How Order Impact and Arbitrage Affect E-Mini Prices
Summary
The document considers whether large traders can manipulate e-mini futures and whether that possibility makes systematic trading impractical. Its answers distinguish ordinary market impact from deliberate manipulation: large buy orders can push prices up, while futures and related instruments such as ETFs can influence one another through arbitrage and price adjustment. It also notes that e-mini S&P futures are highly liquid, with substantial volume often available near the best prices.
The discussion offers a hypothetical example of how a large trade during a thin trading period might move prices and create an opportunity in related options or shares. It also points to the May 2010 flash crash and the later case involving Navinder Singh Sarao as context. These are brief responses rather than a market study: they provide no systematic evidence about how often manipulation occurs or how much it affects trading systems. The practical takeaway is that liquidity, order impact, and cross-market links matter, but the document does not establish that profitable system design requires becoming a large trader.
Key ideas
- Large orders can move prices through their impact on available liquidity.
- Arbitrage links futures prices with related instruments and can transmit price moves across markets.
- E-mini S&P futures are described as highly liquid, with meaningful depth near the best quotes.
- Thin trading periods may make a market more vulnerable to outsized price moves.
- The examples raise concerns about manipulation but do not quantify its prevalence or its effect on systematic strategies.
Tags
Full text
# Are e-mini markets manipulated? # Are e-mini markets manipulated? Are the prices of e-minis such as S&P 500, Russell 2000, EUROSTOXX, etc. manipulated? That is, are there traders who trade large enough positions to make the price go in the direction they want, taking unfair advantage of the rest of the traders in that market? If so, what implication does this have for designing any trading systems for those markets? Is it essentially a fool's errand unless you have enough money to be one of the "manipulators"? I once heard an experienced trader say (to retail traders): > The first thing you have to understand about this market is that this market was not created for you to make money. It was created for the big players to make money - from you! ## Answer by glyphard (score 7) https://quant.stackexchange.com/a/378 Arbitrage absolutely does not prevent a derivative (option, future, or otherwise) driving the price of the underlying. In fact, arbitrage, or the elimination of it, is what causes the "tail wagging the dog" phenomenon of large trades in the derivative causing wild swings in the underlying. see the may 2010 flash crash that started with some large e-mini futures trades. http://chicagobreakingbusiness.com/2010/10/may-6-flash-crash-triggered-by-e-mini-trades.html ## Answer by Ted Graham (score 4) https://quant.stackexchange.com/a/1297 Markets adjust with the impact of incoming orders. A large buyer will send the price up in any market. Don't let the mini in the name fool you, the emini S&P is one of the most liquid futures contracts in the world. The futures market often has more volume available in the best couple ticks than the equity markets that it is based on. ## Answer by Thomas Baert (score 1) https://quant.stackexchange.com/a/18457 It's like a giant game of tug-of-war except there are many ropes and thousands of participants. The SPY tugs at the ES, which tugs at the SPY, which tugs at other ETFs. I suppose in theory you could manipulate the ES in a low volume setting by selling a huge block in the thinly-traded period before 12AM PST, selling enough to make the price fall 1/2 -1% and hope the price remains depressed until the liquid normal trading session, and use the depressed price as an opportunity to initiate option trades or buy many more shares at a cheaper price. ## Answer by Alex C (score 1) https://quant.stackexchange.com/a/18463 We will know the answer to this question when Navinder Singh Sarao is put on trial in the United States on charges of doing precisely this.
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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.