CNBC: Gold futures (: @1GC14G) plunged more than $30 at 10:14 a.m. EST on Monday morning
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Sudden gold plunge has traders looking for answers
CNBC By Alex Rosenberg
Gold futures (: @1GC14G) plunged more than $30 at 10:14 a.m. EST on Monday morning, before regaining nearly all of that drop within the same minute.
The swift move triggered a 10-second pause in trading, and many market participants said a single trading error was probably to blame.
"What has a tendency to happen if someone does a fat finger trade is that it triggers stops that people leave in," said Matthew Hoverman, senior trader at Grafite Capital. "There is a high likelihood that that's what happened today."
When traders buy gold (or any other futures contract) they often do so with a "stop-loss order," which limits the amount of money that can be lost by automatically selling out of a long position when gold trades down to certain level.
This can compound swift moves, because an initial sale executed poorly or in error sends the market lower, triggering stop losses, which generates more selling, and in turn triggers more stop losses.
This snowball effect explains why the gold market can drop some 2.5 percent in seconds, as it did on Monday morning.
This swift drop led the CME to trigger a 10-second trading pause, known as a "Velocity Logic Event," from 10:14:12 a.m. EST to 10:14:22 a.m. EST. After this pause, gold regained nearly all of those losses, trading back up to $1,235 in the same minute and getting up to $1,242 by 10:27 a.m.
"Logic events are not out of the ordinary for electronic markets," CME Group spokesperson Damon Leavell wrote to CNBC.com. "All trades stand and our technology performed as designed."
CNBC Link
CNBC By Alex Rosenberg
Gold futures (: @1GC14G) plunged more than $30 at 10:14 a.m. EST on Monday morning, before regaining nearly all of that drop within the same minute.
The swift move triggered a 10-second pause in trading, and many market participants said a single trading error was probably to blame.
"What has a tendency to happen if someone does a fat finger trade is that it triggers stops that people leave in," said Matthew Hoverman, senior trader at Grafite Capital. "There is a high likelihood that that's what happened today."
When traders buy gold (or any other futures contract) they often do so with a "stop-loss order," which limits the amount of money that can be lost by automatically selling out of a long position when gold trades down to certain level.
This can compound swift moves, because an initial sale executed poorly or in error sends the market lower, triggering stop losses, which generates more selling, and in turn triggers more stop losses.
This snowball effect explains why the gold market can drop some 2.5 percent in seconds, as it did on Monday morning.
This swift drop led the CME to trigger a 10-second trading pause, known as a "Velocity Logic Event," from 10:14:12 a.m. EST to 10:14:22 a.m. EST. After this pause, gold regained nearly all of those losses, trading back up to $1,235 in the same minute and getting up to $1,242 by 10:27 a.m.
"Logic events are not out of the ordinary for electronic markets," CME Group spokesperson Damon Leavell wrote to CNBC.com. "All trades stand and our technology performed as designed."
CNBC Link
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Comments
"How many times can a man turn his head and pretend he just doesn’t see?” - Bob Dylan
Why is the headline not that prices rocketed $30 higher within seconds, as that is what happened?
Knowledge is the enemy of fear
<< <i>Individual stocks drop like that also. And if there was a way to track real estate or other assets second by second, you would probably see the same price action.
Why is the headline not that prices rocketed $30 higher within seconds, as that is what happened? >>
The price dropped $30 in only a couple of seconds....not minutes. 8,000 contracts. And the rebound $30 higher took 15 minutes. Individual stocks often move like this on news or rumors. No one has shown
up with any potential gold news or rumors to substantiate the drop. And if there were real news, gold wouldn't have popped back up $30 either. Since there's typically not ready buyers looking to buy 8,000 contracts in 2-5
seconds, this was probably a market sell order that was immediately removed once price caved in. Probably only a small fraction of those 8,000 sell contracts actually "sold."
This was an early in the week probe to check support levels as we get deeper into this Treasury auction/FOMC minutes/Non-Farm Payroll report week. The boyz just tossed out a grenade to soften up the beach head a bit for
what comes Wed-Friday. Today's follow through drop to $1225 did show that yesterday's grenade was effective in changing the sentiment.
"While it was unclear who executed the trade, it appeared as if the seller didn't worry about the price, Mr. Hunsader said. The contracts traded in that one second were sold at an average price of $1,231.93 an ounce, making the whole transaction worth $492.77 million, he said." Link.
