searching for holy-grail.. is this theory true?

[Liquid validity]

Shak its not easy for me to reply to rec. text, but to answer,
yes you are correct, contracts are standard - $ per tick.
Its the holding time and transaction speed that vary.
The example I used was to illustrate how number of contracts
is related to transaction speed and frequency, not contract value.
If you want to add contract value into the mix, make it £100 worth of peas each trip.

1 contract held for 2 months is likely to have a more significant
variation in value than 1 contract held for 1 second.
That is why volumes have jumped since 2007,
average holding time has been slashed by HFT's:
http://www.trade2win.com/boards/forex/178568-searching-holy-grail-theory-true-14.html#post2181324

 

[Shakone]

for me personally I dont find the concept of supply and demand helpful I merely offered some text that tried to help where I thought others were getting tangled.

I am not going to argue your post line for line as doing so would have precisely no upside for me.

We can settle this tomorrow morning if you like. Just call up Eurex tomorrow morning when they open and ask them if there is a limit on the amount of eurostoxx contracts that can trade today. They will tell you there is no limit, 9m trade then guess what they can magic up another million if people want to trade. Then ask they guy if an infinite number of eurostoxx contracts have ever traded. Be prepared for him to hang up!

Just like the market you will find people on tinternet with different opinions, I am finecwith that for obvious reasons.

I'm fine with it too. Pleased in fact that there are different opinions and we get some lively discussion around here.

There are several limits to how much you can trade.

There are position limits enforced by an exchange on an individual trader. This is exchange dependent, but we're talking in general about futures. What are Eurex's position limits?

There are limits based on your account size and what is required to trade a contract - this is contract dependent.

There are limits based on the market itself - the participants.

Limits based on price movement and what is allowed.

Limits based on time.

All of these lead to the conclusion that there are not infinite contracts available. There are a finite number available to every participant and a finite number of participants. You either get it or you don't get it. All the same to me.

 

[cablemonster]

"the fact that there has never been infinite contracts traded in the whole of history".... Jeez - are you serious? You do realize that despite what Buzz Lightyear may say, it is not possible to "reach" infinity right?

You come up with some odd arguments Shak.

The fact is, in futures there is infinite supply and as L_V says, the only limit is what people want to trade. This does not change the fact that infinite contracts are available. HFTs push up the volume and the amount of futures contracts increase accordingly because there is no limit. They get created on the fly. Infinite supply, not infinite TAKE UP of that supply.

Now - if you traded stocks, there if finite supply, it is called the float. When stocks are heavily short, the effective float is reduced and this is what helps in a short squeeze. The reduction in the amount of available shares is true scarcity and when more people chase a limited supply....

Of course, this is somewhat countered by certain people selling stocks they don't actually have in the first place...

Well put. I couldnt be ar$ed to duel. Must dash now as I gotta be up for the open I dont want them to run out of future contracts before I can trade.

 

[Shakone]

Tomorrow when the markets open, I'm going to go long an infinite number of contracts. This will consume all liquidity, and price will move to infinity. At that point I'll sell just 1 contract which based on the price differential from when I first started buying will make me infinite dollars. Don't you tell me it can't be done, there's an infinite supply and nothing stopping me!

""This time next year, we'll be millionaires!"

 

[Liquid validity]

There are position limits enforced by an exchange on an individual trader. This is exchange dependent, but we're talking in general about futures. What are Eurex's position limits?

There are limits based on your account size and what is required to trade a contract - this is contract dependent.

There are limits based on the market itself - the participants.

Limits based on price movement and what is allowed.

Limits based on time.

All of these lead to the conclusion that there are not infinite contracts available. There are a finite number available to every participant and a finite number of participants. You either get it or you don't get it. All the same to me.

Capital recycling speed gets around the individual trade size issue.
Participants have no limit on number of transactions.
Time limits are in pico seconds, and will probably fall unless HFT
is curbed with legislation.

All that means that contract volume has no ceiling that has yet been reached.
Obviously there will be a brick wall at some point.
That brick wall likely being transaction speed.
At the moment there are effectively no limits that can be quoted.

Anyway, I'm off, night all

 

[Shakone]

"the fact that there has never been infinite contracts traded in the whole of history".... Jeez - are you serious? You do realize that despite what Buzz Lightyear may say, it is not possible to "reach" infinity right?

You come up with some odd arguments Shak.

The fact is, in futures there is infinite supply and as L_V says, the only limit is what people want to trade. This does not change the fact that infinite contracts are available. HFTs push up the volume and the amount of futures contracts increase accordingly because there is no limit. They get created on the fly. Infinite supply, not infinite TAKE UP of that supply.

Now - if you traded stocks, there if finite supply, it is called the float. When stocks are heavily short, the effective float is reduced and this is what helps in a short squeeze. The reduction in the amount of available shares is true scarcity and when more people chase a limited supply....

