Andy's Spread Trading Journal

Euro-Pound

Hi optioncoach,

I don't know if you trade the spread in the futures market, but if this is the case you might want to consider the Euro and the BP have a different unit value. You can not look at the Euro-BP spread. You will need multipliers to get the right value for your spread: 1250*Euro - 625*BP.

Spread without multipliers
http://share.esignal.com/groupcontents.jsp?folder=&picture=EC-BP.jpg&groupid=707

Spread with multipliers (equity chart)
http://share.esignal.com/groupcontents.jsp?folder=&picture=1250EC-625BP.jpg&groupid=707


Best regards
Andy Jordan
 
Basically I equate the dollar value per pip for the Euro BP spread so I did 2 BPs for every 1 Euro futures in the position. That means every pip change in the spread is worth $12.50. The Euro/BP is easy to match up in this way.

I had more trouble with a NQ/ES spread I did on Friday. I shorted the spread at 377.25 by shorting 5NQ and going long 2ES to equate the tick $ value and each point. However for these two this was not entirely correct since the NQ is much more volatile than the ES and I should have found a better ratio. Each .25 tick was worth $25 in the spread. I covered at 374.50 for a nice 2.75 profit intraday and my timing was perfect in hindsight. Since the market reversed, the spread jumped to 390 or so, so my exit was very timely.


As for the BP/Euro spread, I sold the spread at 6411 and closed it out, albeit prematurely lol, at 6308 on Friday for 103 pips because I was not sure about holding over the weekend and it seemed to be rebounding. Of course today it is at 6259 ;).

I actually was tracking a short spread entry in the 30yr/10yr and did not pull the trigger when the spread was 5.05 and it is now 4.86. I need more time to study the treasury spreads before putting money into them.

The YEN/Swiss franc spread trade seems close to a bottom entry for a long but no signs yet. IN the near future I hope to also move into the ags so I will follow along with great interest.

Thanks for the input.

Quote from Jordan_Andy:

Euro-Pound

Hi optioncoach,

I don't know if you trade the spread in the futures market, but if this is the case you might want to consider the Euro and the BP have a different unit value. You can not look at the Euro-BP spread. You will need multipliers to get the right value for your spread: 1250*Euro - 625*BP.

Spread without multipliers
http://share.esignal.com/groupcontents.jsp?folder=&picture=EC-BP.jpg&groupid=707

Spread with multipliers (equity chart)
http://share.esignal.com/groupcontents.jsp?folder=&picture=1250EC-625BP.jpg&groupid=707


Best regards
Andy Jordan
More...
 
Ah OK - got it!

As you write above, with some spreads it makes sense to equate the tick $ value, with others it doesn't.

Especially when you trade index spreads you might want to try different ratios. Maybe you start with the ratio recommended by the exchange to get reduced margin. But this ratio does not always make sense.

Especially for beginning spread traders I always recommend to use the multipliers (the value of the unit move in US$) as soon as both markets have not the same value. This way you make sure you always get the right values (in US$) on your charts. At the moment you use a different ratio i.e. 2:1 just multiply each side again with the right number.

Example the NQ-ES you have mentioned above. The exchange gives reduced margin on a ratio of 2:1. In this case the correct chart would be

2*20*NQ - 1*50*ES or 40*NQ - 50*ES

But as already mentioned, the reduced margin ratio is not always the one you want to trade and therefore you might want to use different ratios.

Happy trading
Andy
 
Yes thank you. The equating dollar value worked for the BP/Euro but as I found it, not so well for the NQ/ES. Although the trade went in my favor I was lucky in my timing to get out. I also tried it with 3:1 but will look into the exchange suggestions as a starting point for more unique spreads like the NQ/ES.

I am not going back in to that one anytime soon lol.

Quote from Jordan_Andy:

Ah OK - got it!

As you write above, with some spreads it makes sense to equate the tick $ value, with others it doesn't.

Especially when you trade index spreads you might want to try different ratios. Maybe you start with the ratio recommended by the exchange to get reduced margin. But this ratio does not always make sense.

Especially for beginning spread traders I always recommend to use the multipliers (the value of the unit move in US$) as soon as both markets have not the same value. This way you make sure you always get the right values (in US$) on your charts. At the moment you use a different ratio i.e. 2:1 just multiply each side again with the right number.

Example the NQ-ES you have mentioned above. The exchange gives reduced margin on a ratio of 2:1. In this case the correct chart would be

2*20*NQ - 1*50*ES or 40*NQ - 50*ES

But as already mentioned, the reduced margin ratio is not always the one you want to trade and therefore you might want to use different ratios.

Happy trading
Andy
More...
 
Hi, Im a newbie looking to learn more about trading spreads.
I cant really afford the prices of J Rs books, and would like to learn the basics while saving up to get his books. Are there better books to educate myself on this style of trading? Is there a a cheaper place to buy them. I checked amazon and they are almost the same cost. Any alternative sites that can increase my knowlege level, without me having to spend a fortune?
Any advice would be greatly appreciated.
Thanks also to Jordan for his journal

Best Regards
Rachel
 
Trade

I got out of all my open position already yesterday. The reason, I am feeling terrible with very high temperature.

I will post the results when I feel a bit better.

Happy trading
Andy
 
Quote from Jordan_Andy:

Regarding books, you will not find much out there. There are only a few spread books and most of them are not worth the money.
More...
For the most part, I agree. However, two books that were well worth it:

1) Futures Spread Trading: The Complete Guide, Courtney Smith. I would have saved a huge amount of time, effort, and mistakes had I purchased this one first. The book assumes you know how to trade, just not spreads, so it skips the useless "this is a futures contract, it means..." stuff.

2) CRB Commodity Yearbook. Invaluable source for fundamental historical data.

That being said, neither book is cheap--the former is about $50, the latter $200.
 
I bought the Keith Schapp book on Spread Trading. I think it has a lot of useful information in there and is pointing me in the right direction. I think he makes things more confusing with some terminology but I am getting a lot out of the book.

Right now I am long again the Pound/Euro spread at .6403 (Long Pound/Short Euro in 2:1 ratio).
 
Trade

I got out of my W-W trade on 12/15 at 5.

Hyp. profit on this trade $3,900 - commission of $60 = $3,840.

My hyp. account is at around $66k. Starting 2006 with $50k this means a profit of about 32%.

http://share.esignal.com/groupcontents.jsp?folder=&picture=hyp-equity-2006.jpg&groupid=707

As you can see, the first half of 2006 wasn't exiting but the second half was OK.

I will start around 01/08 again with trading.

I wish you all a happy 2007 and a lot of good trades.

Talk to you next year...
Andy Jordan
 
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