That to me is a sure sign of likely price manipulation. Traders, and especially the big banks, are usually very careful in getting out of positions - they don't want to get hosed on the sale price. The fact that the seller didn't care is very telling.
Gold futures plunged more than $30 at 10:14 a.m. EST on Monday morning, before regaining nearly all of that drop within the same minute.
There is definately no manipulation. One party had a large block that wanted to sell as one lot. This means he was willing to take a bit less to get the deal done. Why does there have to be news or rumor to encourage someone to buy or sell?
$500 million is a lot to you or I, but there are 1000s of hedge funds and 100s of individuals that could have made such a trade.
Knowledge is the enemy of fear
<< <i>There is definately no manipulation. >>
You don't know that. Nor do I know there definitely was manipulation. That's why I said it was "likely" - not definite.
<< <i> $500 million is a lot to you or I, but there are 1000s of hedge funds and 100s of individuals that could have made such a trade. >>
That's a crude way to unwind a big bet. And a strategy very likely to leave millions on the table. Pretty unlikely that someone smart enough to have so much money would sell without regard to the price -- which is exactly what the WSJ article said happened.
Actually in the equities market these type of transactions are commonplace, happening everyday. Sometimes a slow sale can actually knock prices much lower as the market "knows" there is overhead selling pressure as that seller is constantly in the market. Eventually the market catches on and bids drop forcing the sellers hand. If he backs away the market knows this is only temporary and keeps prices lower. If the seller "wants out" prices can collapse rather quickly and rebound quickly as the market knows the seller is now gone.
In this case if the seller was constantly in the market over several days or even weeks, prices could collapse much more than 2-3%. In reality the seller probably didnt leave much on the table and possibly got much more than if he tried to piecemeal himself out.
To roadrunners point about no news, maybe the news is not today, but tomorrow, or the next day? If so then maybe me have insider trading, but certainly not manipulation.
Knowledge is the enemy of fear
HE>I
<< <i>Actually in the equities market these type of transactions are commonplace, happening everyday. Sometimes a slow sale can actually knock prices much lower as the market "knows" there is overhead selling pressure as that seller is constantly in the market. Eventually the market catches on and bids drop forcing the sellers hand. If he backs away the market knows this is only temporary and keeps prices lower. If the seller "wants out" prices can collapse rather quickly and rebound quickly as the market knows the seller is now gone. >>
The situation you're describing can happen in thinly-traded markets. Paper gold is not such a market. It can also happen if what's being dumped is huge relative to the total trading volume. That didn't happen here. The 4,000 contracts is less than five percent of the normal daily volume. You could easily split that up into multiple trades, over multiple days and times, without tipping off the market.
Maybe this guy didn't want to get out piecemeal. Maybe he just wanted out. The price right now is very close to the low of that trade. Did he really leave that much on the table by selling at once? Believe it or not, the really giid traders do not try to squeeze every last penny from a trade.
Knowledge is the enemy of fear
I knew it would happen.
Nanex breaks it down
<< <i>My opinion is that the gold market isn't really a market. >>
That would be a good way to view all the markets. Not that there isn't real money to be made, because there obviously is. It's that the term "market" in the U.S. has long evoked images of a free market that has now been resigned to history books.
<< <i>Nanex breaks it down >>
Holy HFT algo's gone wild Batman.
Interesting analysis. 338 contracts done numerous times with pauses all inside of milliseconds. For sure, that's not manipulation....lol. Shreds the theory of just one big dump for whatever you can get for them.
On the surface it looks like a losing trade....or money left on the table. But who knows what was made in the other markets that dipped in unison (currencies, bonds, etc.). The FED and USTreasury are more than happy
to give out payola to team players who take a hit for the "team." Hit me now........just pay me later.
And 40 seconds later the price was right back up. This type or trading happens all day, every day in stocks. So what?
What was the nefarious and devious objective?
You really think the FED was behind this? Is the FED behind everything you dont understand?
Knowledge is the enemy of fear
This should be fun!!
A splunge could happen with no notice.
Is there solid demand and support at $1200? GOK.
Yup, it happens all the time. No biggie. The difference is that it's not you or I that is making it happen. It's one big azz computer with direct cables to the exchange, located about a block away. No reason to worry about anything. Just don't play the game and let them play with themselves. It's still interesting to observe.
I knew it would happen.
"How many times can a man turn his head and pretend he just doesn’t see?” - Bob Dylan
It's all about the money.
I knew it would happen.