One legal way to hedge futures
- Thread starter andwhysee
- Start date
It's called an intermarket spread. If you get the ratios right you get huge margin discounts from CME.
That's the big assumption.
why not it gives the illusion of a hedge so it calms nerve but they don't always move step and step. Last friday at the open for example long 1NQ short 2ES would still lose.
Just how BIG is your position? At least 200 ES lots? If not, what's the point of hedging? Think about it. When you hedge, you make no money. You're merely tying up your capital, not to mention racking up needless commission.
The point of hedging isn't to lose any money, it's to lose as little as possible.
1 contract means 1 lot
Oh, I thought 1 contract meant 1000 lots.
Anyway, though I'm being facetious about it, my point is that it makes no sense to "hedge" your 1 lot trade.
Let's consider your example in the OP:
Long 1 contract NQ
Short 2 Contracts ES
Once You reach profit target, say $100 on NQ. close NQ.
Now your ES is about -$100
wait for ES profit to be around 0, then close
How can you be sure the market WILL REVERSE after you close out your NQ??? What happens if it continues to go higher? Ever thought about that? Then will you hedge your losing ES with NQ again? You'll soon end up with a slopfest, from which your losses will only mount more larger than you initially anticipated. (Trust me, I've used this strategy often in the past. It's not so simple in practice.)
Only way to profit by this method is by getting in at or near the bottom and get out at the top, but who can do that time after time?