Fully automated futures trading

[Kernfusion]

The broker does charge debit interest for the margin requirements. This is the confusing part (at least with IB) as this margin requirement is not visible as a cash position. But is "eligible" for debit interest being charged to you by the broker.

So the foreign margin cash landed to me is eligible for the debit interest, but it's not clear whether I'm also getting FX-rate exposure on that cash ?

I see.. but for sure I'm not exposed to the exchange rate on the whole contract's notional, which means my P&L calculations are wrong, so back to coding

Thanks!

 

[HobbyTrading]

So the foreign margin cash landed to me is eligible for the debit interest, but it's not clear whether I'm also getting FX-rate exposure on that cash ?

I am using IB so my reply is solely based on my experience with them. I don't know whether the approach at other brokers is identical.
(i) The foreign margin requirements result in debit interest being charged in that foreign currency. And thus do you have a (small) fx rate exposure. Example: a 400 thousand KRW margin requirement at 2.5% interest rate results in an annual debit interest of 10 k KRW. You have fx rate exposure on this 10 k KRW. (example chosen to reflect the situation for 1 contract of 3KTB).
(ii) The foreign margin requirements are not considered a cash position in your account. So you do not have fx rate exposure on that margin.

 

[Kernfusion]

Yeah.. made the fix in my P&L calcs and a nice profit of 16% for the year turned into a loss of 17% Before the fix the system "thought" I was long the full notional currency amount of all foreign-currency denominated contracts I held, and because I was long 4 3KTB contracts and won was appreciating recently, it caused a large fake profit on my 3ktb position..
Having mixed feelings about that fix
I'm now really considering adding some smaller contracts like micro NASDAQ, and maybe even start trading ice futures like cotton, coffee, sugar but with 15-min delayed data and market-orders (because paying 125$\month for that data is out of the question). I think the additional diversification must be worth some execution losses.. it's just with my current capital in the system there's no way I can hold even 1 contract of things like copper, NQ and platinum..

 

[HobbyTrading]

I'm now really considering adding some smaller contracts like micro NASDAQ, and maybe even start trading ice futures like cotton, coffee, sugar but with 15-min delayed data and market-orders (because paying 125$\month for that data is out of the question). I think the additional diversification must be worth some execution losses.. it's just with my current capital in the system there's no way I can hold even 1 contract of things like copper, NQ and platinum..

The high cost of market data for ICE has stopped me from adding those instruments. I found that the Singapore exchange has some interesting instruments, and the monthly data costs for that exchange is rather low.

 

[sef88]

Yeah.. made the fix in my P&L calcs and a nice profit of 16% for the year turned into a loss of 17% Before the fix the system "thought" I was long the full notional currency amount of all foreign-currency denominated contracts I held, and because I was long 4 3KTB contracts and won was appreciating recently, it caused a large fake profit on my 3ktb position..
Having mixed feelings about that fix
I'm now really considering adding some smaller contracts like micro NASDAQ, and maybe even start trading ice futures like cotton, coffee, sugar but with 15-min delayed data and market-orders (because paying 125$\month for that data is out of the question). I think the additional diversification must be worth some execution losses.. it's just with my current capital in the system there's no way I can hold even 1 contract of things like copper, NQ and platinum..

Wow 16% to -17% swing. Is this on a single instrument or the portfolio?

 

[sef88]

Just curious if anyone has seen this article before by @globalarbtrader previous firm, https://www.man.com/maninstitute/volatility-is-back-better-to-target-returns-or-target-risk

In the article, it discusses how dynamic volatility switching may bring up the sharpe. In particular this para,

In this second layer of risk sizing, we look to improve on the first layer by introducing a faster measure of volatility (with a half-life of just 12 days). We don’t actually use this faster measure unless it starts to diverge materially from the slower measure and this will typically only happen when market conditions are going through material change. In those scenarios, we use the faster measure, and de-risk much faster.

