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Volatility Circuit Breaker Halts German Bund Market After NFP Print
We have been claiming for almost half a year now that with the policy tool known as stocks now completely irrelevant, the places where traders can still find some Fed-free volatility (for the time being) is in the FX and bond markets. We are confident that in 2011 the MOVE bond vol index will be far more relevant that then the VIX, and that 200 pip daily moves in key FX pairs such as the EURUSD will be a normal occurrence. As validation of the first, just after the NFP number was announced, it was not US stocks, but the massive German treasury market that was halted due to a surge in volatility. This bears repeating: the massive, presumably liquid, and critical sovereign debt market of Europe's biggest economy was halted! We look forward to many more such examples of connected vessels, as computer, robots and the few remaining homo sapiens traders, pursue only modestly manipulated markets in which to trade volatility.
From Reuters:
Trading in German Bund futures was briefly stopped on Friday due to a spike in price volatility following the release of U.S. non-farm payrolls data, a spokesman for the Eurex exchange said.
Bund futures FGBLc1 trading was suspended for less than two minutes at 1330 GMT when price spikes triggered a "volatility interrupt" -- an automatic trading halt designed to protect the market or prevent a mistrade.
Normal trading activity had now resumed.
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..what it means is that computers control sensitive purchases
An absolutely honest question to all the "Danger, HFT causes more volatility which is BAD!!!" types of people:
I see and experience volatility as a bonus to value investments. If I think that an instrument will go up longer term, I can buy the dip - and I can but deeper dips due volatility.
I.e. a human trader will be at a marked advantage, while the robots trading against each other in the volatility space do a zero-sum game of trying to out-penny each other. They take money from other robots. The human trader, who 20 years ago had to pay a spread+costs of 50 cents per share or more, can now do it below 10 cents, even with HFT/robot overhead accounted.
I.e. while HFT may increase volatility, it also provides real liquidity and better points of entry to human traders like myself. So I see them as an unconditionally good thing. (Beyond the fact that I can use automated tools myself to time the market more efficiently - which is a significant advantage as well.)
So exactly what is the harm to humans here? Honest question, because I dont see any harm to myself, neither in theory, nor in practice.
I see the only harm to the traditional Wall Street market maker monopolies who cannot seek as much rent anymore - but I'm not shedding any tears for them.
This is why I think the routine critique of HFT by ZH is fundamentally misguided. HFT helps the little guy.
No harm what-so-ever. Carry on as you were.
I'm not complaining. HFT does not preclude making money. I've never really understood all the beetching; if you can see what the magisters are going to try to do next, you can see where the money swarm is going to settle and move to it.
Saxxon you are talking Girlie-Man Bullshit about HFT -
If you follow any HFT trades on a daily basis,you can see,that it fucks
up viable trading completely and since it trades by volume on ever decreasingly marginal
fractions of price-difference,
volatility is destroyed by High frequency trades
and Investor confidence has been destroyed completely.
So what you are saying is complete Bullshit
HFT has completely fucked up (destroyed) free trading on financial markets ,
and unless you are an insider you won't even get a look in between!
Your rant is not coherent enough for me to identify an actual point in it.
What are you trying to say? How does HFT disadvantage me, the intelligent human trader?
Machine might inconvenience the former swarm of parasitic stock-scalpers. I have no pity for them, they'll go the way of the buggy whip makers. Get a real life and do something useful.
But to the real human trader, machines are a big boon: both as a tool, and as an effect on liquidity and on volatility. FYI may 6 was an excellent day for human traders to enter the S&P via limit orders.
And I expect nothing but the cricket chirp ..
Look up "Nyquist Criterion", then come back and tell us how a Human that can respond in, at best, 10 milli-seconds, can outflank a robot running trades in sub-micro-seconds.
Erm, he'd do it the old fashioned way: by using his brain and having entered the 1000 S&P limit order minutes, hours or even days ago?
Also, there's nothing that keeps a human from using some basic computer tools that would help time the market. 'Buy above a certain dip' is certainly a good tool and you could easily be taking money from the robots, because they are not aware of the macro trend (and generally they are not aware of it).
As I said it in my posting above, most of the volatility trading is dividing up the existing 'dumb order' fat between robots, so it's a zero-sum game: more robots will take from each other and divide up the (ever smaller) gain, so there's a natural limit to all this.
But there is no limitation on a trader to enter dumb trades - why not enter smart trades? Most trading platforms allow VWAP orders for example. The algos will execute it on your behalf. Algos are tools for humans.
If any side-effect of robo-trading is volatility then this is a marked advantage to the human trader, who is given better entries. May 6 was a human S&P long investor's dream day.
just wait till liquidity vanishes and tell us if you still like it. the real problem is lurking behind the shadows and we havent met yet
Erm, I hate to break this to you, but volatility is equivalent to liquidity thinning up in one direction or another :-)
And I claim (via actual experience) that a human trader can make very good use of volatility. Exactly because a human knows the 'big picture', while a robot does not.
You are unable to argue against that and your argument is little more than incoherent nonsense.
"May 6 was a human S&P long investor's dream day".
Not if you were long...with trailing stops.
I was trading during the flash-crash. The platform I was on was over-whelmed, (for the first time ever), like every other exchange/platform.
HFT is the enemy of the little guy, breeds corruption in all markets and does pose systemic risk.
