October 16, 2012

Natural Gas Futures Trading: Banging the Beehive, Quote Spoofing

Natural Gas Futures Trading: Banging the Beehive, Quote Spoofing.

WSJ explains the Banging the Beehive strategy of high frequency traders trading natural gas futures around the time when EIA data is released.

Each week before the EIA report, many traditional investors place electronic orders to buy or sell futures above or below the prevailing price, called resting orders. A trader anticipating a large inventory increase might expect pressure on prices, and offer to sell natural gas at below the current price ahead of the report. If the trader is correct, the market typically would fall and the trader's "sell" order would be filled near the start of the decline, ideally at a profit.

Analysts and traders say high-speed firms "bang the beehive" in a bid to exploit these resting orders. Just before the data land, some traders flood the market with offers to fill the resting orders just above or below the current futures price. They hope to trigger enough orders to move the market in a given direction before the data hit.

This strategy also known as quote spoofing can sometimes generate profits against more complacent traders.

Tags: natural gas futures trading, natural gas resting orders, banging the beehive, stirring the hornet’s nest, natural gas quote spoofing