Can you help me understand spread treading?

[Overnight]

Here are some questions:

1. In commodities, a symbol is not expressed in dollars but in points. Those points must later be converted in dollars.

Any point is different, depending on the commodity and all points are divisible by a fraction, called "tick".

For example: 1 point of corn can be divided by 4 ticks of 0.0025. And, every tick of corn is worth 12.50 $.

Now I have been trying some simulations to check if I had understood the concept properly.

Let's see natural gas.

This is the table given in my course:

Here is the simulation for 1 point earned in natural gas:

They match. 1 point = 10,000 $

and I got it right, by doing 1 (the point earned), divided by the minimum tick, times the value for the minimum tick.

Therefore I did 1/0.001 x 10 and I get 10k $. It's correct.


Now if I apply the same exact process to soybean oil, this is the chart of my course:

this is the result the simulation gives

and as you can see they do NOT match.

If I apply my calculation, I get the same result of the simulation

1/0.0001 x 6 = 60k $

And I don't get why this is. I can sense that there is some detail that I am missing about the fact that 1 point is not 1$ but 1 cent of a dollar, and in fact 600 is 60k/100, but why on earth are these results not consistent?

Maybe whatever site you are pulling that ZL list from is WRONG? Ever consider that? The whole 1 / $6,000 thing?

Monday morning, just log into your simulator, put on a contract in ZL on your sim account, watch it move, and do the calculations yourself.

 

[Folio]

Maybe whatever site you are pulling that ZL list from is WRONG? Ever consider that? The whole 1 / $6,000 thing?

Monday morning, just log into your simulator, put on a contract in ZL on your sim account, watch it move, and do the calculations yourself.

No that site seems to be correct, the official CME site gives the same numbers.

Pointd divided by minimum tick, times price

1/0,0001 = 10k ticks in one point

10k x 6$ = 60k$

Source: https//www.cmegroup.com/trading/agricultural/grain-and-oilseed/soybean-oil_contract_specifications.html

The problem is that there is an inconsistency that I don't understand and if I don't get it properly I can't move on.

Anyways thanks to everyone who replied! Now it's 2:40 in the night here and I've had enough of these graphs.
I think I've made a lot of progress in terms of understanding the spread.

I am still full of doubts regarding the ticks and how to sell something that I don't own, but one thing at the time. Tomorrow I will likely tell you what progress I think I've made and you can tell me if I got it right or if I am deluding myself.

Thanks!

 

[Overnight]

No that site seems to be correct, the official CME site gives the same numbers.

Pointd divided by minimum tick, times price

1/0,0001 = 10k ticks in one point

10k x 6$ = 60k$

Source: https//www.cmegroup.com/trading/agricultural/grain-and-oilseed/soybean-oil_contract_specifications.html

The problem is that there is an inconsistency that I don't understand and if I don't get it properly I can't move on.

Anyways thanks to everyone who replied! Now it's 2:40 in the night here and I've had enough of these graphs.
I think I've made a lot of progress in terms of understanding the spread.

I am still full of doubts regarding the ticks and how to sell something that I don't own, but one thing at the time. Tomorrow I will likely tell you what progress I think I've made and you can tell me if I got it right or if I am deluding myself.

Thanks!

I don't think anyone here understands what problem you are having, because everyone here is getting it just fine. Maybe you are over complicating a simple issue? That little blurb on the right, 1 / $6000 for a point is the wrong thing, which is not the CME's fault, but the fault of whatever site that is showing that ZL column.

 

[Sekiyo]

I’d trade spread according to variance.
Based on historical correlation.
Get probability distributions.
Reversion to the mean.

