What actually controls stock prices?

[hhiusa]

As per your recommendations, stockcharts is your go-to source for free information.

Knock yourself out.

Db

I don't think I'll be taking any advice from anyone who uses stop limit orders because he doesn't have real time market data or thinks supply and demand is as simple as a straight line.
:smart:

 

[mike.]

While I agree with you about your statement about algo trading, I think piphoe was referring to how you can't just use line based upon supply and demand.

I don't consider high-frequency trading and its effects upon the market to be true supply and demand. When I move more than 30 million shares in a month, the exchanges will give me very high add liquidity rebates and very low removal liquidity fees. In that event you actually end up making money just by placing trades, and creating turnover. $0.0005/share removal liquidity fee and $0.0030/shares add liquidity rebate. This is why you want to be able to place your orders within milliseconds. You can net $0.0025/share multiplied by 100,000,000 shares every 50 milliseconds. If I bought and sold 100 shares even every 50 milliseconds (the standard time it takes to execute an HFT trade), that would be a turnover of 6.5*3600*20*100=46,800,000 shares moved in just one day. This done just 100 shares at a time. So, this can be effectively done even in low liquidity markets. 46,800,000*0.0025=$117,000.00.

http://www.quantifiedstrategies.com/how-to-receive-commissions/

Just veering slightly off topic, I'm assuming you've read " flash boys" . What's your personal take on it ?

 

[dbphoenix]

Not forex but ES. during "quieter" periods price just bounce back & forth b/w bid/ask. Doesn't happen often but does happen, and makes me very suspicious.

I watch price about 18 hrs/day, every day. I got nothing else to do. I've see this happen more than once, many times.

I wouldn't call it manipulation, just traders looking for trades. Just like an auction house. Or a cattle auction. Or a rare coin show. Odds are that the traders looking for trades are just as clueless as the typical beginner.

Db

 

[hhiusa]

Just veering slightly off topic, I'm assuming you've read " flash boys" . What's your personal take on it ?

That is rather open-ended. Do you have anything specific in mind? Do you want me to comment on the ethics or the mechanics of high frequency trading? The book was indeed interesting as was More Money Than God by Mallaby.

 

[dbphoenix]

I don't think I'll be taking any advice from anyone who uses stop limit orders because he doesn't have real time market data or thinks supply and demand is as simple as a straight line.
:smart:

Neither would I.

Db

 

[piphoe]

I don't think I'll be taking any advice from anyone who uses stop limit orders because he doesn't have real time market data or thinks supply and demand is as simple as a straight line.
:smart:

c'mon db has a live feed who doesn't. cheap shots add nothing and take away much

 

[dbphoenix]

Actually I trade off a 15m delay. Enables me to take advantage of all those moves that everybody else misses.

Very relaxing.

Db

 

[piphoe]

Actually I trade off a 15m delay. Enables me to take advantage of all those moves that everybody else misses.

Very relaxing.

Db

you aren't serious

 

[dbphoenix]

Just simple temporal mechanics.

Db

 

[mike.]

That is rather open-ended. Do you have anything specific in mind? Do you want me to comment on the ethics or the mechanics of high frequency trading? The book was indeed interesting as was More Money Than God by Mallaby.

Ethics really," In your opinion" does it still happen where, The algos identify a buyer then buy a stock and sell it to the buyer at a higher price in milliseconds, Also are many using the new exchange with the pricing delay to trade on a more level playing field, What about the dark pools from goldman etc...is there an increase in volume these days as opposed to 5-10 years ago ?

The only time one get's to hear about these issues is when a book like flash boys is published, otherwise, everything is kept hush hush..

 

[tokyojoe]

Ethics really," In your opinion" does it still happen where, The algos identify a buyer then buy a stock and sell it to the buyer at a higher price in milliseconds, Also are many using the new exchange with the pricing delay to trade on a more level playing field, What about the dark pools from goldman etc...is there an increase in volume these days as opposed to 5-10 years ago ?

The only time one get's to hear about these issues is when a book like flash boys is published, otherwise, everything is kept hush hush..

Flash boys is a great read, recommended to me when it first hit the shelves.

There are no ethics in this game Mike, it is a vacuous dark cold space full of server farms & wannabe point & clickers seeking easy money.

The next flash boys book will reveal these guys trading using Quarks & USS Enterprise hyper-drives. A best mate of mine works for a company who spend millions on their systems, they employ only direct from the top two universities from any given country.

If you trade the open market they are not interested in us, the sharks are only interested in bigger sharks, we are cross fire.

The volume has decreased over the last year on European exchanges, perhaps the shark pool is getting smaller.

 

[mike.]

I agree joe, some of the more successful traders are merely hft computer programmers, Always flat at the end of the day.... R.I.P to the open outcry eh.

