Flash Crash Analysis

http://www.nanex.net/20100506/FlashCrashAnalysis_Intro.html

This came out about 6 weeks after the flash crash. The analysis is as good, if not better, than anything that's come out since then. This includes the recent SEC statement/report that supports the "fat-pinky" theory (reference http://www.reuters.com/article/idUSN3013208820100930). Larry Levin summarizes this statement as "nonsensical drivel" (reference http://www.secretsoftraders.com/stocks/sec-nonsense-241623)

To summarize, many of the HFT (high-frequency trading) shops look for the same buy/sell signals, often in the form of flash trades (cross-exchange orders that seek to exploit price differentials). Usually, competitiveness among HFTs maintains a sort of balance, promotes efficient price discovery,
and provides 30%-70% of total market liquidity. However, on May 6, there was a confluence of circumstances that caused these HFTs to exert an usual amount of selling pressure, which initially drove price down. When they realized that market conditions had become abnormal (i.e., their systems
were either generating unsuitable signals or receiving inaccurate data), they logically shut their systems down, but with the result that much market liquidity disappeared (albeit briefly), thus inciting a wider panic.

While liquidity is generally good, the reality is that we've become addicted to this heightened level of liquidity that HFTs provide. Efficient markets thrived without flash orders in the past, but can they ever learn to do so again?

To those interested, I recommend reading the following explanation as a alternative to the SEC's orthodoxy: http://www.nanex.net/20100506/FlashCrashAnalysis_Intro.html.

Cheers!

Is regulatory arbitrage harmful to U.S. businesses?

Here's an interesting article about the effects of derivatives regulation.

http://openmarkets.cmegroup.com/features/moving-out-2/

"Trading the News"

Understanding Market Psychology: Anticipating the market’s reaction to a perceived change in the fundamentals

This week, I would like to impart upon my readers hard-learned lessons from “trading the news”. If you’ve ever been caught in a situation in which the market reacts differently to new information than you would have expected, and you do not understand why, you should probably read on...

Dividend Scalping - Beating The Yield Curve with Equities

Dividend Scalping - Beating The Yield Curve with Equities

I am surprised by how many of my friends have their savings in a "riskier" money market yielding a 1% return for a 1-year investment. To their defense, they are getting a much better deal than they would had they loaned to the US Treasury, which yields 0.25% for a 1-year investment. However, what most people do not realize is that the stock market (using the S&P 500 as the barometer) produces an annual  dividend yield of about 3% (See Futures Fair Value). That may not sound like striking gold, but it's 1200% better than lending money to the Federal Government via the US Treasury.

If the stock market is such a good deal, then why haven't investors returned to it?

T-Bond Futures have reached all-time highs and why we're still bullish on them

We are seeing Treasury Futures prices hitting historic highs. The knee-jerk reaction is to say that they are over-valued. Indeed, there has been talk of a bond bubble. While we agree that all bubbles must eventually come to an end, we have reason to suspect that there is still a good deal of potential upside to this market.

We had initially believed that t-bond futures prices could realistically only go so high, perhaps 136 seemed like a good ceiling. But one of our colleagues was the first to indicate that bond prices were likely to go up more, because for the last 18 of 19 years, bond futures prices had gone up between the months of August and February.

Welcome to MTL Futures!

This is my first ever blog, and first ever blog post. I've been a little late to the scene, but am ready to dive in head-first. Please continue to check in regularly as we continue to improve the site and provide leading-edge content.

From the team and I, we wish you a happy trading day!