Of course, this is somewhat countered by certain people selling stocks they don't actually have in the first place...

You said that there was infinite supply. I said nonsense! There's nothing you can measure that's infinite in the real world. You argued. Now you're trying to throw your nonsense back at me as if I brought it up. Pathetic.

You say the only limit is what people want to trade. Really? I want to trade infinite futures tomorrow. I won't be allowed, because what I want has F all to do with it.

Pixies and fairyland again.

 

[cablemonster]

"the fact that there has never been infinite contracts traded in the whole of history".... Jeez - are you serious? You do realize that despite what Buzz Lightyear may say, it is not possible to "reach" infinity right?

You come up with some odd arguments Shak.

The fact is, in futures there is infinite supply and as L_V says, the only limit is what people want to trade. This does not change the fact that infinite contracts are available. HFTs push up the volume and the amount of futures contracts increase accordingly because there is no limit. They get created on the fly. Infinite supply, not infinite TAKE UP of that supply.

Now - if you traded stocks, there if finite supply, it is called the float. When stocks are heavily short, the effective float is reduced and this is what helps in a short squeeze. The reduction in the amount of available shares is true scarcity and when more people chase a limited supply....

Of course, this is somewhat countered by certain people selling stocks they don't actually have in the first place...

Tomorrow when the markets open, I'm going to go long an infinite number of contracts. This will consume all liquidity, and price will move to infinity. At that point I'll sell just 1 contract which based on the price differential from when I first started buying will make me infinite dollars. Don't you tell me it can't be done, there's an infinite supply and nothing stopping me!

""This time next year, we'll be millionaires!"

I will leave you to duel it out with the brummy attack dog (toast). Don't make him angry he made Mike Tyson cry for his mummy.

 

[Shakone]

For those who may be interested in supply and demand, there is a treasure trove of material here

http://ocw.mit.edu/courses/economics/14-01-principles-of-microeconomics-fall-2007/lecture-notes/

 

[DionysusToast]

Tomorrow when the markets open, I'm going to go long an infinite number of contracts. This will consume all liquidity, and price will move to infinity. At that point I'll sell just 1 contract which based on the price differential from when I first started buying will make me infinite dollars. Don't you tell me it can't be done, there's an infinite supply and nothing stopping me!

""This time next year, we'll be millionaires!"

You said that there was infinite supply. I said nonsense! There's nothing you can measure that's infinite in the real world. You argued. Now you're trying to throw your nonsense back at me as if I brought it up. Pathetic.

You say the only limit is what people want to trade. Really? I want to trade infinite futures tomorrow. I won't be allowed, because what I want has F all to do with it.

Pixies and fairyland again.

Personally - I'd give up now if I were you.

Not this argument, I mean trading in general.

 

[Shakone]

Personally - I'd give up now if I were you.

Not this argument, I mean trading in general.

Really? What should I do then...become a vendor? Start talking about how price movement is related to multi-story car parks?! reinvent standard trading terms that have existed for decades to make myself sound smart and current?

Thanks for your concern Dt, but I'm doing just fine

You look after yourself now

 

[DionysusToast]

I will leave you to duel it out with the brummy attack dog (toast). Don't make him angry he made Mike Tyson cry for his mummy.

Whilst you can physically disable yourself in an unfair fistfight to make it fair, I know no way of tying one half of your brain behind your back.

Let's just leave Shak looking for the ∞ key on his number pad...

 

[DionysusToast]

Really? What should I do then...become a vendor? Start talking about how price movement is related to multi-story car parks?! reinvent standard trading terms that have existed for decades to make myself sound smart and current?

Thanks for your concern Dt, but I'm doing just fine

You look after yourself now

To be honest, I wouldn't set your sights so high if I were you.

 

[Purple Brain]

While the number of sellers and buyers as individual entities in any market are irrelevant, the number of items available for sale and the number of items required for purchase are the determinants of price.

It doesn't matter if one individual/entity/enterprise has 1000 to sell and 1000 individuals/entities/enterprises want to purchase 1 or any combination thereof - where number of items required roughly matched number of items for sale, the price is unlikely to move too much - where there is no discernible element of extrinsic value.

It's where there is an imbalance, either natural or deliberate, that price will fluctuate, or when there is a tangible element of extrinsic value inherent in the goods, products, services, stocks themselves.

By extrinsic value I mean a value outside of the nuts & bolts valuation of the item such as when expectations of lower/higher value start to price in. So it's not Economics 101 Supply and Demand that governs the price, but anticipated supply and demand where it is significant in relation to current supply and demand.

My notes from a lecture a few years back which looking at now suggest I was probably more intelligent then than I think I am now as this seems to make sense, but reading it now it seems like it was written by someone else. Which is more than a little worrying.

