Volume 16 | Issue 2 | Article 5
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Dealer Interaction in Futures Markets
Futures floor traders, acting as dealers, may form inferences about price from order flow and other dealers’ trading. The empirical evidence from high frequency transactions data for S&P 500 futures suggests that active floor traders correctly time the market; there is some degree of anticipatory information. However, price dispersion is also informative. The relative agreement or disagreement among dealers regarding price helps refine each dealer’s interpretation of his or her own trading, which feeds back into future trading decisions and price. In addition, aggregate order flow plays a key role, although this role appears to be complex. Together, these results offer insight into the group behavior in a competitive, transparent dealer market.
