The days of the guys standing in the pits are numbered. The NYMEX closes on Dec 30th, and while the CME Group trading floor still has people on it in Chicago, many desks are just a few orders away from closing.
We all know that trading futures and options has changed significantly over the last 20 years, or since the introduction of electronic trading. But it wasn’t just electronic trading that helped change the game. The 2007 Credit Crisis played its role, and all the new government regulations did not help, but when MF Global closed, and then Russ Wassendorf stole over $200 million in customer segregated funds, the writing was on the wall. Plain and simple, if you didn’t lose trading, the clearing firm blow ups were the icing on the cake.
Because I am the owner of MrTopStep.com, and spent so much time dealing with customers over my 38 years on the trading floor, I get a lot of emails and Tweets from people asking everything from what settings I use on my charts, to people asking me if I think they can make money trading futures. I have always been honest about my trading. I am like many people out there, I make one day and lose the next. It’s not like it was when I ran the world’s largest S&P futures desk, where you could literally step onto the floor, get into the flow, and just start making money. Those days are gone forever.
Below is an example of a few questions I received from a London trader yesterday.
Would you agree that 25% of the money is made on 5% of the trading days of the year? You talk about the trading robots doing a lot of the volume what will it be like in 10 years time?
Excellent questions. Yes, I agree with the first question. Most of the money being made is on the big ‘event driven’ days. I do not know what the percentage is, but there seems to be more traders looking to hold positions longer than they used too. That means risking more to make more. And the best way to do this is holding longer and staying with the trend. For some it could be more than 25% of their yearly profits. Some traders wait all year for only a few trades to make their year but even they are finding that hard to do.
What will the robots volume look like in 10 years? Currently, on busy days in the ES and CL, the ‘bots’ make up at least +70% of the daily volume. It could be, and probably is higher, but what’s that going to look like in 10 years? I do not have a full answer for that, but what I can tell you is that ‘thousands’ of people that used to trade stocks and futures no longer do it.
That doesn’t mean that there are not any traders out there, there are, but the number is low, so if the bots make up 70% of the volume on big days now, it would be my guess that over the next 10 years bots could account for 90% of the daily volumes. What’s that going to look like? Well the bots have already eaten up the small investors, and soon they will start eating each other, if they’re not already.
Algo Explosion
It’s just after 12:30 CT and something just happened in the S&P futures. How coincidental could it be. The ESZ16 was just trading 2225.00, and all off a sudden it shot up to 2228.25 in less than 3 seconds. I had a buy stop in at 2225.50 and I was filled on that stop at 2228.00. 50,000 S&P futures contracts traded in a period of 60 seconds, and according to Nanex, “$3.1 Billion worth of S&P 500 futures traded between 13:21:14 and 13:21:15 ET, that’s a record (excluding open/close).” When I asked FairValueTrader what happened he said he didn’t know and had never seen 2.5 handle slippage on an ES. While the loss was more than I expected, I honestly believe that now, and in the future, events like this will become more commonplace.
Dow Up + 1.55%, S&P up +1.32%, Nasdaq up+ 1.14%, Dow Transports on First New High in 2 Years
As for the day’s trade. it was straight up. Early on in the Globex session the futures were weaker, but opened the 8:30 CST futures at 2209.50, down three ticks. The ES back and filled under the vwap around the 2208.50 level, finding a low of 2207.75, and then it was one buy program after another. Algo’s pushed the S&P’s up to 2214 going into 10:00 am cst, and then regrouped and started attacking higher levels after the Euro close.
The ES started rallying hard at noon in Chicago before the anomaly at 12:20. At 12:55 the ESZ16 was trading on another new all time contract high at 2234.25. The program has been one of the largest we have seen on an non-event day in a very long time, if not ever. It was not over until the index finally pushed up to 2141.25, 62.25 handles, or almost 3%, from Sunday night’s low on the open.
World Markets
Overnight, equity markets in Asia and Europe were lifted by Wall Street’s gains, with nearly all of the major world indexes trading modestly higher. After such a big day for the benchmark futures, the ESZ traded sideways in the overnight session. A high was made at 2240.00 late in the Asian session, and then a low of 2235.75 early in the Euro session, leading to a modest 4.25 handle range. The ES last printed 2238.25, up 1.5 handles, on volume of 156k as of 6:36 am cst.
In Asia, 9 out of 11 markets closed higher (Nikkei +1.45%), and in Europe 9 out of 11 markets are trading higher this morning (DAX +0.45%). Today’s economic calendar includes the Weekly Bill Settlement, 52-Week Bill Settlement, Jobless Claims, Bloomberg Consumer Comfort Index, Quarterly Services Survey, EIA Natural Gas Report, a 3-Month Bill Announcement, a 6-Month Bill Announcement, a 3-Yr Note Announcement, a 10-Yr Note Announcement, a 30-Yr Bond Announcement, Fed Balance Sheet, and Money Supply.
Our View:
Dow, S&P, and Nasdaq are all up 4 days in a row, and all three are trading on new all time highs. There have been no back to back down days in over a month. Have I seen this type of stuff before? No, I have not. Do I think Donald Trump has something to do with it? Yes, I do. I asked the PitBull if he felt yesterday could be a ‘blow off top’ and he said yes. I have to be honest, I am just not sure. Our view is to buy the early weakness and sell the rallies. This crap can’t keep going up forever, or can it?
Download all of the December expiration stats here
As always, please use protective buy and sell stops when trading futures and options.
- In Asia 9 out of 11 markets closed higher: Shanghai Comp -0.21%, Hang Seng +0.27%, Nikkei +1.45%
- In Europe 9 out of 11 markets are trading higher: CAC +0.34%, DAX +0.45%, FTSE +0.24% at 6:00am ET
- Fair Value for Mar 17: S&P -8.02, NASDAQ -4.69, Dow -82.34
- Total Volume: 2.3m ESZ and 7.2k SPZ traded
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