Now consider this: most physical intermediaries are focused on hedging via the energy markets. They’re not in the business of trading oil equities and interest-rate products. That’s not necessarily the case for hedge funds and investment banks active in the commodities space. With clever algorithms at their disposal there’s no reason why they can’t outwit the physical intermediaries with what they know more about, especially with a latency advantage. Areas they know more about, that is, like equities and bonds.
This becomes increasingly tempting with so many commodity ETFs trading on “high frequency” friendly platforms like the NYSE Arca. The key here is detecting the arbs between the underlying price of the commodities and the actual trading price of the units. Then there’s the arbitrage with the interest-rate and Treasury markets. In the days of floor trading, simultaneously buying oil and selling Treasuries if a mis-pricing in inflation expectations opened up would be possible but not half as fluid. Algorithms can completely automate that process.
Is it any surprise then that oil is showing such an increased correlation with the dollar and equities?
Sphere: Related Content
This becomes increasingly tempting with so many commodity ETFs trading on “high frequency” friendly platforms like the NYSE Arca. The key here is detecting the arbs between the underlying price of the commodities and the actual trading price of the units. Then there’s the arbitrage with the interest-rate and Treasury markets. In the days of floor trading, simultaneously buying oil and selling Treasuries if a mis-pricing in inflation expectations opened up would be possible but not half as fluid. Algorithms can completely automate that process.
Is it any surprise then that oil is showing such an increased correlation with the dollar and equities?
No comments:
Post a Comment