Just wondering if this switch here is a binary switch or continuous scaling kind of switch (e.g. weighted short term and longer term volatility)

 

[HobbyTrading]

Just curious if anyone has seen this article before by @globalarbtrader previous firm, https://www.man.com/maninstitute/volatility-is-back-better-to-target-returns-or-target-risk

In the article, it discusses how dynamic volatility switching may bring up the sharpe. In particular this para,

In this second layer of risk sizing, we look to improve on the first layer by introducing a faster measure of volatility (with a half-life of just 12 days). We don’t actually use this faster measure unless it starts to diverge materially from the slower measure and this will typically only happen when market conditions are going through material change. In those scenarios, we use the faster measure, and de-risk much faster.

Just wondering if this switch here is a binary switch or continuous scaling kind of switch (e.g. weighted short term and longer term volatility)

I hadn't seen this article previously, but you mentioning this reminded me that I modified the volatility calculation in my system compared to what is used in the book "Systematic Trading". In the book the volatility is based on a 25 day lookback period. I noticed some undesired behavior with this once an instrument goes from a period with high volatility to normal/low volatility. I decided to modify my system to not use a lookback period of only 25 days, but to use the average of 10 days, 18 days and 25 days. The effect of this is that when volatility spikes up this is immediately visible and taken into account. When volatility reduces the averaged calculation tracks it better than using the 25 days average only.

 

[Elder]

Just curious if anyone has seen this article before by @globalarbtrader previous firm, https://www.man.com/maninstitute/volatility-is-back-better-to-target-returns-or-target-risk

In the article, it discusses how dynamic volatility switching may bring up the sharpe. In particular this para,

In this second layer of risk sizing, we look to improve on the first layer by introducing a faster measure of volatility (with a half-life of just 12 days). We don’t actually use this faster measure unless it starts to diverge materially from the slower measure and this will typically only happen when market conditions are going through material change. In those scenarios, we use the faster measure, and de-risk much faster.

Just wondering if this switch here is a binary switch or continuous scaling kind of switch (e.g. weighted short term and longer term volatility)

My read is that it is a binary switch on long only portfolios. Would be interesting to see if it works on long/short portfolios given that its main goal is to reduce drawdowns when markets are falling, and a long/short approach tries to makes money by being short in a falling market so I wonder if it would make any sense to reduce then? I will nevertheless try to code up a quick test to back my intuition since I have been playing with all sorts of vol schemes (GARCH/HAR etc) to boost returns without any success. The thing they don't seem to mention is at what vol spread level does the switch happen, which makes the approach prone to overfitting imho.

 

[Kernfusion]

Wow 16% to -17% swing. Is this on a single instrument or the portfolio?

Whole portfolio (14 instruments, 3 of which copper, NQ, platinum never had positions because they're too large for me to trade), the +16% wasn't real, but yes, the portfolio's HWM was +12.5% on March 18 and since then it was slowly drifting down (the compound return plot shows even lower numbers, but it's actually -16.7% now):
(looking at the particular instruments, it seems the biggest losers lately were corn, LE, Eurodollar and Australian dollar. All these instruments are actually still up from the beginning, but they lost a lot from their highs, so the biggest portfolio losers (V2TX and MXP) stated to dominate the P&L with no big gains left to compensate..

 

[sef88]

I hadn't seen this article previously, but you mentioning this reminded me that I modified the volatility calculation in my system compared to what is used in the book "Systematic Trading". In the book the volatility is based on a 25 day lookback period. I noticed some undesired behavior with this once an instrument goes from a period with high volatility to normal/low volatility. I decided to modify my system to not use a lookback period of only 25 days, but to use the average of 10 days, 18 days and 25 days. The effect of this is that when volatility spikes up this is immediately visible and taken into account. When volatility reduces the averaged calculation tracks it better than using the 25 days average only.

Interesting. This smooth over the parameter space. I will test it out in my system.