Market Depth - for dummies

[barney]

Barney,
Let me tell you a true story. One of a few just like this and one where no friends were won.

When I worked as a trader on the Sydney Futures Exchange back in the early '90's I was given an order to sell 3000 SPI contracts at my discretion. The order came from a large US hedge fund. They gave no price or time limit. The SPI trades on average approximately 10,000 contracts per day, so here I was with enough fire power to do whatever I so wished. What would you do?

Here is what I did. Every 20 - 30 mins I walked into the pit and sold 100 or so contracts. Turned my back and walked out. 20-minutes later I did it again. Sometimes I walked in and sold just 20 contracts, and walked away. I cannot remember what my average sell price was, but with 2-mins to go in the session I had about 400 contracts to go and I can assure you that the market went one way and hard. The settlement price for the day was the low of the day thanks to yours truely. The average sell price of my 3000 contracts was well above the day's closing price and the client went home with a very nice positive margin. Manipulation? or just doing the best for the client?

Now I agree that "depth" per se as we know it today was not shown, but the principal is the same nonetheless.

Ask yourself this: have you ever placed an order into the market then cancelled it? If so, then you've essentially manipulated with market depth.

Hi Nick, I hope my previous post did not appear to have "undertones" on it, cause I, and I'm sure all others respect you to the N'th degree............I wasn't trying to "judge" day traders at all (I'd love to be smart (and wealthy) enough to be a day trader............I don't have a problem at all if they can "manipulate" the market.......I am just trying to get a grasp of what goes on cause I have a lot of "money" to catch up on/recoupe!!.............Can I make the comment (and this is said with the utmost respect), that the "people" who gave you the "power" to exercise your "position" on the futures floor that day "knew" what they were doing with respect to "unloading" their stock, and you were simply a "pawn" on their chessboard.................doing what they knew you would do..............Please don't take that the wrong way, cause I'm not even in your league as a trader, but phsycology I know a "little" about, and we are all manipulated by others to some degree at some point in time. I'm sorry if what i say "offends" you at all, cause that is the furtherest thing from my intentions..............With total respect, Barney.

 

[Nick Radge]

Barney, I didn't see your post as anything but a question. The client had no intentions of the market. They simply had a long position that they needed to exit. Nothing else than that. They wanted the best price possible.

This discussion is about market depth. If an order can be placed and then removed without getting filled, then the market depth shows a different picture. If I place an order to buy 5 million BMX at 0.28, would you think people would be inclined to bid above me? Yes, because they would figure that my 5 million will offer their position some support because the 3-month average volume is nearer 600k. Let's say you bought 10,000 at 0.285 and then I removed my bid. What are you left with? A hole. The whole premise of your buying was based on my bid. If my bid is removed, then you'd have a position with no basis.

 

[stock_man]

Thanks to all for the great advice regarding this topic.

It has helped me greatly in understanding market depth.

 

[barney]

Barney, I didn't see your post as anything but a question. The client had no intentions of the market. They simply had a long position that they needed to exit. Nothing else than that. They wanted the best price possible.

This discussion is about market depth. If an order can be placed and then removed without getting filled, then the market depth shows a different picture. If I place an order to buy 5 million BMX at 0.28, would you think people would be inclined to bid above me? Yes, because they would figure that my 5 million will offer their position some support because the 3-month average volume is nearer 600k. Let's say you bought 10,000 at 0.285 and then I removed my bid. What are you left with? A hole. The whole premise of your buying was based on my bid. If my bid is removed, then you'd have a position with no basis.

Cheers Nick, I just didn't want you to think I was having a "personal" dig at you for just "doing your job" And to be honest I missed the point a bit! ...........Gotta stop drinking so much beer ...........with respect, Barney.

PS Ditto to Stockman for the info Nick.

 

[Ken]

trading online myself. at $29.95 a trade can get expensive. playing around with the market depth could be costly if something odd does happen...

my 2

speaking from a personal opinion, the volume of stock that i hold would have no massive difference on what other people think