They obviously don't like it though when a guy plays them at their own game from his bedroom in Houndslow. :whistling

 

[hhiusa]

I agree joe, some of the more successful traders are merely hft computer programmers, Always flat at the end of the day.... R.I.P to the open outcry eh.

They obviously don't like it though when a guy plays them at their own game from his bedroom in Houndslow. :whistling

You can find out this information more readily through online sources. I do not think it is unethical. Most people who are small retail traders who claim to be affected by this are not really affected by this. Their supposed claims of slippage and other problems is due only to them using CFDs and not having the requisite real time market data.

Algorithmic trading increases more and more. According to the SEC, more trades are executed algorithmically than by a person. Firms are hiring more graduates with Ph.D.s in physics and mathematics than they are in finance.

The usage of dark pools has increased immensely as well.

The use of HFT does not seem unethical to me. They just have better access and really good programmers. Let us say that you are above the retail traders, do not trade CFDs and have direct market access, but are below the big boys as people here are calling them. When I place a limit order, it enters into the limit order book, where everyone can see all of the orders before they are executed against somebody else's order. This is contrary to how dark pools are. If you have a fast enough connection, you will be able to place orders and execute them before the general masses. HFT orders can be executed within 50 ms and non-pro DMA orders can be executed in about 500 ms. This means that those companies can wait and see where the traffic is going and place orders ahead of that traffic with time to spare. 450 ms later, after most people's orders have transacted, it will create a micro boom & bust. The HFT traders will exit 10-20 cents or maybe just pennies higher, causing the stock to bust, i.e., drop a little again.

I see nothing wrong with this practice. They are paying for better access.

 

[TexasRangersFan]

Algorithmic trading increases more and more. According to the SEC, more trades are executed algorithmically than by a person. Firms are hiring more graduates with Ph.D.s in physics and mathematics than they are in finance.
--------------
I have seen a few times that 3/4 of the trades are made by institutions vs. individuals. I believe it too. A HFT or a mutual fund might trade 1000 or 10000 shares at a time and Joe Sixpack might trade 50 or 100.


-----------
The usage of dark pools has increased immensely as well.

What is a dark pool?
------------


The use of HFT does not seem unethical to me. They just have better access and really good programmers.

I see nothing wrong with this practice. They are paying for better access.

A lot of journalists and politicians argue against it but I think they are just trying to get attention.

like you said, they are paying for access. Just like athletes pay for training and actors pay for lessons.

 

[mike.]

What is a dark pool ?

Its the term given to a private exchange within a bank,

Example.... A hedge fund places a sell order with goldman for 100k of apple shares.
goldman will keep the order within their dark pool without sending it to an exchange.... banks,hft's and hedge funds then pay goldman to access their dark pools orders, getting better deals and volume transparency than if it were through a open exchange.

 

[TexasRangersFan]

Its the term given to a private exchange within a bank,

Example.... A hedge fund places a sell order with goldman for 100k of apple shares.
goldman will keep the order within their dark pool without sending it to an exchange.... banks,hft's and hedge funds then pay goldman to access their dark pools orders, getting better deals and volume transparency than if it were through a open exchange.

So, buying from GS as opposed to buying on the open market conceals what the HFT etc....is doing so they can maintain their privacy and possible intentions, such as a takeover ? It seems like you might have to pay a slight premium over the market price for the luxury of doing this unless they do it for favored clients.

Remember when Hillary Clinton was nominated for Secretary of State ? I forget the
size of her portfolio, but she must have held 300 stocks and they were worth 10's of millions of dollars. When she sold her portfolio, every stock , with the exception of 5,6 ; were closed out at the high price for that day. Damn near every one. We all know that is statistically impossible. And we know it was illegal. But I wonder if it was done from a dark pool rather than the open market?

Do the same pricing rules apply to dark pools that apply to the open market ?

 

[nopeda]

David,
hhiusa's post above is both comprehensive and right on the money. I have no issue with it at all. I said what I said because, rightly or wrongly, I assumed (always a dangerous thing to do, lol) that, like most novice retail traders, you probably won't be trading actual shares via a level II screen using a direct market access broker. If I'm right about that, then for a whole bunch of reasons over and above those outlined by hhiusa, you will often find that the price your trade is executed at differs to the price flashing across your screen at the exact instant you click the buy or sell button.
Tim.

How about if you use an automated system? I've heard of that...is that faster?

 

[hhiusa]

So, buying from GS as opposed to buying on the open market conceals what the HFT etc....is doing so they can maintain their privacy and possible intentions, such as a takeover ? It seems like you might have to pay a slight premium over the market price for the luxury of doing this unless they do it for favored clients.

