Index Spread Traders

matt z bone and morse live spreading because they make double the fees!!! but now that we are talking about that aspect they are mute!! lol typical brokers making traders broker
 
Real Money said:
I used ThinkorSwim to chart the spread.

I want to point out something to the guys that will inevitably say trading these instruments using relative value techniques is inferior to outright futures trades.

The legs can be scalped because they are outright futures trades. You can take profit on one leg at a market high or low, and then let the other contract be an outright trade.

It's called 'legging out'. What I mean to say is that the index spread can be thought of as a hedged position ready to scalp either direction! Go long, then get spread. Get spread and then go short. You can scalp against one of the legs with your favorite outright as well!

Almost every market participant has a position and is managing their exposure one way or another.
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The CME Educational Services section of their website has some good information on modeling and trading index spreads - including calculating the correct hedge ratios. You can always use the inter market spread margin offsets which are calculated daily by the exchange using SPAN.

Scalping the legs of a spread - that is, letting open unhedged legs just run wild is a ruinous idea. If you’re going to scalp - just trade flat price.

Day trading these spreads can be a challenge. The real opportunity is in swing trading the convergence and divergence moves - which can last a long time. The last ES vs NQ Spread I personally traded I actually rolled in fact.

What you are trading with these spreads is actually sector rotation - that is, capital flows between tech and broad markets; between big caps and mid caps; that type of thing.

If you are going to properly spread trade you are going to bet on the convergence or divergence between very highly correlated products - it’s not a cute leg scalping enterprise.

If I am personally manually legging a spread I will “split the difference” - in other words, I will set up my order books side-by-side, and will wait for an opportunity to buy a bid or sell an offer on one leg and then hit the bid or lift an offer on the other leg. It takes art and skill and patience. Your odds of buying a bid on one leg and selling the offer on another leg are exceedingly remote.

My experience with spread automation is primarily with TT AutoSpreader and CQG IC. The market will have to trade through you in order to get filled - it might be for a millisecond or it might be part of a protracted move.

I would estimate that 95% of my clients trade exchange supported spreads and they do very little “legging”. We are Swing Trading for fairly substantial chunks of modeled trading range and we are in positions for days, weeks, occasionally months.

Hope this adds some color.

Intraday trading spreads is a very cost intensive enterprise.
 
bone said:
Hope this adds some color.

Intraday trading spreads is a very cost intensive enterprise.
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It added a lot of color! Thank you!

bone said:
I will set up my order books side-by-side, and will wait for an opportunity to buy a bid or sell an offer on one leg and then hit the bid or lift an offer on the other leg.
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Hm sounds a bit like orderflow trading :)
 
REDP1800 said:
matt z bone and morse live spreading because they make double the fees!!! but now that we are talking about that aspect they are mute!!
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Nah, common, they have proven themselves many times over. I think this thread started as a general spreading idea, which people generally in favor of, and kinda quickly got into scalping challenges. Overall, a great thread I think. Learned something from everyone.
 
bone said:
The CME Educational Services section of their website has some good information on modeling and trading index spreads - including calculating the correct hedge ratios. You can always use the inter market spread margin offsets which are calculated daily by the exchange using SPAN.

Scalping the legs of a spread - that is, letting open unhedged legs just run wild is a ruinous idea. If you’re going to scalp - just trade flat price.

Day trading these spreads can be a challenge. The real opportunity is in swing trading the convergence and divergence moves - which can last a long time. The last ES vs NQ Spread I personally traded I actually rolled in fact.

What you are trading with these spreads is actually sector rotation - that is, capital flows between tech and broad markets; between big caps and mid caps; that type of thing.

If you are going to properly spread trade you are going to bet on the convergence or divergence between very highly correlated products - it’s not a cute leg scalping enterprise.

If I am personally manually legging a spread I will “split the difference” - in other words, I will set up my order books side-by-side, and will wait for an opportunity to buy a bid or sell an offer on one leg and then hit the bid or lift an offer on the other leg. It takes art and skill and patience. Your odds of buying a bid on one leg and selling the offer on another leg are exceedingly remote.

My experience with spread automation is primarily with TT AutoSpreader and CQG IC. The market will have to trade through you in order to get filled - it might be for a millisecond or it might be part of a protracted move.

I would estimate that 95% of my clients trade exchange supported spreads and they do very little “legging”. We are Swing Trading for fairly substantial chunks of modeled trading range and we are in positions for days, weeks, occasionally months.

Hope this adds some color.

Intraday trading spreads is a very cost intensive enterprise.
More...
great post! thanks
 
REDP1800 said:
great post! thanks
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Just as a side note - I take NO client haircuts or fees from brokerage or clearing. I’ve got clients clearing everywhere from Advantage to New Edge and all points between.

I discourage my clients from competing with the likes of Jump and Geneva with the high speed arbitrage game. It’s a battle they can’t win.
 
REDP1800 said:
u put this trade on and u have slippage n fees..but ur perfectly hedged. u can sitback and wait for direction to show itself then just offset the other side n let it rip..
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How is this any better than waiting flat on the sidelines?
 
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