| > how such a trade happened in layman's terms Lots of functional market participants, e.g. oil refiners, don’t precisely time their trades. Their jobs don’t reward getting the best price at a given second. But they do reward getting cheap trades and punish getting the worst price in a day. One solution is to trade at a standard future price. “Give me the closing price and a 50% commission cut” is a common order. In some markets it can be the dominant order type. That causes low liquidity during the day and lots of it at a single instance: the close. These oil markets close at 2:30PM. Say a bank got an order, at Noon, to sell at the close $1bn of oil. It’s 12:01PM and oil is at $15. The bank could wait until the close and trade all $1bn. The bank makes its commission. But there is a risk the whole amount won’t be able to be sold at that instance. In that case, the bank would be left holding the bag for the balance. So it hedges. At 12:30 it sells $100mm. This nudges the price to $10. The bank sells another $100mm. Price moves to zero. Bank sells another $100mm. Price goes to -$10. Bank sells another $100mm, thereby paying to offload oil. Price moves to -$20. By the time the close comes around, the price might be -$25. The bank pays its blended price, which may be -$10. But the customer paid -$25, so the bank makes 15. In the equity markets, this is addressed with VWAP [1]. The volume weighted average price at which the stock traded during the day. More difficult to game. But more expensive to implement and thus execute. [1] https://www.investopedia.com/terms/v/vwap.asp |