The Driving Force Behind The Drop In Oil Prices
21st century business herald has learned from many sources that high-frequency trading and algorithmic trading are another driving force behind the rapid collapse in oil prices recently.
"In fact, currently, high-frequency trading and programmed algorithm trading account for more than 50% of the ny-mex crude oil futures trading market. However, previously, the market focused on the impact of changes in crude oil supply and demand relationship on the sharp fluctuations of oil price, ignoring the influence of programmed algorithm trading on the sharp fluctuations of price."The bulk was studied hedge fund manager points out that nowadays as more and more in view of the relationship between supply and demand and the economic fundamentals of trading of crude oil futures hedge funds (mainly oil bulls) confess compensate out in succession, and the volcker rules make marketmakers compressed oil futures proprietary trading and investment Banks scale, makes programming algorithmic trading's growing influence on oil price fluctuations.
Jean-jacques Duhot, chief investment officer of Arctic Blue Capital, pointed out that the biggest characteristic of programmed algorithm trading is that it tends to make trend trading based on the fluctuation trend of oil price, and does not take economic fundamentals, supply-demand relationship and other factors into consideration, so as to continuously enlarge the fluctuation range of oil price.
"The change in oil prices over the past week is now reflected throughout the day."He believes.For example, when oil prices dropped below $50 an ounce, after many hedge funds sequencing algorithm will automatically sell huge quantities of crude oil futures trading positions stop off, lead to oil prices tumbled more than 13% in the past three trading days, fell to $45 a barrel integer mark directly, if according to the traditional hedge fund trading strategies (based on repeated long-short game) on whether oil prices underestimated, this decline may take several weeks to complete.
A programmed algorithmic trading hedge fund manager revealed on December 19 that if hedge fund managers feel the oil price is undervalued, they can manually intervene to cut the bottom price of oil, but few hedge funds are willing to rush in to cut the bottom price at a time when bulls are fleeing for safety.The reason is that a large number of institutions leaving the market is making the current crude oil futures market liquidity is obviously insufficient, open positions in futures options trading fell to the lowest level in the past two years, making hedge funds fear that oil price volatility will continue to increase, but lead to their own bottom-hunting strategy to suffer higher loss risk.
John Kilduff, founding partner of Again Capital, a well-known hedge fund in the field of oil investment, frankly admitted that in the absence of long positions, the whole oil futures market could easily be "dominated" by negative emotions in trading strategies.Ny-mex crude futures are on track to hit a 2017 low of $42 a barrel.
"After all, there is almost no defensive support in the $42-48 range because there is so much negativity created when the price of ny-mex drops below $50 a barrel."He points out.
But reporters have learned that many hedge fund managers are more pessimistic than he is -- NYMEX is likely to fall below $40 a barrel in the short term, as programmed algorithms-driven trading resonates with increased oversupply in the crude oil market.
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