I was sitting on a S$800 paper profit on ARA Asset Management. Within 2 mins, it turned into a S$700 loss. Such large volatility in a short span of time is unusual in a stable SG stock market. I begin to inquire about the anomaly…
I have mentioned some of the effects of High Frequency (HFT) on SG market in the previous post. I did say that volatility would reduce but Ryan believed otherwise. I believe the market would be more efficient most of the time, but you have short and sudden volatile swings here and there. These swings can be like a mini market shock or black swan events that happen sporadically. So Ryan is right too.
But the funny thing is, the new systems to support HFT are not in until 2011 1st quarter. Could the recent anomalies caused by other factors? But based on the report on asiaone, “High-frequency trading already accounts for about 30 per cent of derivatives trading on Singapore’s exchange but is not significant yet in equities trading”, it suggests HFT is already practised here, just not as much in the stock market. Not significant does not mean there isn’t.
Below is the 1 minute chart for ARA on 8 Oct 10. The major drop in price occurred within 2 minutes with relatively high volume (below price bars are the volume bars). My stop loss was at 1.15 and was triggered and my trade was settled at 1.04 (day’s low). Apparently, my stop loss failed as the price dropped too fast. I could have at least broke even at 1.15, but turned into a loss. I am not sure if it is not high speed computer trading, who can activate such trades within a short span of time.
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I am not sure what happened. Guess most people won’t. Only those insiders know. And likely these people profited big time from it. They will continue to reap profits in this way as long as they are not caught or penalised.
Remember Dow Jones had a super one day drop on 6 May 10? 998.5 points in a few mins! Again no one can provide a proper account on the mystery and it was a convenient way to blame the computerised system collectively. This may be a new strategy for those in the know and has the capability to do so, to exploit the market.
If you think that ARA is only a one case event, take a look at OSIM on 22 Sep 10 (click on picture to enlarge):
How about SIA Engg on 24 Sep 10?
If you notice, it always happened during the market open, especially the first 2 mins.
I am really clueless on what’s happening. That is the problem being a retail trader, you are always at the end of the food chain. If the frequency of these spikes increase, I may need to use gauranteed stop losses, as stop losses may not be able to get you out in time. And if so, trading cost will increase as the gauranteed stop loss incur an “insurance fee”. As you see, a retail trader is losing alot of edge.