How do you manage a position that is too big to effectively use a stoploss?
Now, I'm not saying I am trading this way, but it is for me a mental exercise to consider how the MM(Market Maker) might employ a strategy that is fundamentally different than my own Retail perspective allows.
In this situation what are you looking for to mitigate loss? Or, how can you book profit?
The underlying problem in this situation(very large position sizes) is an inability to quickly close positions without negatively affecting prices.
Some may argue that this is an impossible situation, but there is a limit to available liquidity. The evidence for a liquidity cap is seen in the Dollar run-up of 2008, where in only four months the EURO lost 22% of its value versus the Dollar. Liquidity was low as Volatility was up. Like this (Volatility=1/Liquidity) where 1=Highly volatile and 0=No volatility. The reasons for this loss of liquidity are arguable. But, I am convinced it was because Large Banks, insert Lehman Bros here, were in trouble and going bankrupt(lol). The very "liquidity providers" couldn't PROVIDE anymore liquidity.
I am very interested to see some intelligent solutions to this problem. I think it will improve the trading of anyone willing to honestly consider the market from the other side.
Now, I'm not saying I am trading this way, but it is for me a mental exercise to consider how the MM(Market Maker) might employ a strategy that is fundamentally different than my own Retail perspective allows.
In this situation what are you looking for to mitigate loss? Or, how can you book profit?
The underlying problem in this situation(very large position sizes) is an inability to quickly close positions without negatively affecting prices.
Some may argue that this is an impossible situation, but there is a limit to available liquidity. The evidence for a liquidity cap is seen in the Dollar run-up of 2008, where in only four months the EURO lost 22% of its value versus the Dollar. Liquidity was low as Volatility was up. Like this (Volatility=1/Liquidity) where 1=Highly volatile and 0=No volatility. The reasons for this loss of liquidity are arguable. But, I am convinced it was because Large Banks, insert Lehman Bros here, were in trouble and going bankrupt(lol). The very "liquidity providers" couldn't PROVIDE anymore liquidity.
I am very interested to see some intelligent solutions to this problem. I think it will improve the trading of anyone willing to honestly consider the market from the other side.