 

[jokertrader]

You said you bought a course. Without going into details can u comment on the theme- is it seasonal, is it TEch analysis? Is it trend breakout or mean reversion? Is it calendars or flys or more complex?
Point is to not squeeze info from you but for u to think whether you believe in the system and get feedback if you have doubts on some aspect

there are probably many experienced traders who could debunk any myth or shed light on what will NoT work

 

[systematictrader]

There are plenty cyclical equities as well.
(more than enough)


You never know what will happen, until - you learn the fundamental analysis.
(TA is a must as well)
Then you go for the two of, inevitable scenarios :

#1 - either price goes up
#2 - or the garbage company meets it's doom at that major support area of 0.00


If you're talking about spread betting, - then that's what i am telling you - it's not worth it. All of the time & resources, into a garbage can.

If you're talking about equities, well, get over it, easy come - easy go.
Hard victories produces a sense of meaning/purpose in life.

Your always busting peoples balls hahaha
No hate though
Its true advise u give them

 

[jokertrader]

One other thing like someone mentioned might be good to select 1 platform but do some research on what u should pick - will this only be for spreads? Will u trade outrights? Do you need automated trade management? Autospreader??

 

[Folio]

I don't think anyone here understands what problem you are having, because everyone here is getting it just fine. Maybe you are over complicating a simple issue? That little blurb on the right, 1 / $6000 for a point is the wrong thing, which is not the CME's fault, but the fault of whatever site that is showing that ZL column.

So you're saying that this image is wrong?

Because from my understanding this is (almost) right and the CME is right too (of course).
On the right it says that 1 point = $ 6000 which is wrong, but on the bottom it clarifies that 1 point, which is made by 10,000 ticks is $ 60,000, which agrees with the CME.

The CME shows that 1 tick = 0.0001 points and 1 tick = 6 $

Therefore to find out the value of 1 whole point I do 1/0.0001 x 6 = $60,000

Right? So the calculator and the CME agree from what I understand.


The data which I think is wrong and that messes up my entire understanding is this one, which says that 1 unit is $ 600, 100 times less than what the CME, the calculator and my calculation says.

So which one is wrong?

Is my formula (1 point / 1 tick) x value in $ of 1 tick = value of 1 point correct?

 

[Folio]

One other thing like someone mentioned might be good to select 1 platform but do some research on what u should pick - will this only be for spreads? Will u trade outrights? Do you need automated trade management? Autospreader??

I am using interactive brokers with a simulated account. Now I have found an operation which I'd like to trade, but apparently I am in negative of 2 million dollars in my account ahah. I must have done a mess when I was understanding how the broker worked.

Is there a way that I can reset my simulated account so that I can try out the operation I've found?


By the way if anyone is interested this is the operation I'd like to try.
The blue line is the trend of the last 20 years.
The red line is the trend of the last 5 years.
I'd follow the graph daily and enter whenever I see a bullish sign and operate between the green and red line.

 

[MichalTr]

I am using interactive brokers with a simulated account. Now I have found an operation which I'd like to trade, but apparently I am in negative of 2 million dollars in my account ahah. I must have done a mess when I was understanding how the broker worked.

Is there a way that I can reset my simulated account so that I can try out the operation I've found?


By the way if anyone is interested this is the operation I'd like to try.
The blue line is the trend of the last 20 years.
The red line is the trend of the last 5 years.
I'd follow the graph daily and enter whenever I see a bullish sign and operate between the green and red line.

I have a question. Did you open your account AFTER taking that course you talk about ? And did you do that, because of recommendation of you mentor ?

If yes, let me guess - you took a course of spreads trading, they showed you seasonalgo (the image you posted is from that), moore research and some technicals. You saw a lot of nice trades, that were done, everything so cool.

The lady (?) is from Czech Republic. She is introducing broker for IB.

Am I right ?

If yes that means you took a course from a person, that I think might be a scam. I even wanted to post it here to prevent ppl some time ago, but after a while I decided - nah, not my problem, they need to do their own research (I haven't used it, I just came across the site in one of my "digging and searching" moments). As I always question everything I encounter I checked a lot fo things and that was my conclusion. And believe me it was smart research.