6 Key Market Influencers Shaping US & HK Trading Outcomes

When investing in US and Hong Kong markets, have you ever been puzzled by sudden price fluctuations despite unchanged fundamentals? Or seen technical indicators suggesting a breakout, only to watch prices reverse at critical levels? As a quantitative trader with over a decade of experience, I can tell you these movements often result from the power dynamics between different market participants. Many investors focus solely on candlestick patterns, indicators, and news, while overlooking the various "players" who truly drive the market. Understanding the behavior patterns and motivations of these market participants can help you avoid traps and even profit from them. This article will reveal how six key participants in US and Hong Kong markets influence stock prices and how you can use these insights to optimize your investment strategy.

Ⅰ. Behind the Market Curtain: Why Understanding Different Participants Matters

The US and Hong Kong stock markets function like massive multiplayer games, with different types of participants behind every trade. Understanding these various "players" is crucial because:

• Price movements have reasons: Sudden large fluctuations are typically the result of specific participant activities, not random phenomena
• Different participants have different advantages and weaknesses: Understanding these can help you avoid direct conflicts with "big fish"
• Market behavior patterns stem from participant structure: Certain price formations and liquidity characteristics directly result from specific participant activities

Based on my observations over many years, more than 80% of individual investors have never systematically understood who the other participants in the market are, leading them to make decisions in an information-asymmetric environment. Now, let's unveil these market players.

Ⅱ. Retail Traders: Dominant in Numbers, Minor in Capital

2.1. Characteristics and Behavior Patterns of Retail Traders

Retail traders are the most numerous participants but have relatively small capital, playing a special role in US and Hong Kong markets:

• Market share: Dominant in number of transactions, but only account for about 10-15% of total trading volume
• Decision-making characteristics: More reliant on public information, news, and technical analysis, typically reacting after market moves
• Emotionally driven: More susceptible to fear and greed, often exhibiting herd behavior
• Capital limitations: Individual retail traders have limited funds and can rarely influence large-cap prices, but can form collective force in small-cap stocks

Retail traders function like "thermometers" in the market, with their emotions often reflecting extreme market conditions. When the vast majority of retail traders are bullish, the market may be nearing a short-term top; when retail panic is widespread, it might signal a bottom.

2.2. Case Study: How Retail Behavior Is Exploited

The GameStop (GME) event in early 2021 perfectly demonstrated the explosive power of retail traders: they coordinated through social media and successfully squeezed short-selling institutions. However, such cases are extremely rare. More commonly, retail traders become "prey" for other participants.

A friend of mine trading US stocks noticed that when certain stocks were prominently featured on financial media like CNBC, there would typically be a wave of retail traders rushing in, pushing prices higher, while institutional investors used the opportunity to reduce positions. This phenomenon is particularly evident in popular stocks like Tesla (TSLA).

2.3. How to Leverage Retail Behavior to Optimize Your Strategy

As a market-aware investor, you can:

• Think contrarian: Consider counter-trades when retail sentiment reaches extremes (measurable through AAII sentiment surveys or the Fear & Greed Index)
• Avoid "retail traps": Be cautious of stocks suddenly trending on social media, as these might be opportunities for institutions to distribute shares
• Exploit retail behavior patterns: Retail traders typically research on weekends and act on Mondays; they often reduce positions before Friday's close, creating predictable price patterns

Remember, as a retail trader yourself, awareness of your own behavioral patterns is the first step toward success.

Ⅲ. Institutional Investors: The True Financial Whales

3.1. Types of Institutions and Their Differing Influence

Institutional investors are the dominant force in US and Hong Kong markets, but they're not a homogeneous group:

• Mutual funds: Manage assets ranging from billions to hundreds of billions of dollars, with relatively long trading cycles, typically rebalancing quarterly
• Pension funds: Enormous in scale, lowest trading frequency, most conservative strategies
• Hedge funds: Size ranges from hundreds of millions to tens of billions, diverse strategies, more active trading
• Sovereign wealth funds: Represent national investments, massive capital, long decision cycles

Institutional investors account for approximately 70% of trading volume in US and Hong Kong markets, making them the true "market movers." A large institution's buy or sell decision may take weeks to execute, creating sustained price pressure.

