Market Close High Volume

[Shanghai 10]

Hello,

I am just beginning to trade and I have serious doubts about ultra high volume at closing time. I noticed that every single day or 2 there is ultra high volume at close and surprisingly the price just does not move. Is there a hedge fund vs. all trader and investors situation? Perhaps some machines holding both bid & ask? Who is trading that volume? I just can't see it so I appreciate any help.

[TheNegotiator 13]

Hello,

I am just beginning to trade and I have serious doubts about ultra high volume at closing time. I noticed that every single day or 2 there is ultra high volume at close and surprisingly the price just does not move. Is there a hedge fund vs. all trader and investors situation? Perhaps some machines holding both bid & ask? Who is trading that volume? I just can't see it so I appreciate any help.

 

What can you do about a position after the market has closed?

[Shanghai 10]

Hello negotiator. Of course you cannot buy or sell when the market is close. Anyway, people rushing to trate their lots at the end must probably know that closing price is far from being the best price for that trading session. So why they do not operate in mid session where the price is way better due to volatility? So I really think it has to do with hedge fund intra day trading. When they hold a stock for 6 months, they might trade all that volume they hold every 3 - 5 days, selling at hights and buying it back at close.

[TheNegotiator 13]

Well I don't 'know' for sure, but I think that people are forced to do business into close. They hold on as long as they can in the hope that they'll get a better price, but in many cases must exit by close. Plus there is an element of diminishing rotational opportunity. The less time left in the session, the less likely it will trade the prices you want - and a move away from there will force you to act potentially. It's also a little self-fulfilling like much of trading. Traders know it'll likely pick up in activity and directional agressiveness often into close and therefore are more prone to hitting out of a position. This in turn fuels moves/volatility/volume. Lastly, think about overnight risk. What happens when there is potentially market moving information to be release in say europe out of RTH? Those short term traders are potentially going to be overly exposed going into that.

[karoshiman 10]

Hello negotiator. Of course you cannot buy or sell when the market is close. Anyway, people rushing to trate their lots at the end must probably know that closing price is far from being the best price for that trading session. So why they do not operate in mid session where the price is way better due to volatility? So I really think it has to do with hedge fund intra day trading. When they hold a stock for 6 months, they might trade all that volume they hold every 3 - 5 days, selling at hights and buying it back at close.

 

 

Professional funds usually trade only the open and close. Hence, the big volume. Now, that does not yet explain why prices don't move much despite the high volume... I guess, they use some intelligent HFT algos in order to not move the market too much.

[BlueHorseshoe 10]

The less time left in the session, the less likely it will trade the prices you want - and a move away from there will force you to act potentially.

 

Thanks - that's a really useful (though blindingly obvious) point that I hadn't considered before. In theory one could attempt to systematically converge an 'optimistic' target on the closing price as the session progressed.

 

Cheers,

 

BlueHorseshoe

[BlueHorseshoe 10]

Professional funds usually trade only the open and close. Hence, the big volume. Now, that does not yet explain why prices don't move much despite the high volume... I guess, they use some intelligent HFT algos in order to not move the market too much.

 

A certain type of fund will, I think. But there are also plenty of funds that trade intraday. Nevertheless, I think that your explanation is the correct one for increased volume.

 

An interesting study would actually be a comparrisson of opening and closing volume.

 

BlueHorseshoe

[Shanghai 10]

Very intresting points of view in here. Someone said that they (funds) might use some HFT algos to keep the price stable. It could be but I don't think so. If a fund want to sell huge lot at close, what's the point of bidding a huge order as well? You might get hit and end up with double of shares and none sold. Unless they are sure that nobody will sell or short that bid. So, in this case they have to manage very accurate information. And if they have that information, there is no need to fake-bid. What I think it happens, is that they know exactly how many people are long and short (both intraday traders as investors) and what size, then they might "set" the price to generate a buying signal at close. So it's everybody buying against a fund + a few traders around. Machines could identify all this situation and step in to take advantage as well.

[jdevron 10]

Volume Weighted Average Price (VWAP) orders fill at the close. There are quite a lot of them every day. They wont affect the affect the markets price movements at the inside quotes because the VWAP prices aren't at the market prices. Hence you see a lot of volume reported but the market price doesn't change.