futures portfolio selection

P

programtrader

Hi Forum,

I am trying to select a portfolio of futures based not only on the trendiness of the series but also the way it can be traded by a trader with a small account.

Beside the requirements of Liquidity, Trendiness and Volatility, is there any procedure to identify good futures contracts for a small account? Margin low as possible can be a good benchmark?

Any feedback would be appreciated.
 
margin requirements not an ideal starting point for contract selection. being undercapitalised will hurt you.

one pointer, if you are looking to trade stock index futures over a longer time frame (i.e. over a few days +), consider some of Europe's smaller stock markets....

depending upon your trading approach, you may also want to look at the correlations between contracts.

 
I don't want to focus in one single contract, nor in index futures exclusively. I want to trade a small basket of futures using a trend-following approach.

To better manage my position sizing I need to select "low impact" contracts. Can't afford to have a single contract to degrade the performance of the overall portfolio. I was thinking in selecting 1-2 contracts per group (see below), and trade only one per group simulateously:

indexes
grains
meats
tropicals
currencies
precious metals
currencies

A low margin contract will have less impact in the portfolio performance if position goes against me. Maybe a good benchmark is the ratio margin/volatility (low as possible)?
 
Quote from programtrader:

I don't want to focus in one single contract, nor in index futures exclusively. I want to trade a small basket of futures using a trend-following approach.

To better manage my position sizing I need to select "low impact" contracts. Can't afford to have a single contract to degrade the performance of the overall portfolio. I was thinking in selecting 1-2 contracts per group (see below), and trade only one per group simulateously:

indexes
grains
meats
tropicals
currencies
precious metals
currencies

A low margin contract will have less impact in the portfolio performance if position goes against me. Maybe a good benchmark is the ratio margin/volatility (low as possible)?
More...

You will need just about $ 40,000 to do just one per group if you want to have a chance to outlast inevitable drawdown. Do yourself a favor and stick with one. Unless you are a seasoned pro, you will not be able to manage 8 different markets .
 
My little bit of advice,

* first eliminate all contracts that trade under 25k contracts a day. You'll get killed from slip otherwise
* focus on cbot and cme. I had terrible experience with all other futures exchanges. Poor fills, late reporting, etc.
* Avoid contracts that roll more than quaterly or you'll be paying too much commission plus have increased slip.

Hope this helps


Quote from programtrader:

I don't want to focus in one single contract, nor in index futures exclusively. I want to trade a small basket of futures using a trend-following approach.
More...
 
One thing you might consider looking at is the average daily dollar volatility of the markets. That is the average true range expressed as dollars. It will give you an idea which contracts are the quietest in the way that matters most.

jj
 
do you mean something like:

Efficiency = Margin/AvgTrueRange(N)*BigPointValue ?

where

BigPointValue = currency value represented by a full point of price movement
 
Quote from programtrader:

do you mean something like:

Efficiency = Margin/AvgTrueRange(N)*BigPointValue ?

where

BigPointValue = currency value represented by a full point of price movement
More...

No, I would not consider margin until the very end, and then only to make sure that the account was large enough to bear the expected drawdown and still have enough margin to continue.

I mean:

AvgDollarVolatility(N) = AvgTrueRange(N)*DollarValueOf1Point

where N is some number of periods (days, weeks, hours, etc.).

For example:
The 20-day ATR of NQ is 24.525 points and the value of one point is $20. Therefore, ADV(N) = 24.525*20 = $490.50.

The 20-day ATR of CL is 1.003 points and the value of one point is $100. Therefore, ADV(20) = 1.003*100 = $1003.00.

From this you can estimate that CL is twice as "hot" as NQ. You can use variations on this theme by replacing ATR with your favorite measure of volatility, such as Standard Deviation.

jj
 
Quote from programtrader:

indexes
grains
meats
tropicals
currencies
precious metals
currencies

A low margin contract will have less impact in the portfolio performance if position goes against me. Maybe a good benchmark is the ratio margin/volatility (low as possible)? [/B]
More...

some suggestions...

indexes - EuroStoxx, Dow Jones
grains - Soy Beans
meats - No
tropicals - No
currencies - Euro, Swiss
(precious) metals - Gold, Copper
energies - Crude
 
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