i don't get the ZN
- Thread starter 1a2b3cppp
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Futures like ZN (and the German Bund) are heavily used for purposes other than outright directional bets. So traded volume as a directional indicator can be deceiving.
Private entities that are required by law or charter to be heavily invested in Treasuries like insurance companies, pension plans, etc. will hedge or modify portfolio convexity using exchange regulated futures in lieu of selling their physical Treasury holdings. It’s easier, faster, and more efficient.
ZN (and the German Bund) are fungible instruments. In other words, you can make or take delivery of an actual Treasury Note or Bond or Bill (depending on the particular futures contract specs) in exchange for a long or short futures position. You can literally buy or sell a Treasury Note to or from the CME using the futures market. The reason I mention this is because BASIS Trading comprises a significant portion of traded volume in ZN. This is an arbitrage - it’s pure Spread Trading. It can be an intraday trade or it can be a six month holding period trade. To Basis Trade is to bet on the convergence or divergence between the Futures Contract, the Deliverable Grade Treasury Instrument, and the Repo rate (the overnight bank borrowing rate). And these traders are huge. They will do 1, 2, 3 thousand lot orders. Several hundred would be quite common. I used to work for a guy who was a Basis Trader at Lehman in the 80’s - he would carry ten, twelve thousand futures at a time.
I have friends and clients who work at Investment Bank Trading desks. These are the market makers for Swaps and they use regulated exchange futures contracts all the time to hedge. They adjust their bid/ask Spread on the Swaps to reflect their hedge slippage in the futures. The IB Dealers are there to collect the bid/ask Spread - they’re not there to make massive directional speculative bets. In fact, they get their asses fired for directional bets or pronounced deltas in their carried positions.
The other type of prominent order flows that you should be aware of come from Yield Curve Spread Traders. They do massive size. Long a Eurodollar Strip, Short ZF. Short ZN, Long ZB. I’ve seen yield curve spread trades constructed with several (or more) legs. There are, literally, thousands of combinations in such a trading strategy.
Point being, I personally wouldn’t obsess over traded volume other than to determine if an expiry or contract is sufficiently liquid.
My 2 cents, YMMV.
Good luck with everything.
Private entities that are required by law or charter to be heavily invested in Treasuries like insurance companies, pension plans, etc. will hedge or modify portfolio convexity using exchange regulated futures in lieu of selling their physical Treasury holdings. It’s easier, faster, and more efficient.
ZN (and the German Bund) are fungible instruments. In other words, you can make or take delivery of an actual Treasury Note or Bond or Bill (depending on the particular futures contract specs) in exchange for a long or short futures position. You can literally buy or sell a Treasury Note to or from the CME using the futures market. The reason I mention this is because BASIS Trading comprises a significant portion of traded volume in ZN. This is an arbitrage - it’s pure Spread Trading. It can be an intraday trade or it can be a six month holding period trade. To Basis Trade is to bet on the convergence or divergence between the Futures Contract, the Deliverable Grade Treasury Instrument, and the Repo rate (the overnight bank borrowing rate). And these traders are huge. They will do 1, 2, 3 thousand lot orders. Several hundred would be quite common. I used to work for a guy who was a Basis Trader at Lehman in the 80’s - he would carry ten, twelve thousand futures at a time.
I have friends and clients who work at Investment Bank Trading desks. These are the market makers for Swaps and they use regulated exchange futures contracts all the time to hedge. They adjust their bid/ask Spread on the Swaps to reflect their hedge slippage in the futures. The IB Dealers are there to collect the bid/ask Spread - they’re not there to make massive directional speculative bets. In fact, they get their asses fired for directional bets or pronounced deltas in their carried positions.
The other type of prominent order flows that you should be aware of come from Yield Curve Spread Traders. They do massive size. Long a Eurodollar Strip, Short ZF. Short ZN, Long ZB. I’ve seen yield curve spread trades constructed with several (or more) legs. There are, literally, thousands of combinations in such a trading strategy.
Point being, I personally wouldn’t obsess over traded volume other than to determine if an expiry or contract is sufficiently liquid.
My 2 cents, YMMV.
Good luck with everything.
Bone,
Do you just spit this stuff out from the top of your head? How do you do that? Your knowledge is rather impressive.Seriously...This is not sarcastic or trolling...I read your posts and am amazed at your book knowledge! Gawd forbid if you trade! You might take my money
ES
Do you just spit this stuff out from the top of your head? How do you do that? Your knowledge is rather impressive.Seriously...This is not sarcastic or trolling...I read your posts and am amazed at your book knowledge! Gawd forbid if you trade! You might take my money
ES
Bone,
Do you just spit this stuff out from the top of your head? How do you do that? Your knowledge is rather impressive.Seriously...This is not sarcastic or trolling...I read your posts and am amazed at your book knowledge! Gawd forbid if you trade! You might take my money
ES
I traded ZN in the pits and electronically. Mostly basis and yield curve spreads. Also quite a bit of Eurex.
ohh good. I might have some questions for you if you are open to that. But not yet as I got to figure out how to practice DOM trading on EUREX. I guess I need playback modes or something...
I am training on ES, because I cannot get EUREX in Demo on TT...but want to trade EUREX (FESX, FGBL, FGBS and FDAX) eventually.
ES
I am training on ES, because I cannot get EUREX in Demo on TT...but want to trade EUREX (FESX, FGBL, FGBS and FDAX) eventually.
ES
Speak with your clearer. As I mentioned before, Eurex is not available in Demo however you may be able to get it in Simulation. That's a live account routing to a TT, not exchange, matching engine.
Thanks! I think tradovator has it but I have not checked yet. So much info all at once..
ES
ES
Hi bone,
I day trade (I will avoid the term scalp because most people here are really sensitive about the actual definition of scalping) aiming for a few ticks in ZN watching ZB & ZF side by side and also the ES. Would you say nowadays are more oportunities with Bund?
If you like the European time zones. It’s a different animal than ZN. I seldom trade it these days, but there are some Bund traders over on the Financial Futures Forum so it might be a good question to ask over there. I’m more of a swing trader, and would use the Bund in the context of a spread trade combination.
There’s no doubt that the US 10 Year Note has a much larger cash market than the German analog.
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