3.2. Institutional Footprints: How to Identify Institutional Activity

As a quantitative trader, I often use these signals to identify institutional activity:

• Unusual volume with limited price movement: Possible sign of accumulation or distribution
• Frequent block trades: Typically direct transactions between institutions
• 13F filing changes: US institutions must report holdings quarterly, and changes often precede price movements
• High-frequency small orders accumulating: Modern institutions split large orders using algorithms, appearing as continuous small orders in the same direction

I've observed that when multiple large institutions simultaneously target a stock, prices often rise consistently for weeks or months, even without obvious positive news. For example, Nvidia's (NVDA) explosive growth in 2023 was largely due to institutional investors reaching consensus on the prospects of AI technology applications.

3.3. How Retail Investors Should Respond to Institutional Behavior

Confronting institutions directly is unwise, but you can:

• Follow the trend: Identify signs of institutional accumulation and follow their direction
• Avoid distribution zones: Remain vigilant when institutions might be reducing positions (such as during low-volume consolidation after significant price increases)
• Leverage information disclosure: Monitor 13F reports, institutional holding changes, and analyst rating changes
• Quarterly patterns: Many institutions reconfigure assets before and after earnings seasons, typically creating greater volatility

In the Hong Kong market, northbound capital flow (mainland Chinese institutional investors) is an important indicator of institutional activity, often leading price movements.

Ⅳ. Market Makers: Behind-the-Scenes Guardians of Liquidity

4.1. The Role and Profit Model of Market Makers

Market makers are relatively mysterious but extremely important participants:

• Basic function: Always providing two-way quotes (bid and ask prices), ensuring market liquidity
• Profit model: Primarily profiting from the bid-ask spread rather than directional bets
• Risk management: Strictly controlling inventory risk, maintaining relatively neutral positions
• Market impact: Directly affecting short-term liquidity and price discovery processes

In US markets, market makers are particularly important. NASDAQ is essentially a market maker market, while NYSE combines market makers with an order-driven hybrid system. Hong Kong's market also has market makers, but their role is relatively weaker.

4.2. How Market Maker Behavior Affects Traders

Market maker activities create several observable phenomena:

• Spread changes: Market makers widen bid-ask spreads to protect themselves when market uncertainty increases
• Sudden liquidity droughts: When market makers' inventories become imbalanced, they may temporarily withdraw from providing one-sided liquidity
• Price resistance/support: Market makers often establish defensive lines at price levels where large orders concentrate
• Flash crashes and spikes: In extreme cases, market maker withdrawal can create price vacuums, triggering violent fluctuations

The "Flash Crash" of May 6, 2010, is a classic example: the Dow Jones Industrial Average plummeted nearly 1,000 points in just 20 minutes before rapidly recovering, partly because market makers withdrew liquidity during extreme market conditions.

4.3. How to Leverage Market Maker Behavior for Advantage

Understanding market maker behavior allows you to:

• Avoid low-liquidity periods: US pre-market and after-hours, lunch hours have poorer liquidity, wider spreads, and are unsuitable for short-term trading
• Utilize market maker traps: Prices often hover around whole and half numbers because market makers set traps there
• Watch for abnormal spreads: Suddenly widening spreads may signal imminent dramatic market movements
• Use limit orders rather than market orders: Especially in volatile markets, limit orders can avoid slippage

Throughout my trading career, I've found that many seemingly "technical formations" in price action are actually the result of market maker activities, especially in low-liquidity small-cap stocks.

