I am a writer, therefore language is meaningful. So, when a reader writes in to question my use of language, I pay attention.
You have used the term “big money” numerous times. What do you mean when you use that term?
This, my friends, is a fair question, as the term “big money” is vague, and when writing about the world of money, it is best to be as defined as possible.
Although others might have a different view than mine, “big money” is the money that moves markets. The big-money players are the folks who manage pension funds, insurance funds, mutual funds, hedge funds, private-investment funds, and the trading in the biggest banks. I don’t know the exact dollars involved, but I can safely say the amount runs easily into the trillions. When any one or all of these move money in one direction or another, the flow of the market can change. The change comes because lots of money is flowing in a direction, yes, but the fact that these folks are moving money causes many billions more to follow.
Now, understand the amount of money each these managers control (tens of billions or more) is so vast that they cannot quickly move in and out of markets. They must strategize how to move money in to or out of the market over months, thus, they are the creators of the overall trends. This is the reason that volume trends are important and it is the reason one should pay attention to accumulation and distribution patterns. Big money flows slowly, but it is steady. One can apply the above generality to the overall market or to a specific market. Keep in mind, though, just because these folks create the current, it does not mean that if you jump into the current, you will make money. Oh, if it were only that easy …
The four largest U.S. stock market operators asked their regulator to delay, pending further clarification, new rules that would ban so-called “naked access” to markets, where brokers rent their IDs to unlicensed high-frequency traders trying to gain an edge of microseconds. The new rule, adopted in the months after last year’s “flash crash,” would eliminate unfettered access to U.S. stock markets for unlicensed firms, and require brokers to protect against potential mishaps that could destabilize the high-speed electronic marketplace.
I am a strong proponent of stricter regulation of the stock market, especially when it comes to high-frequency and algorithmic trading. So, it gladdens my heart when I see the SEC laying down rules that keep “big money” traders in line. Oh, sorry … Big money here means those who have the capacity to move lots of money in an out of a market quickly. What does “lots of money” mean here? Well, that depends on the liquidity, volume, and desirability of a specific market. Yes, that’s vague, but it is the best I can do.
Trade in the day – Invest in your life …
