January 31, 2020
Dear Manager,
Bank of America Securities just published a paper on trading the close that you don’t want to miss!
Key Points
- Sure, we’ve heard that volume increases at the “end of the day”… but did you know that really only means the final two minutes or so of the day?
- We dive into the microstructure in these final two minutes and find that liquidity throughout the book increases considerably, yet the cost to take out 10 levels hardly changes at the “end of the day”—meaning you can access almost twice as much volume in those final two minutes for the same cost to trade earlier!
- The close itself is a tremendous liquidity event, whether you are benchmarked to the close or not. But even if you don’t care about the auction, we show that imbalance messages affect volume, volatility, spreads, and prices in continuous trading as well, so all traders should be aware of them.
- Our report includes tips for taking advantage of end-of-day liquidity, as well as an appendix with a timeline of events.
Let us know if you have any questions or comments by creating a mojo.
With thanks,
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