Thursday, May 23rd was an extraordinary day in soybean futures. See the July Soybean futures charts below:
Date | Open | High | Low | Last | Chge |
5/24/2013 | 14900 | 15000 | 14720 | 14762 | -232 |
5/23/2013 | 14930 | 15410 | 14880 | 14994 | 52 |
5/22/2013 | 14750 | 14944 | 14710 | 14942 | 160 |
5/21/2013 | 14630 | 14790 | 14564 | 14782 | 136 |
5/20/2013 | 14490 | 14650 | 14454 | 14644 | 160 |
Charts and Data Courtesy of Barchart.com
On apparently wild and unsubstantiated rumors (see Chris Lehner's excellent commentary on InsideFutures.com) beans had a "flash boom" (the reverse of a "flash crash") where a market trades extremely high for a short period and immediately returns to its prior level.
The 10-minute chart, below, offers a sense of how beans traded in minutes from the high $14s to $15.41 a bushel and back. $15.40 highs have not been seen since the drought scorched market of last September.
In the span of minutes, soybeans gap sharply higher to a peak of $15.41 per bushel. Subsequently beans give up all their gains to close nearly unchanged and, the next day, move lower again.
I have no first hand knowledge but I believe that computerized newsreader algos were behind or significantly contributed to the day's "flash boom". High freq algo traders trade the story and ask questions later. Most human traders would try and find facts and then trade or, at worst, the rumor trade would not have been so extreme.
Who gets hurt in a "flash boom'"? The same people who get hurt in a flash crash! Stops are unnecessarily run, margin calls are unnecessarily met, cash is drained from the market. The market structure and bona fide hedgers and smaller specs are damaged-all for no reason.
While good for exchanges, hedge funds, high freqs and algos, flash crashes and flash booms may only hurt the proper function of the commodities market. Open outcry and limited trading hours have worked for commercials and speculators for over 100 years. It may be time to revisit aspects of today's electronic trading.
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