Remember when Hillary Clinton was nominated for Secretary of State ? I forget the
size of her portfolio, but she must have held 300 stocks and they were worth 10's of millions of dollars. When she sold her portfolio, every stock , with the exception of 5,6 ; were closed out at the high price for that day. Damn near every one. We all know that is statistically impossible. And we know it was illegal. But I wonder if it was done from a dark pool rather than the open market?

Do the same pricing rules apply to dark pools that apply to the open market ?

That is not really true. I think that @mike. has given one valid example; however, it does represent dark pools as a whole. Dark pools are not necessarily private transactions between two parties and they are not necessarily always banks and large conglomerates.

For example, if an employee has been given stock options as part of an incentive package for their work performance or just to come work for the company, they accumulate large blocks of shares in the company. This leads me to the difference between legal insider trading and illegal insider trading. The aforementioned employee, usually an executive may choose to cash out his shares when he retires. He can sell those shares back to the company at a premium, called a corporate redemption, if they are willing to buy them back or he can sell them to the public. It may be problematic for him to sell these shares on the open market because they usually have huge stakes in the company amounting to millions of shares. One cannot simply place a limit order for 1,000,000 shares. If they were to do this, the price would drop precipitously and they would lose a lot of money. Dark pools are separate exchanges that are private, but they have many users just like a normal exchange. The main difference is that unlike the NYSE or NASDAQ, which has a limit order book where you can see what is going on, in a dark pool, this is not possible. Dark pools get their namesake from physics. Dark matter in physics is matter that cannot be directly observed. You observe it by its effect upon the surrounding environment. Returning to the example concerning the executive, he will sell in a dark pool where the traders are looking to place block trades in huge quantities.

I brought up the idea of legal insider trading. The executive is considered an insider. When the executive sells his shares, it is called insider trading, albeit legal insider trading.

Three major types of dark pools exist:

1. Independent companies set up to offer a unique differentiated basis for trading
2. Broker-owned dark pools where clients of the broker interact, most commonly with other clients of the broker (possibly including its own proprietary traders) in conditions of anonymity
3. Some public exchanges set up their own dark pools to allow their clients the benefits of anonymity and non-display of orders while offering an exchange "infrastructure"

Independent dark pools

1. Instinet
2. Liquidnet
3. NYFIX Millennium

Broker-dealer-owned dark pools

1. JPMorgan Chase Bank - JPMX
2. Barclays Capital - LX Liquidity Cross
3. BNP Paribas - BNP Paribas Internal eXchange (BIX)
4. BNY ConvergEx Group (an affiliate of Bank of New York Mellon)
5. Cantor Fitzgerald - Aqua Securities
6. Citi - Citi Match, Citi Cross
7. Credit Agricole Cheuvreux - BLINK
8. Credit Suisse - CrossFinder
9. Deutsche Bank Global Markets - DBA (Europe), SuperX ATS (U.S.)
10. Fidelity Capital Markets
11. GETCO - GETMatched
12. Goldman Sachs SIGMA X
13. Knight Capital Group - Knight Link, Knight Match
14. Merrill Lynch - Instinct-X
15. Morgan Stanley - MSPOOL
16. Nomura - Nomura NX

 

[nopeda]

. . .The answer to your question is supply and demand, as played out through trades executed on the exchange(s) that the company is listed on.

At first that seemed to answer the question but thinking on about it instead it brings more things into question, like how? Is there one super trading computer that is programmed to raise or lower the price of all stocks according to supply and demand? And whatever does it, is it done proportionally the same for all stocks? Will all stocks that are currently $1 go up the same amount if 10K shares are bought, and drop the same amount if 10K shares are sold, etc? And those decisions are communicated to all trading establishments (or whatever they're called) and related establishments all over the planet, simultaneously, during all of every business day? And what about hackers and viruses? Do they worm their nasty way into the mix and screw things up for everybody?

 

[zaysev36]

At first that seemed to answer the question but thinking on about it instead it brings more things into question, like how? Is there one super trading computer that is programmed to raise or lower the price of all stocks according to supply and demand? And whatever does it, is it done proportionally the same for all stocks? Will all stocks that are currently $1 go up the same amount if 10K shares are bought, and drop the same amount if 10K shares are sold, etc? And those decisions are communicated to all trading establishments (or whatever they're called) and related establishments all over the planet, simultaneously, during all of every business day? And what about hackers and viruses? Do they worm their nasty way into the mix and screw things up for everybody?

I believe you misunderstand the concept of supply and demand a bit. It's not about changing price because the supply or demand changed. It's about how much I demand the product, and how much I am ready to pay for it due to my need. So there is no "average" demand, each participant has its own, and whoever's demand is bigger gets to bid higher. So if I buy 10k shares for $1 doesn't itself mean that their price will go up, it will simply lower their availability for whoever would have next highest demand for them after me. So if he still wants them - he will either have to get them from other shareholders for the price set by my purchase, or even from me for even higher fee.