Jump to content

Welcome to the new Traders Laboratory! Please bear with us as we finish the migration over the next few days. If you find any issues, want to leave feedback, get in touch with us, or offer suggestions please post to the Support forum here.

  • Welcome Guests

    Welcome. You are currently viewing the forum as a guest which does not give you access to all the great features at Traders Laboratory such as interacting with members, access to all forums, downloading attachments, and eligibility to win free giveaways. Registration is fast, simple and absolutely free. Create a FREE Traders Laboratory account here.

Sign in to follow this  
Predictor

Price Drivers & Liquidity Providers (in the Futures Market)

Recommended Posts

Most traders focus a great deal of effort on studying how the market moves and why the market moves. But, comparatively fewer spend time thinking about who moves the market and how they make money. One practical benefit of understanding the various participants is the advantage that comes from being able to state more precisely the type of business that you are conducting as a trader. Understanding the various market participants and their objectives, also, helps one to understand the order flow and price action.

 

questionmark.png

Who moves the market?

 

 

The most common participant is the uninformed market participant. The uninformed market participants trades are random, having no edge. These participants do not have an advantage and will lose more money the more they trade. They can make a profit but only by holding the market as it appreciates over time.

 

The next market participant is somewhat familiar and is known as the LIQUIDITY PROVIDER. The liquidity provider attempts to profit from capturing the spread. The liquidity provider attempts to profit from the uninformed order flow by taking the other side. Liquidity providers attempt to make as many trades as possible and pocket the spread over and over. Many displaced floor traders played the role of liquidity providers. Liquidity providers need to trade when the instrument doesn’t move much and when they can execute many trades without risk of the market moving. They profit not from the market making significant movements but rather by the number of times they can capture the spread. Indeed, they are more likely to pull out when the market trends strongly because of the greater risk they take.

 

Finally, we consider what I feel my primary trading role is in the futures market which is driving price to the real value (or predicting the future value). I therefore call this participant a PRICE DRIVER. Price drivers drive the market toward the future value by using market orders. It may seem contrary but price drivers get paid for placing market orders because the payoff comes not from the spread but from the movement of the market to the future value. In general, participants that are time sensitive will use market orders whereas participants who are price sensitive use limit orders. I tend to enter on market and exit on limit. Price drivers do run stop orders. However, it is more an effect of the stop orders being placed at the wrong place then a cause. Price drivers can only get paid when the market moves in their favor. Of course, a more passive form of price driver is the statistical arbitrage trader. The statistical arbitrager is more concerned with price rather then time and may prefer limit orders. Even so, they still need the market to move to make a profit.

 

Understanding the participants that trade in the market, their intentions, and how they make their profits explains various patterns that the market exhibits and clues one into where to look for opportunities. For example, trends on low volume are the understandable result of liquidity providers pulling out as the market moves against them and price drivers dominating. Trend exhaustion is seen as the combination of buyers filling all of their orders and liquidity providers re-entering the market, eventually encouraging new price drivers to enter in the opposite direction and new cycles to develop.

---------

Curtis

http://themarketpredictor.com

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.
Note: Your post will require moderator approval before it will be visible.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Sign in to follow this  

  • Topics

  • Posts

    • NFLX Netflix stock, with a solid top of range breakout, from Stocks to Watch at https://stockconsultant.com/?NFLX  
    • NFLX Netflix stock, with a solid top of range breakout, from Stocks to Watch at https://stockconsultant.com/?NFLX  
    • It depends. If you have lots of money that you can buy a house without a loan and if you don't have any parents to sponsor then it is a good idea. Otherwise it might be a bad idea depending where in Canada you are heading to. I earned a good middle income in my home country and I migrated to Vancouver 5 years ago at the age of 35. I had to start right from the bottom, lowest of the low.. Now i am finally earning a middle income in Canada but I still cannot afford to buy a one bedroom apartment. Having left behind friends, family and home, most of the times I think it is not worth it.   In short, do not migrate if you already have a good life in your home country and you are happy. Only migrate to Canada if you really have to leave your home country say there is a war or something really bad. Discrimination still exists here and its really tough for newcomers unless you are super rich. Good luck. David Chong, Quora  
    • This is bigger than the internet. Bigger than mobile. Bigger than social media.   While everyone was distracted by stock market fluctuations and political theater…   Most people have NO IDEA what just happened last week with ChatGPT.   Their new memory feature allows ChatGPT to remember EVERYTHING about you across all your conversations.   Think about that for a minute...   While most tech companies have been collecting mere breadcrumbs about you - your likes, your clicks, your browsing history - OpenAI is now collecting the most valuable dataset in human history: your complete psychological profile.   This is Zuckerberg x 5,000.   The more you use ChatGPT, the more it understands you, becoming a supercharged reflection of yourself that improves at an exponential rate.   Are you a regular ChatGPT user?   Consider whether it’s time to turn off the “you can train on my information” feature. To prevent your data from being used for training while still using the memory feature:   Disable Model Training: Navigate to Settings > Data Controls. Toggle off "Improve the model for everyone". Manage Memory Settings: Go to Settings > Personalization > Memory. Here, you can: Turn off memory entirely. Delete specific memories. Use Temporary Chat for sessions that won't be saved or used for training. Now the investment implications…   Why This is Bigger Than You Think Consider this: the relationship between humans and ChatGPT is evolving beyond a mere tool.   People are now treating these AI assistants as friends, confidants, and even romantic partners.   I'm not making this up - there are already documented cases of people ending real human relationships to pursue “connections” with their AI companions.   A viral Instagram meme shows a person going through life with a glowing, featureless humanoid figure - representing ChatGPT - as their companion.   The post has over 1.1 million likes and comments like "Bro ChatGPT is like my best friend. Ain't even ashamed to say it" with 25,000 likes.   But here's where things get really interesting for investors and entrepreneurs...   Three Things to Watch For starters, hardware is the next big thing for the big players.   The iPhone form factor is dead.   It hasn't meaningfully changed in nearly a decade. The next evolution in hardware will be designed specifically to interface with these AI companions.   OpenAI is already working on hardware with Johnny Ive, the legendary designer behind the iPhone and iPod. But you can’t ignore Elon Musk’s edge here.   So what does all of this mean for you?   The companies that control the personal AI relationships will be worth trillions. OpenAI and Elon Musk will have the coziest moats. We're witnessing the birth of a new internet - one built on agents that can communicate with each other across platforms. Google's new agent-to-agent protocol allows AI agents to work together without sharing internal memories or tools. The hardware companies that create the perfect interface for these AI companions will dominate the next decade of technology. And almost nobody is talking about what this means.   My prediction? Within five years, most people will have a personal AI that knows them better than anyone else. And they will interact with it in ways that seem foreign today.   (And, yes, it will almost certainly have dystopian elements.)   In the meantime, the biggest gains won’t come from household names. And, right now, James is seeing a prime opportunity to invest in the most under-the-radar plays in AI…   For dirt cheap. By Chris C. Source: https://altucherconfidential.com/posts/use-chatgpt-protect-yourself-now
    • KBH KB Home stock, nice day and rally off the 50.82 support area, from Stocks to Watch at https://stockconsultant.com/?KBH      
×
×
  • Create New...

Important Information

By using this site, you agree to our Terms of Use.