Market Manipulation Possible?

[Robert]

I would like to hear your thoughts on this particular topic I came across. The ES is the Mike Tyson of emini's. Approx $4trillian dollars exchange hands in the ES everyday. In order to manipulate such a market this requires tremendous deep pockets.

The large volume on the ES and the big traders that attract this contract requires alot more risk to manipulate in comparison to contracts like the Dow or Russell.

Couldnt a 1000 lot trader/fund easily manipulate a contract like the YM? Maybe not for the ES but how big of an impact do large funds have on the manipulation of price?

[cjh01]

Originally Posted by Robert I would like to hear your thoughts on this particular topic I came across. The ES is the Mike Tyson of emini's. Approx $4trillian dollars exchange hands in the ES everyday. In order to manipulate such a market this requires tremendous deep pockets. The large volume on the ES and the big traders that attract this contract requires alot more risk to manipulate in comparison to contracts like the Dow or Russell. Couldnt a 1000 lot trader/fund easily manipulate a contract like the YM? Maybe not for the ES but how big of an impact do large funds have on the manipulation of price?

Look at time and sales- a 1000 lot trader could make the YM move, the ES would yawn at a 1000 lot.

[Robert]

Originally Posted by cjh01 Look at time and sales- a 1000 lot trader could make the YM move, the ES would yawn at a 1000 lot.

So are you implying that the ES can not be manipulated? I hardly see anything over 100 lot on the YM. Why is this?

[ezduzzit]

Hmmm.. these are just guesses on my part but the ES is very closely tied to the performance of its pit-traded big brother and the pit traded S&P 500 is largely made up of the giant computerized program trades (they say program trading accounts for more than 63% of all trade volume there).

The ES is clearly the liquidity beast of the online futures game, there is no doubt about it so yes, I suppose in theory it could perhaps be easier to manipulate the far less liquid online markets of the YM and the ER2 compared to the ES. However, the far lower liquidity levels of these other online futures markets probably precludes the largest traders from taking much of an interest at this stage as they cannot easily float anywhere near the size they need to meet their profit expectations.

As was already noted, a 1,000 contract trade on the YM would not only move the market, it is simply seldom if ever seen. Bigger traders who may occasionally dabble in the smaller electronic markets beyond the ES most often break their large trades down to disguise them and seldom take them all in one fell swoop anyway. They don't want other players piling on at their level, they are more dependent upon the mass horde of retail traders jumping in more toward the end of the move so it is then easy for them to exit for a tidy profit. They don't want to give away their intent from the very outset.

I also think that with the more limited liquidity of the YM, a 100 lot contract size or greater would suffer a good deal of slippage in getting the whole thing placed in addition to alerting everyone else to the point of your participation and the the possible strength of your trade.

I would certainly love to hear other viewpoints on this as I find the idea somewhat intriguing.

Happy Trading

[Soultrader]

Originally Posted by ezduzzit As was already noted, a 1,000 contract trade on the YM would not only move the market, it is simply seldom if ever seen. Bigger traders who may occasionally dabble in the smaller electronic markets beyond the ES most often break their large trades down to disguise them and seldom take them all in one fell swoop anyway. They don't want other players piling on at their level, they are more dependent upon the mass horde of retail traders jumping in more toward the end of the move so it is then easy for them to exit for a tidy profit. They don't want to give away their intent from the very outset. I also think that with the more limited liquidity of the YM, a 100 lot contract size or greater would suffer a good deal of slippage in getting the whole thing placed in addition to alerting everyone else to the point of your participation and the the possible strength of your trade.

I agree ez. A 1000 lot on the YM... we are talking severe slippage. Around 20-30 lots are traded at each tick. Which would cause more than a 30 points slippage. The liquidity on the ES allows big players to trade this instrument.

I also think market manipulation is hard in the futures market. In order to manipulate the ES, we are talking very deep pockets.

[wrines]

If anyone WANTED to manipulate the market (like politicians, for example ), all they would have to do is:
1) convince a few key analysts to lower their consensus on earnings for a bunch of the dow stocks for next quarter & convince a few OPEC partners to drop oil prices temporarily (say, until after the ELECTION)
2) when earnings season hits, "WOW, SURPRISE, LOOK AT ALL THESE BLUE CHIPS BEATING EARNINGS!!" - DOWN RALLIES HUGE (other markets are dragged up, kicking and screaming) - GAS WAY DOWN!!!!
3) Headlines are screaming the great economic news.
4) Key banks and large investment houses (who are in the pocket of said politicians) buy up huge blocks of blue chip stocks and continue to, defying logic and increasingly AWFUL economic data, and no one complains because we are at ALL TIME HIGHS AND EARNINGS ARE GOOD (for half of the dow 30 anyway) and gas is lower.
5) of course, buying up huge blocks of shares of stock sends the cash index higher, which sends the futures contract higher eventually.

Can this be done? Not only CAN it be done, you have been watching it for the past 3 months. Look for a major crash Mid November when no one cares about putting lipstick on this pig any longer.
W

[ezduzzit]

Very true Wrines.. .but then we have always been subject to that kind of manipulation in all markets and the only sane response is to simply recognize the pigs are being fancied up as is usual for this time and take advantage of it while it lasts. Hopefully most people in here are traders rather than buy and hold investors and will be just as happy to take advantage of the swing back to reality when it occurs. Heck, it is obvious in the markets now that they are having major trouble keeping the cute little dresses on those poor pigs long enough to even get to the elections.

Frankly, I can't help but feel that traders who trade the futures markets by listening to the news, etc. are already well on their way to emptying their trading accounts in short order anyway.

If they are longer term swing and position traders then one can only hope they are not falling for this expected short term mirage. However, market statistics on winners versus losers have not changed much in eons and thus we can depend on the fact that in reality even most of the longer term traders are just as oblivious to what is really going on as the averge man or woman at the local shopping mall. But, is that a bad thing? Absolutely not. If it weren't for the huge percentage of losers in the financial markets, we wouldn't be pulling any meaningful profits out of trading them. This game was not designed so that most people could win and it will always be so.

Happy Trading

[wrines]

I agree.
The wheels do seem to be coming off the cart a bit before the finish line, unfortunately for the incumbents and their window dressing antics. I don't speak from political bias, as I have none, it's just that it's painfully obvious. Did you see the revision to the unemplyment data today? What a riot that was! And HOW CONVENIENT..... Although except for a 10 minute pop it didn't seem to help much - awwww, nice try tho.
W

[Soultrader]

lol you guys are too funny

[ezduzzit]

Heh, heh.. agreed.. but while it didn't work well for them it sure worked out well for ME, having jumped in at the low extreme to ride the baloney move up.... gracious me that was a nice ride in only an hour's worth of play and of course what goes up must come down, eh? One of my better days.

Happy Trading