How Can Retail Traders Make Money Every Day Trading Stock Market And future market? (part2)

How Can Retail Traders Make Money Every Day Trading The Stock Market And The future market? (part2)
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Making money from trading the S&P 500 and the stock market is not impossible.

Anyone can make a good living from trading the stock market or the S&P 500. Nevertheless, you need to be armed with knowledge, tools and patience.

Before reading the part 2 of this article, you need to consult part 1 (click here).

Let’s begin:

Which Category of traders is controlling the E-mini S&P500 Future Markets?

To answer the question, we must know first the average contracts traded per day by each category.

According to Dr Andrei Kirilenko, an average of 3.2 million contracts were traded per day in the E-mini S&P 500.

So, in details:

  • Aggressive HFTs traded an average of half million contracts per day or 22% from the 3.2 million and took 25.60% of the market liquidity.
  • Mixed HFTs traded an average of one million contracts per day or 28% from the 3.2 million and took 22.47% of the market liquidity.
  • Passive HFTs traded an average of 282,687 contracts per day or 8,7% from the 3.2 million and took 2.19% of the market liquidity.
  • Opportunistic traded an average of one million contracts per day or 93% from the 3.2 million and took 37.73 % of the market liquidity.
  • Fundamental traded an average of 268,346 contracts per day or 42% from the 3.2 million and took 9.72% of the market liquidity.
  • Small Traders traded an average of 33 144 contracts per day or 04% from the 3.2 million and took 1.20% of the market liquidity.
  • Non-HFT Market Makers traded an average of 135,129 contracts per day or 24 % from the 3.2 million and took 1.10 % of the market liquidity.

As you see, opportunistic traders (small institutional investors, brokerage firms, and hedge funds), aggressive HFT and mixed HFT had the big traded contracts.

But to answer the question of who is controlling the E-mini S&P 500, we need to know who is making persistent profits over time.

The average profits of the HFTs:

  • Aggressive HFTs earn in profits an average of $45,267 per day.
  • Mixed HFTs earn in profits an average of $19,466 per day.
  • Passive HFTs earn in profits an average of $2,460 per day.

According to Kirilenko’s research paper, which focuses on HFTs’ profits, aggressive HFTs (liquidity takers) are the most persistent and profitable category of traders in earnings over time.

Aggressive HFTs generate their profits from trades that last only seconds to minutes, and they get their money from all the other categories of traders in the future market and also the stock market; even if we didn’t focus on stocks..

The following is a table (August 2010) illustrating the source of aggressive HFTs’ profits:

How Can Retail Traders Make Money Every Day Trading Stock Market And future market? (part2)

In this table, the rows identify who make the profits, whereas the columns identify from whom the profits came.

We all know that fundamental traders are institutional investors, who are more informed and experienced. As a result, we expect their profits to be positive when trading against HFTs especially aggressive HFTs.

However, fundamental traders lose money against aggressive and mixed HFTs because they leave a detectable order flow pattern in the market.

In addition, we expect small traders to make a profit from some categories because they are described as noise traders who leave no noticeable order flow pattern in the market. But unfortunately, small traders lose money against all the categories.

Conclusion:

  • Aggressive HFTs earn the biggest profits.

  • Aggressive HFTs make a persistent profit over time.

  • Aggressive HFTs’ performance is driven by something else rather than luck.

So, who are these aggressive HFTs controlling the E-mini S&P 500? (see the answer in part3)

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