Mexican Peso - Huge Move

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PaulZ
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Mexican Peso - Huge Move

Post by PaulZ » Tue Jul 15, 2008 9:11 am

The September 2008 MP had a huge move to the downside (approximately to its 3 month low) followed, within 3 minutes, by a huge move back up to its recent trading range. Anybody have any idea what happened? Perhaps liquidity dried up briefly? I haven't been trading all that much but this move seems unbelievable to me.

zacharyoxman
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Post by zacharyoxman » Tue Jul 15, 2008 9:32 am

They are busting all trades below 94000.

Yet ANOTHER situation (three by my count in the last year) where there was literally no market depth and the Peso had another insanely large and unjustifiable movement. Regardless, they are holding fills at insane levels and I am personally advising clients to either drop the Peso or limit size.

If you would like to file a complaint with GLOBEX, their number is 312 456 2391. They will send out paperwork to file a complaint.

PaulZ
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Post by PaulZ » Tue Jul 15, 2008 11:47 am

I just called that number - thanks, by the way. They gave me some info about how they decide the level at which to bust trades and they told me the level was actually 95050, rather than 94000. In any case, I was stopped out at 95400, so my trade was, unfortunately, not busted.

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Post by TrendsCatcher » Tue Jul 15, 2008 12:28 pm

I'll avoid MXP contracts in the future, made a few trades in MXP before, and this hasn't happened to me yet, but it's a matter of time. Trading is difficult enough, one doesn't want these negative black swans at all.

The pity is, the volume in MXP is not that bad at all, how come it has such strange spikes?

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Post by sluggo » Tue Jul 15, 2008 1:15 pm

Perhaps it may prove useful to examine the situation from a variety of different perspectives.

1. Consider MP traders whose systems only generate "Market On Open" orders. Are they immune to the type of liquidity vacuum (1-20 minutes long) seen today?
2. How about traders whose systems use "Stop Close Only" orders exclusively?
3. Or systems that use weekly bars and trade on Friday's close exclusively?

Were any of these people "injured" today? What conclusions can be drawn, if any?

zacharyoxman
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Post by zacharyoxman » Tue Jul 15, 2008 1:49 pm

Paul,

Thanks for the update, looks like they bumped the bust level a bit after I talked to them.

Sluggo,

Great post, all excellent ways to attempt to avoid these types of moves.

Obviously, not having any orders working in the market (#3) would be the most obvious way of avoiding these erroneous moves. I think for the market we are facing today, a weekly bar system might tend to be too long looking in terms of exits when the markets get choppy. Personally, I prefer something with a more active look at the markets (daily).

1.) What is your definition of "Market on Open?" The Globex open that occurs at 430pm CST or a "pit" open that would occur the next morning? GBX open would not avoid these types of issues, but I've found that my fills have, in general, been substantially better when I am entering and filling trades during the overnight electronic sessions. In this case, I am willing to take the risk of having a few of these peso-type issues if I am able to generate the quality fills that I have been by employing the overnight sessions.

2.) Excellent thought...for GBX, this would certainly be a worthwhile experiment but you could perhaps face issues where your system filled an order but your actual trades did not if the SCO conditions were not met. Correct me if I'm wrong here...

Thanks

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Post by RedRock » Tue Jul 15, 2008 1:57 pm

sluggo wrote:
1. Consider MP traders whose systems only generate "Market On Open" orders. Are they immune to the type of liquidity vacuum (1-20 minutes long) seen today?
2. How about traders whose systems use "Stop Close Only" orders exclusively?
3. Or systems that use weekly bars and trade on Friday's close exclusively?
?
Having been taken for a ride south of the border a few times myself.... I feel for those who had the experience today. nice huh...

Sluggo makes a fine point (as usual...) I would add that using multiple exit methods is one way to add diversification to ones system with a minimum of added workload.

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Post by sluggo » Tue Jul 15, 2008 2:44 pm

Excellent, we have identified two general ways to deal with events like today's gastro-esophageal reflux in the Mexican Peso:
  • Trade with stops active all session long, just don't trade the Mexican Peso
  • Trade the Mexican Peso, just don't trade with stops active all session long
Three implementations of the second method were discussed briefly: trade using MOO orders, trade using SCO orders, trade weekly bars + MOC orders.

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Post by BARLI » Wed Jul 16, 2008 5:24 am

guys, you should look at what happened in MP U2008 Globex Pit session from different angle...First of all, these kind of moves happen on a low volume, as you've previously noticed Paul(liquidity dried up). It happens all the time in a crappy stocks that no one trades(they fall 10% and then rise 10% during the day but it doesn't mean that there was something wrong or right in a company, it's because there were no enough market participants). I thought that Red Rock as a pit guy in the past would recognize what REALLY happened in Mexican Peso..
Now, we go to Globex web site and click on Volume Analysis and here we go:


Volume Analysis from Globex web site

What we see is that at a price 093250 only 4 contracts were being traded and at 0.94 2 contracts. Which is nothing comparing to the day's volume which was 466 contracts. There could be 2 scenarios:
1. Someone clueless wanted to sell what he had and sold at the market without looking at what was the bid price at that time(as we know not every trader/investor sees the order book when he's trading the market)
2. Someone thought that he was a smart butt and tried to create a panic in Peso by hitting those low bids that were there at the moment and to create some more selling. He was either short the Peso and wanted to buy it lower from dummies who'd sell him at those levels of 0.94. or he wanted to get Long Peso at those levels.. When trading illiquid stocks I see very often people hitting those low bids cos they're short and then put HUGE bid at those low levels where they want to get out of the short to make naive investors sell them, or sometimes hitting high asks in order to sell their longs to other naive investors in illusion that the stock is currently sky rocketing and other would "miss the opportunity" if they don't get in RIGHT NOW! When I see these kinda moves I usually step in and fix it myself, what I do is if a low bid was hit I hit the current ask right away to fix the current market price, or vice versa if the high ask was hit I hit the bid and fix the market price. Its usually done with the minimum ammount of money.
If I was in Peso and would be long, seeing that kinda move I'd hit a high standing ask right away without second guessing to support my position...
These are just a few tricks that happen in a market place, there are some more, Monroe Trout talks about his ones in New Market Wizards, all this experience comes from floor trading or market making..

good trading!

PaulZ
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Post by PaulZ » Wed Jul 16, 2008 8:54 am

Thanks, BARLI. Your analysis is pretty much what I expected had happened. I can't see myself trading MP in the future when liquidity can dry up like this.

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