Ⅴ. High-Frequency Traders: Millisecond-Level Market Predators

5.1. Characteristics and Strategies of High-Frequency Trading

High-frequency traders (HFTs) are the most advanced participants in modern markets, characterized by:

• Ultra-fast trading: Leveraging microsecond to millisecond speed advantages to execute trades
• Massive order volumes: May account for over 50% of US market order volume, though actual transaction volume is lower
• Diverse strategies: Including market making, statistical arbitrage, latency arbitrage, and news arbitrage
• Technology-intensive: Relying on advanced algorithms, specialized hardware, and optimized network connections

High-frequency trading is very active in US markets but less common in Hong Kong. Well-known HFT firms like Citadel Securities and Virtu Financial may execute millions of trades daily.

5.2. How High-Frequency Trading Affects Ordinary Investors

HFT's impact on markets is complex and far-reaching:

• Improves liquidity but may withdraw at critical moments: Provides liquidity during normal periods but may collectively exit during market stress
• Narrows spreads but increases hidden costs: Superficially reduces bid-ask spreads but gains advantages through other means
• Accelerates price discovery but may cause excessive volatility: Quickly reacts to information but sometimes triggers chain reactions between algorithms
• Flash crash risk: Algorithm malfunctions can trigger extreme price movements

The 2010 US "Flash Crash" and the 2012 Knight Capital incident were closely related to high-frequency trading, with the latter losing $440 million in 45 minutes due to an algorithm error.

5.3. How Ordinary Investors Should Deal with High-Frequency Trading

While you can't compete with HFTs' speed, you can:

• Avoid ultra-short-term trading: Don't try to compete with HFTs at second or minute timeframes
• Use limit orders and execution algorithms: Split large orders, using VWAP or TWAP algorithms for distributed execution
• Monitor liquidity changes: Sudden changes in order book depth may signal HFT activity
• Optimize trading sessions: HFT activity is most active (and volatility highest) in the 30 minutes before market open and close

My experience is that medium to long-term investors can actually view high-frequency trading as market noise, focusing on longer timeframes to avoid these short-term disturbances.

Ⅵ. Broker Proprietary Trading Desks: Market Participants with Information Advantages

6.1. Characteristics and Impact of Proprietary Trading

Broker proprietary trading departments are unique market participants:

• Information advantage: Can see customer order flow, understand market microstructure
• Diverse strategies: Range from market making and arbitrage to directional investments
• Risk appetite: Typically more conservative than hedge funds but more aggressive than mutual funds
• Market impact: Particularly significant in Hong Kong and emerging markets

In US markets, proprietary trading departments of large investment banks like Goldman Sachs and Morgan Stanley were once very powerful, and although later restricted by the Volcker Rule, they still retain some trading activities. In Hong Kong markets, Chinese brokers' proprietary departments are increasingly active.

6.2. How Proprietary Trading Affects Market Prices

Broker proprietary trading activities often manifest as:

• Frequent block trades: Often using block trading systems rather than open market trading
• Liquidity support at key price levels: Especially for stocks where they make markets
• Unusual activity before volatility: Sometimes adjusting positions before major news
• Trend-reinforcing volatility: Sometimes "chasing the wind," accelerating price movement in a particular direction

Historically, proprietary trading has played complex roles in financial crises. For instance, during the 2008 crisis, some investment banks' proprietary departments were betting against products they were promoting.

6.3. How to Observe and Respond to Proprietary Trading

As an individual investor, you can:

• Monitor contradictions between major brokers' research reports and actual price behavior: Sometimes brokers' public recommendations differ from their actual trading
• Pay attention to unusual block trades: Especially those with obvious discounts or premiums
• Observe changes in market-making activity: Proprietary departments may alter market-making behavior to accommodate their own positions
• Leverage information asymmetry: Choose markets or stocks with more transparent information and less proprietary trading

In my observation, the Hong Kong market is more influenced by proprietary trading than the US market, especially in stocks with strong Chinese backing.

Ⅶ. Regulatory Agencies: Rule Makers and Enforcers

7.1. Major Regulatory Agencies and Functions in US and Hong Kong Markets

Regulatory agencies don't trade directly but profoundly influence markets:

• Major US regulatory agencies: SEC (Securities and Exchange Commission), FINRA (Financial Industry Regulatory Authority), CFTC (Commodity Futures Trading Commission)
• Major Hong Kong regulatory agencies: SFC (Securities and Futures Commission), HKEX (Hong Kong Exchange)
• Core functions: Establishing trading rules, supervising market participants, investigating violations, protecting investors
• Market impact: Policy changes can directly lead to large-scale market repricing

The role of regulatory agencies is often underestimated by investors but is actually a key force influencing long-term market structure.

