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I have taken the liberty forwarding the below inquiry to the RT. I
think
this is a good question. But it addresses such a fine point in regard
to the way the Chicago Mercantile reports trades and prices, and given
that I never traded on the CME floor, I thought that this would invite
comments by those who know.
I hope this is ok with Dan. I will post my best guess when it appears
on the RT.
Regards,
Norman
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Date: Sun, 01 Feb 1998 19:45:57 -0500
To: nwinski@xxxxxxxxxxxxxxx
From: Dan Tillemans <dlt7@xxxxxxxxxxx>
Subject: Re: How is price determined?
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Norman,
I was interested in this question as well. Hope you don't mind if I check
on a related detail. (I daytrade the full size S&P contract and have
placed about 65 round turns.)
I use a tick chart that records every "price change" with a dot and then
connects the dots with a line. Usually the dots are .10 apart, but during
volatile times the dots move around in .50 increments. Sometimes when the
market is crossing a significant point I will notice a phenomenon I have
started to call the "zipper": a vertical line of rapidly advancing dots at
.10 increments that runs straight up or down for one or two points.
In "West of Wall Street" George Angell talks of certain times when nobody
on the floor wants to take the other side of the trade and the markets get
bid up or down rapidly.
My question is this: When the recorders at the S&P pit punch in the prices
that come across my live feed, are they punching in only prices where
trades occurr, or might they be punching in a series of bids or
offers---such as in the case of the "zipper"? If they are including bids
and offers, do the recorders automatically punch in a higher bid or a lower
offer as soon as they hear it--even if no trade is made at that price---all
day long?
Sounds like you have traded on the floor and know what you are talking
about. I did take note of your response to Brent, "...the price can move
without any trades, as the traders move the bid and ask up and down..."
Any clarification on what I am seeing in the chart would be greatly
appreciated.
Thanks so much.
Sincerely,
Dan Tillemans
>> Brent
>
>Brent,
> Price is determined by the traders on the floor at the moment that a
>buyer and a seller agree on a price. You say, "buy 5 march beans at
>668" and I say "sell 10 march beans at 669". You then say "buy 5 march
>beans at 668 1/2 and I say, "sold you 5 march beans at 668 1/2". It is
>at that moment that the price and a trade is determined. Sometimes in
>thin markets, the price can move without any trades, as the traders move
>the bid and ask up and down based on some indicator, perhaps a related
>market, without actually trading.
> If you plan to seriously pursue trading, I highly recommend you make a
>trip to Chicago to see the trading floors first hand.
>
>Regards,
>
>Norman
>
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