Here's What Was Behind Friday’s Gold Sell-Off
Tommy Humphreys | Oct 13, 2013 12:13AM ET
Futures are a zero-sum game in the sense that on the contract settlement date all the longs and shorts must net out, with the contracts either being cash settled or the longs taking physical delivery of the commodity in return for providing cash to the sellers.
However, during the time that a given futures contract is actively being traded there are very clear winners and losers in this zero-sum game. This is why market participants spend so much time and energy figuring out how other market participants are positioned, and more importantly what might motivate them to change their positioning in the future.
It is not conspiratorial at all to think that various market participants are using numerous and varied tactics in order to gain an advantage over other market participants. After all, this is the market wherein the #1 and overriding objective of all participants is PROFIT (even hedgers are utilizing futures contracts to lock in PROFITS).
In the 2013 market environment there are many new tricks ranging from millisecond trade execution to special order routing and dark pools. However, one of the oldest tricks in the book is stop running; this is a strategy of pushing price to levels which will trigger a large number of stop-loss orders then using this newly created liquidity to profitably exit one’s positions.
Friday morning’s stop tripping 5,000 contract market sell order in December gold futures was not part of any grand conspiracy to lower the price of gold. It was simply a trading tactic intended to have maximum market impact and wreak havoc at a key prize zone, which it did quite successfully!
Original post
Get The News You Want
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.