7.2. How Regulatory Changes Affect Trading Environments

Regulatory actions and policy changes have far-reaching impacts:

• Short-term shocks: Major regulatory announcements may cause market turbulence
• Medium-term adjustments: New rules may alter valuation models for specific industries
• Long-term structural changes: For example, the US decimal pricing reform in the early 2000s fundamentally changed market microstructure

For instance, China's regulatory policy changes for the education sector in 2021 caused related US and Hong Kong companies to lose hundreds of billions of dollars in market value within days. The SEC's audit requirements for Chinese concept stocks also triggered large-scale fluctuations.

7.3. How to Incorporate Regulatory Information into Investment Decisions

Wise investors will:

• Continuously monitor regulatory developments: Regularly check announcements on SEC, SFC, and other regulatory agency websites
• Identify regulatory risk exposure: Evaluate industries in your portfolio sensitive to regulatory changes
• Utilize regulatory cycles: Regulation typically has cycles, from loose to strict and back to loose
• Distinguish noise from substance: Not all regulatory rhetoric translates into actual policy

My experience is that regulatory changes are often over-reacted to by markets in the short term, sometimes creating buying opportunities. For example, companies involved in SEC investigations often see their stock prices rebound after final settlements.

Ⅷ. Market Participant Interactions: The Invisible Game Behind Stock Prices

8.1. How Different Participants Influence Each Other

Market prices result from the comprehensive interactions of various participants:

• Market makers balance retail and institutional traders: Providing liquidity bridges between them
• High-frequency traders capture patterns of other participants: Profiting from predictable behaviors
• Institutional investors guide long-term trends: Influencing fundamentals and medium to long-term price directions
• Regulatory agencies constrain all participants: Setting the rules of the game

These interactions occur simultaneously at different time scales, forming complex price formation mechanisms. For example, after major news is released, it typically triggers sequential reactions: high-frequency traders respond first → market makers adjust quotes → retail and day traders follow → institutional investors gradually build or reduce positions.

8.2. Structural Differences: US vs. Hong Kong Markets

US and Hong Kong markets have significant differences in participant structure:

• US market characteristics: Active high-frequency trading, relatively lower retail proportion, more consistent regulation
• Hong Kong market characteristics: Less high-frequency trading, significant influence from northbound funds (mainland Chinese institutions), more active proprietary trading

These differences create distinct price behavior characteristics in the two markets. For example, Hong Kong stocks often experience sudden afternoon rallies or drops, partly due to northbound funds resuming trading after lunch breaks; US stocks more commonly see dramatic pre-market and after-hours volatility, related to extended trading session mechanisms.

8.3. How to Integrate Participant Perspectives to Optimize Trading

Understanding different participants allows you to build a more comprehensive trading framework:

• Multi-level analysis: Combine different timeframes to identify traces of various participant activities
• Avoid unfavorable situations: Don't compete with professional players in areas where you have obvious information disadvantages
• Follow mainstream forces: Identify which type of participant currently dominates the market and follow their direction
• Stay flexible: Market participant structures evolve over time, and strategies need corresponding adjustments

In my trading, I often use a "participant power comparison" framework: when retail sentiment is high but institutions begin to withdraw, it's often a top signal; when panic spreads but large institutions quietly begin to accumulate, it often indicates a bottom.

Ⅸ. Finding Your Way Out of the Maze: Optimal Positioning for Individual Investors

9.1. Your Position in the Market Food Chain

Different types of individual investors have different positions in the market:

• Ultra-short-term traders: Competing with high-frequency traders and market makers, extremely challenging
• Intraday swing traders: Need to understand market maker and intraday institutional behavior, have some survival space
• Swing traders: Can leverage institutional accumulation and distribution processes, relatively advantageous
• Long-term investors: Can avoid short-term noise, focus on fundamentals and long-term value

As an individual investor, it's important to recognize your advantages and limitations and choose suitable battlegrounds.

