Is Level 2 that important?

  • Thread starter Thread starter BuySellSideTrader2020
  • Start date Start date
smallfil said:
If you are looking to buy or sell your position, it is valuable because you see where the price levels are. Now, if your position is going against you, you would probably, just hit the bid price and exit. The stockchart should dictate where you get in or get out. Market makers can widen the spread between bid and ask and if you see they are so wide to get your order filled, cancel your order. When the market makers bring down the share prices by continuously, bidding the prices down, they will bid it higher the next day to sell those same shares or contracts in case of options! Just wait the next day if you do not need to get out in a hurry!
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Here is a good example of market maker tricks. Look at the option chain for BX Nov 16 2018 $36 Put. Bid is at $2.38, Asked is at $5.25. Open interest is 517 contracts. Only 1 contract has sold for $3.15 today. Market maker has been low balling and trying to force the option premium lower. BX has been going down in price.
 
CALLumbus said:
To get a feel for the market, to get clues what is happening.

I have 4 major information components for my trading: DOM, chart, TnS and news service/ squawk. All have their place, each of these sources of information might give you the right clue in the right moment. Why would you want to miss one of them ?
You can also drive a car without a rear mirror. Is it really necessary ? Probably not. Does it give you additional information and therefore security for your decisions when driving ? I would say yes.

I also give you the advice to not look at a chart or DOM in an isolated way, but much more to look at the bigger picture, the relations between the different sources of information that you have. What happens on the DOM when the price reaches a certain point on the chart ? How does the DOM react on certain trades on the TnS ? Stuff like that...
Pay attention to the details, but dont forget to see the forest for all those trees. This trading thing is no rocket science !
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My normal screen consists of the Price Ladder, TS, Level 2, News, Chart with volume.
This has been working for quite awhile now.
 

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CALLumbus said:
They trade futures. Their screens are full of DOMs/ ladders/ level 2.
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Right, buy futures have level 2 as well, though its not as prevalent.
On the topic of futures why is there such a high margin requirement?
 
BuySellSideTrader2020 said:
Right, buy futures have level 2 as well, though its not as prevalent.
On the topic of futures why is there such a high margin requirement?
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High margin requirement ? Take the S&P500 emini for example... you can (day)trade it with a 500 USD margin with most retail brokers. Nominal value of the contract right now is about 2,670 x 50 = 133,500 USD. 500 / 133,500 = 0.37 % ! Thats a crazy low margin rate. Tell me for which other product group you can get such low margins.

Even if you take regular CME exchange margin instead of the brokers' crazy daytrading margins, you still get very low rates: 6,000 / 133,500 = 4.5% ! That is still extremely low.

You really have to think about how much of nominal value you are moving with a single futures contract. More traders should think about this, it would maybe give them some food for thought regarding the risks they are taking.
 
CALLumbus said:
High margin requirement ? Take the S&P500 emini for example... you can (day)trade it with a 500 USD margin with most retail brokers. Nominal value of the contract right now is about 2,670 x 50 = 133,500 USD. 500 / 133,500 = 0.37 % ! Thats a crazy low margin rate. Tell me for which other product group you can get such low margins.

Even if you take regular CME exchange margin instead of the brokers' crazy daytrading margins, you still get very low rates: 6,000 / 133,500 = 4.5% ! That is still extremely low.

You really have to think about how much of nominal value you are moving with a single futures contract. More traders should think about this, it would maybe give them some food for thought regarding the risks they are taking.
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The overall cost is low, but look at the buying power effect... This is what I am mostly confused about! My brokerage is TD Ameritrade
 

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BuySellSideTrader2020 said:
The overall cost is low, but look at the buying power effect... This is what I am mostly confused about! My brokerage is TD Ameritrade
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I am not familiar with the TD platform, and if you want to trade futures seriously, I would recommend another broker/FCM.
But it seems to me that the 6,600 reduction in buying power is the margin requirement for the emini future contract. This is pretty much inline with what I wrote above. It still gives you a margin rate of about 5%, so you get 1:20 leverage.
You want more ? Then you have to go with a real futures broker like for example AMP, Dorman or Transact. They will let you play with only 500 USD per contract. But this is not very much of a margin in these high volatility days. If you trade the ES or NQ with 500 USD, you might lose it all in a strong sharp move, within seconds. And even worse, you can lose more than those 500 USD that you have deposited with your broker. So be careful.
 
CALLumbus said:
I am not familiar with the TD platform, and if you want to trade futures seriously, I would recommend another broker/FCM.
But it seems to me that the 6,600 reduction in buying power is the margin requirement for the emini future contract. This is pretty much inline with what I wrote above. It still gives you a margin rate of about 5%, so you get 1:20 leverage.
You want more ? Then you have to go with a real futures broker like for example AMP, Dorman or Transact.
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What are good commission rates for futures?
 
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