The volatility on FOMC days can be quite amazing even on days when the Fed does nothing unexpected nor says anything unexpected. Here is a case in point in regards to US Treasury Bonds.
On the 30-Year bond there are 32 ticks in a point and each tick is worth $31.25 as per the following table.
In five minutes, for no apparent reason (other than to run the stops in both directions), futures swung 28 ticks. On a single future that is a swing of $875.
Anyone with a buy or sell stop in that range, got stopped out (or forced in).
This action is quite typical, and arguably mild.
In terms of yield, the entire top to bottom move for the entire day was around 5 basis points. Had the Fed really said or done something, action could easily been triple that if not more.
Priced in volatility is expensive for this reason, even though in most cases nothing unexpected is said or done, other than market makers purposely running stops in both directions.
Mike “Mish” Shedlock
Mish — there is no Treasury market. If there was a functioning market, the “bang the beehive” tactic (running the stops both directions) would be incredibly risky even for the fastest high freq trading firms.
This article describes similar issues in the natural gas “market” (which has more regulators than traders, and is still not really a global market):
Also notice the tactic was mostly employed during volume lulls just before a government agency announcement… deja vu all over again (sorry Yogi)
Anyway, I am sure regulators have already planned to blame a mom and pop day trader for this blip.
Running the Stops is a very benign activity of Market Makers, and everyone who knows anything about how Wall St. works expects the stops to be run. Bernie Madoff, former chairman of NASDAQ, was one of Wall Street’s top Market Makers.
But he did give lots of (other people’s) money to charities, as well as to the democrat party. It’s so much fun to spend and give away other people’s money! Why, it’s like being a congressman.
This happens all the time and Mish – I have been trading DAILY for 20-Y E A R S.
I know it does.
Every time there is allegedly “news”
market makers running stops of customers in both directions is theft by taking.
Nonsense, Jack. No one is forced to place “stops,” much less be in the game. No theft here. No victims. Only winners, losers, and breakevens. But a nice bit of money for leveraged players. I would like to know who are the players, and meet them or their computers sometime.
The theft logic means victims, and that leads to calls for policing or regulation; which leads to taxes and fees to cover the costs. Might not be a bad idea to be the “house” and take a cut of the pot. I’ll nominate myself as Volatility and Stop Czar, for a tithe.
Monopolistic practices are a form of fraud/theft. If the cartelization of our banking system is aiding/abetting the market makers to run stops, then there is likely an element of fraud/theft involved.
I have been trading zero-coupon UST’s for almost 20 years and have never once placed a stop-loss order, and never will.
If you are going to trade in these “markets”, it is best to realize that you are trading with pathologically greedy, vicious, psychopaths who “would sell their mother for an eighth”. Your stops are just another tool they can use to fleece you.
Back in the ’80s when I traded wheat futures regularly I bought lunch several times for the pit traders before I finally caught on. Some of life’s darkest moments is coming back from lunch and finding a note to call your broker.