With low volatility in many markets, there has been a decline in futures and option trading volume. You can look at the trading of futures between last year and this year for the first quarter. Futures volume is off by 6%. Option volume is flat. However, there has been an increase in trading in the interest rate complex and this is an important signal.
Trading volume represents differences of opinion. If everyone has the same opinion, there will be no trading. Hence, if volume is going up there is more opportunity for price discovery as buyers and sellers with different views transact.
Trading volume represents differences of opinion. If everyone has the same opinion, there will be no trading. Hence, if volume is going up there is more opportunity for price discovery as buyers and sellers with different views transact.
This increase in rate voluem is telling me that the market is beginning to prepare for some changes in short rate policies. Volume pick-up can be a precursor for a market move.The view is that tapering is going to lead to "normalization and it may come sooner than expected. Traders are having opinions on the market and willing to express them with trades. We just have to figure out who is right.
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