9.2. Three Major Advantages of Individual Investors

Despite facing powerful institutions and professional participants, individual investors still have their own advantages:

• Scale flexibility: Can quickly enter and exit small-cap stocks, while large institutions struggle to operate without affecting prices
• Timeframe freedom: Not subject to quarterly performance pressure, can more patiently wait for opportunities
• Independent thinking space: Not constrained by collective decision-making and organizational politics, can make decisions faster

Some successful individual investors have built competitiveness in specific areas by leveraging these advantages.

9.3. Best Practices: The Wise Observer of Markets

Based on understanding market participants, here are some best practices:

• Learn to identify footprints of different participants: Through volume, price patterns, large order trades, etc.
• Look for opportunities in conflicts between participant behaviors: Such as retail panic while institutions begin buying
• Use leverage moderately: Understand how various participants use and abuse leverage
• Build information advantages: Deeply research specific areas, exceeding general retail understanding
• Stay humble: Acknowledge your information disadvantages in certain areas and avoid them

In my decade-plus of trading experience, truly successful investors all have a "holistic sense" of the market—they don't just see prices but can sense the presence and actions of different participants.

Ⅹ. Looking Ahead: Changes in US and Hong Kong Market Participant Ecology by 2025

10.1. Evolution Trends in Market Participant Structure

In the coming years, the US and Hong Kong market participant landscape may experience these changes:

• AI trading tool proliferation: Will give retail traders partial institutional-level capabilities
• Tighter regulation of high-frequency trading: May reduce their market share
• Continued growth of passive investment: Index funds and other passive institutions will have greater influence
• Increased cross-border capital flows: Northbound and southbound funds will have greater impact on Hong Kong stocks
• Rise of new participants: Such as quantitative retail traders, social trading groups, etc.

These changes will reshape market microstructure, creating new trading opportunities and risks.

10.2. How to Prepare for Future Changes

Wise investors should:

• Continuously learn new technologies: Understand how AI and quantitative tools can empower you
• Monitor regulatory trends: Anticipate policy directions and impacts
• Build information filtering systems: Extract valuable signals in the age of information explosion
• Maintain tactical flexibility: Adjust strategies as market structures change
• Invest in knowledge rather than predictions: Understanding market mechanisms is more important than predicting specific prices

Ⅺ. Market Panorama: Next Step in Exploring Different Trading Markets

Having understood the participants in US and Hong Kong stock markets, you might be curious about differences between various markets. In my next article, I'll compare the key characteristics of stock, forex, and cryptocurrency markets, including:

• Differences in market participant composition
• Variations in trading mechanisms and rules
• Volatility and liquidity characteristics
• Trading strategies best suited for each market
• Cross-market rotation opportunities

Different markets have different rules and participants, and choosing the right market for yourself is equally important.

Ⅻ. Conclusion: Become a Market Observer, Not a Blind Follower

Understanding market participants is a key step in becoming a mature investor. As Sun Tzu's Art of War states: "Know yourself and know your enemy, and you will never be defeated in a hundred battles."

When you begin to notice participant activities behind prices, your investment perspective fundamentally changes: you no longer just see candlestick fluctuations but can sense market makers setting traps, institutions quietly accumulating positions, high-frequency traders capturing short-term imbalances, and regulatory agencies influencing long-term trends. This "X-ray vision" helps you avoid traps and seize genuine opportunities.

I suggest that starting today, when analyzing markets, don't just ask "where will prices go" but ask "which type of participant is driving prices, and what is their purpose?" This shift in thinking will help you build lasting competitive advantages in the complex and ever-changing US and Hong Kong markets.

Which type of market participant interests you most? Have you noticed obvious traces of certain participants' activities? Please share your observations and questions in the comments section, and I'll continue to explore the characteristics of different markets in my next article.