT in his new books and mentioned them in his webinars. Initially he said he welcomed it and it would likely increase liquidity and clearer patterns. Now, he's not as sure about that in his recent comments. It's like mostly HFT armies of the big players are playing off each other whenever and wherever they want more than anything.
Since just starting to trade CL, I've noticed it's not as liquid. Market orders always seem to slip, sometimes up to 3 ticks. While that hardly ever happened on the 6E and never on the ES. (I'm using zen-fire). However with the 6E, sometimes it just doesn't move even on a tick chart. Just plain simply doesn't move. Even during London session. It takes like 15 minutes before my tick counter indicator shows 100 more ticks counted off at the worst.
Then it might spasm for a few bars...then slow down and ....stop moving again. Then CNBC still says it's the 2nd highest futures volume behind the ES. I dunno..
Last edited by Cloudy; January 31st, 2012 at 11:17 PM.
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This is an excel file with monthly cumulated volumes 2004-2011 of various instruments (TF,ES,YM,CL,Fdax,6E). I took the data from Kinetick and used NT platform to elaborate them. With regards to the question posted by the OP, exception due with YM, volumes are not drying so much. In my opinion it is more correct to say that the players and the methods have changed, probably in favor of HFT and more complex algorythms. I don't see any problem with this, it is just part of the trading evolution; the know how, the hardware and the software which are today elite will soon become of public domain as it has always been until comes the next cycle. Trading best applyies to Darwin's evolution theory.
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