 

[timsk]

Guys,
At the risk at being caught in the crossfire, allow me to arbitrate on the 'Finite Vs Infinite' argument, as I find myself nodding in agreement with both DT and Shakone on this.

It seams to me that what you're really arguing over is the difference between theory and practice. Yes, theoretically, there are an infinite number of futures contracts that can be traded. Similarly, theoretically, there is no upper limit to the value of my house when I put it on the market. However, in practice, just as there's an upper price limit for my house beyond which would be laughable, there's also an upper limit to the number of futures contracts that can be traded. After all, deep as the pockets of Goldman Sachs and the like are, they are not infinitely deep! More importantly, the futures price is highly correlated to the underlying instrument or index which does have finite limits. So, in theory there's no upper limit, but in practice there is due to the finite limitations of those buying and selling them. What is that limit? Well, all we can really say is that, currently, it stands at whatever the number is for the most contracts traded in one day, week or year.

Is that a compromise position upon which both sides to this debate can agree?
Tim.

 

[Purple Brain]

timsk - I'm quite enjoying the debate as regardless of the rights or wrongs, there are some very interesting points being aired. Thought provoking. A compromise would be an awful waste of momentum.

 

[Purple Brain]

What about the iPhone 6? Without corporate quality info on the supply side available for Day-1 release you can either take a view that you’re sure they’ll not be enough for everyone who wants one (anticipated supply and demand) and want to queue for a week ahead of release with your $999 clutched in your hand. Or you’ll take a view that everyone who ever wanted an iPhone 5 – got one (actual supply and demand) and you decide to sit back a few weeks and buy one when the premium has been exhausted (anticipated supply and demand).

Right now I think there are more than enough euros and yen to buy and sell a trillion times over without worrying about supply side issues. But I anticipate more people will want yen than they will euros right at this moment, which is why I’m short – quite independently of any expectations or realities regarding actual physical supply of either.

I think we actually trade a market of hopes and expectations and anctipations rather than the underlying assets.

 

[timsk]

timsk - I'm quite enjoying the debate as regardless of the rights or wrongs, there are some very interesting points being aired. Thought provoking. A compromise would be an awful waste of momentum.

Oh the irony!
I too am enjoying the debate PB and, believe me, the very last thing I want to do is kill the momentum! My assessment (which I'll assume you don't agree with), is that the debate had gone off on something of a red herring with the 'Finite Vs Infinite' argument. The intention behind my last post was to gently nudge the thread back on to the 'Supply & Demand' track, as the ideas posted about that are - IMO - more interesting, thought provoking and relevant to all subscribers. One can but try!
Tim.

 

[Purple Brain]

My apologies timsk - I lack the basic prerequisites to understand the more subtle nuances of your efforts and misunderstood your intent.

 

[DionysusToast]

Guys,
At the risk at being caught in the crossfire, allow me to arbitrate on the 'Finite Vs Infinite' argument, as I find myself nodding in agreement with both DT and Shakone on this.

It seams to me that what you're really arguing over is the difference between theory and practice. Yes, theoretically, there are an infinite number of futures contracts that can be traded. Similarly, theoretically, there is no upper limit to the value of my house when I put it on the market. However, in practice, just as there's an upper price limit for my house beyond which would be laughable, there's also an upper limit to the number of futures contracts that can be traded. After all, deep as the pockets of Goldman Sachs and the like are, they are not infinitely deep! More importantly, the futures price is highly correlated to the underlying instrument or index which does have finite limits. So, in theory there's no upper limit, but in practice there is due to the finite limitations of those buying and selling them. What is that limit? Well, all we can really say is that, currently, it stands at whatever the number is for the most contracts traded in one day, week or year.

Is that a compromise position upon which both sides to this debate can agree?
Tim.

People trade contracts.

The number of contracts is infinite in futures.

The supply of participants is not infinite and no-one has said it is.

You are confusing the potential supply of contracts (infinite) and the uptake of contracts. Two different things entirely.

Uptake does not impact supply. That is the whole point. No matter how many futures contracts you trade, you cannot create scarcity in contracts.

Of course, in stocks, this is EXACTLY what happens. Stocks can become scarce.

Similarly, if we go back to the OP. People may be buying and selling apples. The number of apples they can buy and sell is finite. Apples cannot appear out of thin air like contracts just because 2 people want to trade.

 

[cablemonster]

Whilst you can physically disable yourself in an unfair fistfight to make it fair, I know no way of tying one half of your brain behind your back.

Let's just leave Shak looking for the ∞ key on his number pad...

I love it when you get punchy.

Stages of learning

Unconcious incompetence
Conscious incompetence
Concious competence
Unconcious competence