What causes the market to move on a daily basis?

The stock market can be a complex and volatile place, with daily fluctuations often leaving investors scratching their heads. But what exactly causes these fluctuations? The answer is a combination of various factors that come into play on a day-to-day basis. In this blog post, we will take a closer look at some of the most significant factors that contribute to daily market fluctuations, including CTA positioning, intraday futures trading, risk parity funds, forex related flows, and more. By the end of this guide, you'll have a better understanding of what drives the market and how you can use this knowledge to make more informed investment decisions.

CTA positioning: CTAs or Commodity Trading Advisors are large investors who follow market trends. They use technical analysis to identify patterns in the market and make trades accordingly. When CTAs buy or sell stocks, they can cause significant movements in the market, as they have a lot of money to invest and can also borrow more money to invest.

Intraday futures trading: Futures are agreements to buy or sell something at a certain price in the future. Intraday futures trading refers to buying and selling futures contracts within the same trading day. This can cause the market to move as traders who engage in this type of trading are typically looking to profit from short-term price movements.

Risk parity funds: Risk parity funds are investment funds that use a lot of borrowed money to invest in both stocks and bonds. They attempt to balance the risk of their portfolio by using leverage to increase their exposure to assets with lower volatility, such as bonds. When they buy or sell, it can cause the market to move due to the large size of their trades.

Forex related flows: The foreign exchange market (Forex) is where currencies are bought and sold. When people buy or sell currencies, it can cause the market to move, as the value of currencies affects the relative value of assets priced in those currencies.

Option overwriting flows: Option overwriting is a strategy in which an investor sells options on a stock they own to generate additional income. When people sell options, it can cause the market to move as it creates a supply of options that other investors may want to buy.

Buyback flows/block trading: Companies sometimes buy back their own stock to reduce the number of outstanding shares and increase the value of the remaining shares. When they do this, it can cause the market to move as it affects the supply of available shares. Block trading refers to the purchase or sale of a large number of shares in a single transaction, which can also cause the market to move.

Seasonality flows: The market tends to move in certain ways at certain times of the year. For example, during tax season, people may sell stocks to pay taxes. This can cause the market to move as the selling pressure affects the supply and demand for stocks.

Quant/factor fund flows: Quantitative funds use computer programs to make investment decisions based on data analysis and mathematical models. When they buy or sell, it can cause the market to move as they often trade in large volumes.

Long/short funds: Long/short funds bet on some stocks going up and others going down. When they buy or sell, it can cause the market to move as their trades affect the demand for specific stocks.

Earnings positioning: When companies report their earnings, it can cause the market to move. Traders may be caught off guard by the earnings report and have to buy or sell quickly to adjust their positions.

Volatility trading: Volatility refers to the amount of fluctuation in the market. When people buy or sell based on volatility, it can cause the market to move as their actions affect the supply and demand for stocks.

Vol control/vol target funds: Volatility control or target funds try to keep the amount of risk they take on the same by adjusting their positions based on changes in volatility. When they buy or sell to adjust their risk level, it can cause the market to move.

Technical analysis:

Traders rely on technical analysis to identify trends and patterns in the market, which can influence their trading decisions and impact the market especially those focussed on day-trading.

By now, you might have realized that keeping track of all the various factors that impact the stock market can be a daunting task. Fortunately, there are ways to make informed investment decisions without having to worry about constantly monitoring the market. One solution is to use Saay Finance, a platform designed to help investors manage their investments with a long-term focus.

Saay Finance uses AI and state-of-the-art algorithms to continually monitor various market factors, and based on changing market conditions, adjusts your portfolio to not only protect your downside, but also capture the upside. Investors interested in using AI to improve their investment strategy can sign up for Saay Finance's waitlist here.