Sunday, September 12, 2010

Concentration of Trading in few hands

Dakshit writes - "every retail investor and specially trader quite concern about news article in times now. in which 50% volume is generated by 457 member"

My Notes: It is true that most of the volume on the exchanges is contributed by about 500 traders. Do the traders therefore control the market? It seems unlikely.

For these big traders to control the market, they have to work together like some kind of an organised group. It is diffucult to imagine so many people agreeing, and, then working in the same fashion. That also in secrecy without any leaks at all. Then, why did the big traders (like Lehman, Bears Stern...) collapse when they were so good?

(1) When a few traders control most of the volume, the result is increased volatility. We are already seeing this. Volatility harms the market because it scares away 'good' long term money.
(2) While it is not possible to manipulate the market, it should be much easier to manipulate individual stocks. We cannot say what actually happens, but in the long run, manipulation kills the business, since all the 'good' players eventually run away from it.
(3) Even if a few players make large sums of money, the middle class gets attracted to the trading business, as also the newly educated kids. This draws talent away from essential businesses like manufacturing or services, to financial jugglery, which does not add any value.

So, the scenario does hurt the country in the long run. But, when did the large traders worry about the people or the country?

For traders, like us, it is essential to adapt to the new circumstances. Take a longer view, then trade in that direction. Keep larger stops to account for the volatility. Reduce position size, if neccessary. Most important, have fun!

2 comments:

kk said...

RESPECTED SIR
I MAY BE WRONG , BUT MY EYES ARE SEEING INTERESTING THINGS HAPPENING IN REALTY SECTOR . CHARTS OF MANY SMALL AND MIDCAP COMPANIES ARE LOOKING VERY BULLISH ESPECIALLY ANSAL PROPERTIES, PARSVNATH, OMAXE ETC.

INFACT EVEN IN LARGECAPS , UNITECH IS MAKING SOMETHING LIKE 1996-2004 KIND OF BASE , WHICH IS UNUSUAL.

ONE THING IS SURE , ONCE REALTY STARTS MOVING UP THAT MEANS IT IS THE LAST LEG OF THE MARKET RALLY, IN NORMAL CIRCUMSTANCES.

Nikhil said...

@kk,
acc. 2 me.. when metals and mining start moving up its last leg of the market.