Nasdaq e-mini data

A

akurov

I am a student looking at audit trail data for Nasdaq-100 full-size and e-mini contacts. The data (obtained from the CFTC) show trader type IDs for both sides of each trade.

In the big contract the volume is dominated by locals trading with outside customers, which is normal for futures markets. But for the e-mini more than 30% of trades are trades of LOCALS WITH LOCALS. In those trades for every local who wins there is a local who loses. Sure, in GLOBEX you don't know who you are trading with. But the locals see the same action on the floor, they have similar information. I thought they would want to be on the SAME SIDE rather than on opposite sides of the trade. Or perhaps some locals have better info than others. What do you think?:confused:

Alex
 
Used to trade on the CME and my friends still down there attribute high local-to-local trade activity to arbitrage between mini and pit traded SP futures. Five mini's = One pit traded and the exchange allows fungible offset. This could account for most of this activity.

Cheers,
 
Thanks for replying. I was also thinking about arbitrage. But the thing is, most of the e-mini trades between locals are for 1 contract.
 
Yes, indeed. But what most locals do is try to scalp a full size contract on the bid side and scale up a few offers in the mini's one at a time (and vice versa). Most of the volume in the mini appears to be one-lots, while the larger contracts have chunkier institutional flow. Many locals on the CME floor have e-mini terminals and try to arb the bigger flows as they hit the pit...

Cheers,
 
dvegadvol,
Thanks a bunch. This really helps me understand what's going on. So it means the e-mini locals use their access to the big contract's pit. Does it mean they work right in the big contract's pit? The CME web site describes separate pits for e-mini contracts. Are those e-mini pits located right next to the corresponding open outcry pits? Or do the e-mini locals use the Globex terminals located elswhere on the floor?
 
No problem, my pleasure.

There are e-mini terminals on the floor, right next to the pits and elsewhere. Some local traders have teamed up to do execution in the pit and on the terminal and they split profits (and losses!). You have to be a member of the exchange to do this, either by buying or leasing a seat...qualified members can and do trade from terminals located on other parts of the floor...

Cheers,
 
You made my day, I can tell you. This was a real puzzle for me. This cooperation story sounds interesting. Can a person (local) trade both the regular contract in the pit and the e-minis in Globex? If yes, one can do arbitrage without help.

Also, common sense tells me the arbitrage profits should be very slim, as many traders try to do the same thing. Perhaps, even for the locals who "team up" to do arbitrage, it is not the main source of profits. What do you think?
 
Sure, the arb profits are small, but execution costs are minimal and potential opportunities are continually present. I started trading on the floor and knew of scalpers who would trade hundreds of times per day. Yes, locals will do the arb, scalp and take positions, but I'm not sure which yields the bulk of their profits.

Cheers,
 
I see. My data show the e-mini contract is the price leader. Perhaps the arbitrage between the regular and e-mini contract makes sure the regular contract is not far behind.

But why the e-mini is the price leader to begin with? Is it because the electronic market is intrinsically more efficient? Or it is because the two markets work in parallel and the e-mini locals get info about order flow from the open outcry action?
 
Certainly greater price discovery activity through e-mini; efficiency perhaps as well. THey are parallel mkts, imho, and I'm know that local traders on the floor have an edge wrt order flow and speed of execution...There are reasons that exchange seats have and retain their value.
 
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