i never said nonsensical but im asking juno what the biggest risk is ..what is the biggest risk in spread trading
Future Spread Trading
- Thread starter Junkou
- Start date
every major loss you read about in the paper that needs a bailout is a spread blowout
google ltcm long term capital management or amaranth or vic neiderhoffer there are hundreds
google ltcm long term capital management or amaranth or vic neiderhoffer there are hundreds
yes I understand what you are asking Juno.. I have the same question but I thought that you also were saying it is futile to trade such a spread...
or even ES/YM ( or it's micro equivalent"
Are you saying that such trading is stupid? not worth it? what exactly are you saying
lets be specific so MNQ/MYM ?
or even ES/YM ( or it's micro equivalent"
Are you saying that such trading is stupid? not worth it? what exactly are you saying
lets be specific so MNQ/MYM ?
ever heard black scholes option value formula or alan greenspan. read this before you get a boner for spreads.
https://en.m.wikipedia.org/wiki/Long-Term_Capital_Management
i think u see who ran this fund. inventors of finance quants. and it blew up!! take look at the trade list...what do u see
https://en.m.wikipedia.org/wiki/Long-Term_Capital_Management
i think u see who ran this fund. inventors of finance quants. and it blew up!! take look at the trade list...what do u see
im not saying u cant trade it but you better be pro level or you could get hurt
Can you keep it simple and just explain how and why such a spread can wipe one out? since you are the one questioning this idea ( by the way idea is not mine I am just checking if all this makes sense or not as a strategy and both from margin / execution point of view..
LTCM mentions lot of much more complex spreads..
im still waiting for an answer from junkou about if he is trading demo or live and what the biggest risk is in spread trading.
they werent much more complex they did exactly what most terrivle quants do which us always trusting the mkt n numbers when a black swan can happen. when russel was down 5% n nas down 2% you could have been on wrong side and you would have lost.
outright trading ur always cautious but spreaders become overly confident and can wipe out months of gains rapidly. thats all. just let this idea play out for awhile and know there is a lot of risk especially when margins low u can over leverage
they werent much more complex they did exactly what most terrivle quants do which us always trusting the mkt n numbers when a black swan can happen. when russel was down 5% n nas down 2% you could have been on wrong side and you would have lost.
outright trading ur always cautious but spreaders become overly confident and can wipe out months of gains rapidly. thats all. just let this idea play out for awhile and know there is a lot of risk especially when margins low u can over leverage
its the same disease option sellers have where they do well for months or even years and inn3 to 4 weeks they give it all back
Monday, May 4:
MNQ up 1% while MYM down 0.1%. The portfolio made 2x(1%+0.1%)=2.2%. Jealous? haha
Positions for Tuesday, May 5:
Long: 50% in MNQ, 50% in M2K
Short: 100% in MYM
Even though market trend is not necessary, I would like to say that:
Market is very likely to go up tomorrow, May 5, 2020.
MNQ up 1% while MYM down 0.1%. The portfolio made 2x(1%+0.1%)=2.2%. Jealous? haha
Positions for Tuesday, May 5:
Long: 50% in MNQ, 50% in M2K
Short: 100% in MYM
Even though market trend is not necessary, I would like to say that:
Market is very likely to go up tomorrow, May 5, 2020.
To answer some questions here:
1. Why using futures instead of options for spread trading?
The answer: liquidity.
Options have poor liquidity when the prices have moved away from the strike prices. The bid/ask spread can easily eat out your potential profits.
By the way, option traders always think only they can do the spread strategies. Haha.
2. What is the biggest risk and how to control it?
The answer: the biggest risk is model risk, that means you are betting the wrong spread trend.
As I mentioned earlier, at some point on April 28, MYM was up about 1%, M2k was up about 5%, while MNQ fell 1.7%. I was long MNQ, short MYM and M2K. Because I have full confidence with my model-which has been running live for over three years-instead of fear, I added more long positions in MNQ and short positions in MYM and M2k. Through the close of today (May 4), those added positions have made over 4%.
How to control the risk: Controlling your leverage.
The key of risk management is in the leverage. I use no more than 4x leverage on one side in the spread positions. After hedge, the net leverage is no more than 0.3x. This gives me lots room to add new positions if there are opportunities such as on April 28.
3. Does trading and the slippage will affect the profits?
The answer: very little
Day traders tend to care about the slippage. Spread and pairs trader don't care this issue. NQ/MNQ and YM/MYM are very liquid and highly correlated in the very short time. When you trade them as a pair (IB provides spreadtrader function), loss in one side will be offset by gain in the other side.
4. Do I trade in live account
The answer: of course. No strategy can beat the beauty of the spread strategy. Always sleep and rest with peace of mind.