You mean you were actually driving the flash crash, you were overleveraged and were one of the many stops that were taken out and were avalanching?
So you mean it was not HFT who caused it after all but humans entering VWAP orders and stops?
You should be on CNBC. Why don't you explain to us all why quote-stuffing is actually a good thing too?
quote stuffing is silly, and apparently it's just an arms race between algos - i.e. to humans it's mostly a zero-sum game. I'd expect fake quotes to be legislated out of the system real soon, akin to e-mail spam.
It does not keep an intelligent investor from knowing that entering the S&P at 1000 would be good on May 6. I could have done that as a human, and could have greatly benefited from the volatility on that day.
So exactly where's the disadvantage of machine liquidity and volatility?
you might be right that lower spreads in the various financial products are a direct result of automated trading ( e.g. HFT) and a benefit to us all (market participants, financial system, economy, etc).
i certainly agree with that!
however when automated trading and in particular HFT can cause disruptions in trading like those we saw on may 6th (fair enough market structure has something do do with it as well, though HFT is again benefiting from current ms) the benefits some people who trade (and i clearly include individuals here too) are far outweighed by the costs we all bear if things go really really wrong.
if you doubt the role of ms and automated trading (again in particular HFT) in teh flash crash, fine. go get a job at getco or gs and find out yourself!
and please, please try to think of more then your break-even point when trading!!!!!!!!!!
So exactly why is May 6 a problem to the intelligent human trader and investor?
If you wanted to enter the S&P long it was the perfect point to do that. If you shorted it then it was the perfect point to exit.
Also, May 6 was not really caused by HFT. It was caused by a simple manually initiated WVAP trade. That's as human as it gets, the machine only made sure it didnt enter the market at once but was spread out on a volume-fair basis.
If anything then May 6 was about the lack of HFT liquidity. The market looked so weird to the algos that they exited out of caution. Believe me, human traders panic a lot harder and a lot longer than a 'flash' minute.
Damage must be "contained".
EUR/USD seems to be rattling around in a tiny range today.
AUD/USD has surged off the lows, with gold.
Investors appear to be ready to "embrace risk" once again, with gold leading the next charge higher.
Most important thing will be to see if BBVA can hold the lows. If not, then we have more problems in Europe that will probably spill over to the U.S.
When you "embrace" gold, it's not risk you are seeking.
+1 Robotrader has not embraced the paradigm shift yet. He will eventually, I have faith. I don't think he's a disinformant like Harry, just following the same mental logic he's probably had his whole life.
Not that he isn't frustratingly dense, sometimes.
Judging from his avatar and his constant soft porn, I think he's embracing something. The question is what.
Paradigm shift, because this time it's different?
something is not quite right, i just cant point my finger on it...risk on?
Germans regurgitating the 'summer of recovery'. Now will start a feeling that US jobs should already have picked up steam by now, judged by all past post-war experiences. The evidence is mounting that jobs will never recover like during the last recession/recovery. That spells out that the US economy is being downsized. And that's gloomy.
"Order out of chaos"
We're seeing the chaos daily.
Next up is the "order", and it's going to be painful for you and your children and your children's children.
Worldwide Fascism is here, so what'ca gonna do 'bout it?
This is the 4th age. It is called "The Age of Chaos" and it is the shortest, being only one period long. Chaos is to be expected.
Normal trading activity had now resumed.
Priceless.
Priceless? Priceline.
PCLN up 1% at $441.48
William Shatner is loaded! I bet all the other ST originals are green with envy.
Orion slave girl. Choice.
http://www.toplessrobot.com/yvonne_craig_as_slave_girl_marta.jpg
At least the PE is only in the 40's for PCLN, unlike NFLX, or even worse LVS.
LVS up +4% on the fact that Americans are now making .01% more...so they can spend it all at LVS.
The bullshit meter pegged and shut down the systems. It took mouth to mouth to breathe life back into the Bund. There is concern that the lack of oxygen may have caused German brain damage. Stay tuned.
I think this particular BS (about the NFP print) is confined to Reuters. It still breaks BS meters, and I'm certain the Germans have their own propaganda to worry about, but it is probably not this amateurish.
Sarcasm and humor are our friends.
Gold
Bullish butterfly...BTFD.
http://99ercharts.blogspot.com/2011/01/gold_07.html
http://www.zerohedge.com/forum/99er-charts
I bet it was Wadell and Reed. When is somebody going to do something and ban those jokers from trading ANYTHING, so this kinda crap stops happening?
Now that's "hot money".
credit indices leaking again...europe in particular going into the close very heavy...lack of bond buying again in ig corps - if it continues expect to see further sell offs as if there ever was a market that was liquid til it isn't, corp bonds are it
On alert for a market crash.. a global equity event. We have a correction to Dow 10,500
then Crash from that level.
Back to 09 Lows. The whole rally has been based on fiat monetization and nothing else and you can't paper over debt.
They will be writing books about this trade for years to come.
vc
But to also compound the issue, nothing has changed as far as the speculative derivatives issued by IB's, the amount of risk banks can take (going to be "fazed" in several years), nor anything to deal with the TBTF issue.
In the immortal words of Eddie Murphy:
"Captain Kirk would f*&k anything. He even f*&ked a green bitch once. If the bitch is green, there's something wrong with the pussy"
Vinz