We are all directional traders as it pertains to p&l.
But yeah, you have to predict something, absolute price, vol, basis, etc.
Eurodollar spreading
- Thread starter cdcaveman
- Start date
We are all directional traders as it pertains to p&l.
But yeah, you have to predict something, absolute price, vol, basis, etc.
Yes, correct re the "indifference" logic...
Don't be silly, Maverick...Quote from Maverick74:
He's nitpicking. Eurodollars are traded off of Libor, not treasury rates. Or he could be nitpicking that bonds are the long end of the curve and eurodollars are the front end. Or he could just be pissed that London has like the worst weather on the planet.
With Marty, you never know.
Eurodollars (and other STIRs, e.g. Euribors, etc) represent quite a large market with very good liquidity, options, relative ease of use and a large number of diffferent combinations/RV structures that can be traded. They're also accessible to anyone with a basic trading platform and are cash-settled in a reasonably straightforward way. Thus, for someone who is starting out in fixed income, they're pretty much ideal, IMHO.
Why you'd bring up bond futures and, even more inexplicably, actual cash bonds is beyond me. Bond futures are much more complex, contain a lot of embedded options, are physically-settled and represent a very different market to EDs (and not because they're longer maturities). Cash bonds aren't really even accessible to a normal trader. Why confuse someone who is just starting out by introducing an entirely different, more complicated product into the discussion?
So I believe I am not nitpicking, but rather sticking to the actual subject of the discussion.
You're correct when you start thinking of options when you hear "convexity", as there's a connection of sorts.
Speaking very generally, "convexity" in fixed income is used to refer to second order effects of the underlying yield/rate move on PNL. In this way it's sort of like gamma for options.
Convexity in rates is present in a whole variety of different contexts. For instance, there's the general convexity of the bond price/yield relationship, which the Ilmanen papers describe. For Eurodollars, the key point is the actual absence of convexity in futures, which means that a "convexity adjustment" needs to be applied when trading futures vs various OTC products. That subject is covered in Burghardt's Eurodollar book.
Interesting.. Options can be thought of purely in terms of convexity. Being short/long ... Wiether convexity is cheap or expensive. But how does the mechanics of it work... I've read some of the literature on it. Its just not clicking.. Let me read it again.. And I'll quote what's read and my specific misunderstanding
No probs. Some of this stuff is a little more technical, so you need to spend a little time understanding it properly.
Martin, stop being a dick. And yes, you are being a dick. I brought up bonds because I wanted to explain to him how prop firms here in the states, and over on your side of the pond how they trade rates. And I brought that up because I was trying to explain to him that THAT is where you want to be if you are going to be a rate trader. Not doing Eurodollar spreads in your IB account. Come on Martin, stop acting so dense. I'm trying to give the guy a more complete picture BECAUSE he is new to this. He needs to see the big picture. It should be obvious to you since he was asking you basic questions on Eurodollars that he did not really know much about them but was more interested in spreading in general.
And if you actually read my post (doubtful) you would see I was actually steering him AWAY from this type of trading and told him that guys LIKE him who simply want to get involved in a retail capacity are probably better served putting on simple yield curve trades as a proxy for being long or short risk assets. And Marty, I'm really sorry there parts of the rate complex that are "beyond" you. That comment was absurd on your part. Being that 99% of the prop traders in Chicago trade the basis if they are involved in the rate complex. It was important information for him to know. Now go pour yourself a scotch and get off my effing back!
Why can't one do Eurodollar spreads in his IB account? Why is basis THE place to be if you wanna trade rates? That's just your opinion and, in my opinion (pun intended), you're wrong. Prop firms on my side of the pond overwhelmingly trade STIRs, for all the reasons I have mentioned in my previous post. There are very few firms here which actually pay for the custodial and other facilities that would allow them to trade cash bonds.
And yes, I have read your post and I saw what you suggested, but this wasn't the point. Also, I profoundly disagree with your statement that a beginner should just do a simple yield curve trade and be done with it. The point of this discussion is precisely that, in Eurodollars, if a beginner actually goes through the motions and gets a decent understanding of the product, they would be able to do things that are as sophisticated or as simple as you like.
And no, for your guide, there are NO parts of the rate complex that are beyond me. Moreover, your assertion that "99% of prop traders in Chicago trade the basis if they're involved in rates" is simply wrong, which, frankly, makes me wonder whether you have any idea what you're talking about here.
Finally, pls note that all I did was ask nicely that we separate the discussion of the Eurodollar product from the bond futures. Thus I am not and have never been "on your back". If you are incapable or unwilling to have a discussion, I am perfectly happy to stop.
Marty, Breakwater, Chopper, TMG, M&N, all trade the basis. It's the cornerstone of their business. Eurodollar spreading was bigger years ago when rates were not at or near zero, now that trade is not as exciting as it once was. I'm glad you "profoundly" disagree. We'll leave it at that.
And no, I don't think he should be trading Eurodollar spreads in his IB account. In fact, I don't think ANY retail guy should. I just think there are better ways for him to make a buck. That is just MY opinion.
You can disagree. You know Marty as well as I do how competitive that space is and the size guys have to trade to make any kind of decent money not to mention the cheap member rates they need to have to make it cost effective. It's NOT the ideal place for a beginner. I don't know what gives you that idea. Most of the guys I know in Chicago who have been trading rates for a decade have gotten crushed the last two years. Many shops have shut down. But hey, Marty thinks its a great place for a young newbie to be. Fair enough. That's your opinion. There are more Stirs traders in London then Chicago for obvious reasons. So yes, I get it that they are big over there in their domiciled market. And yes Marty, I'm aware they trade around the clock. And no, you didn't ask anything nicely.
I took the time to write out a thoughtful detailed post about how the market works and I get a condescending response from you. Marty, this is why people don't post here anymore. This is why I "rarely" post outside of my trading thread. To avoid people who feel the need to act all prissy when a conversation expands to provide a little more perspective. Anyway, I'm done here. I rarely get into these arguments north of the p&r threads so I'm not interested in having a back and forth here. You can disagree all you want. It is of no consequence to me.