Say No To Thin E-mini Spread

[stock777]

Who thinks that lowering the spread to .01 or .10 from .25 (it's the same as 2.5 cents per SHARE of SPY not a big fat quarter as is often stated), will change the way the S&P trades?

You really think that the billion of dollars that trade, are trading based on spreads? LOL. Right. Say hello to Santa for me.

I don't especially like wide spreads because I like to enter and exit promptly, not jerk around trying to get filled on the 'wrong' side. I don't beleive a tighter spread will have any negative effect on ES trading.

 

[PuffyGums]

Quote from Tea:



Now this is the difference between the pit and the electronic market. In the pit, everyone can see what the other pit traders are doing. If you don't help to maintain an artificially wide spread, then you get shunned or get your knuckles broken by the Italy boys.

In the electronic market they don't know who is cutting the spread, so they won't know whose knuckles to break. So, knowing human nature, if tick is .10 and the market is liquid - the spread will be .10 and not .20+ as with the pit.

Jammin: since you are near the pit, I wonder if you could provide us with the names of the traders who are shunning other traders who try to narrow the spread

Your thesis is getting disproved. It seems the SP floor is imitating the wider spread in ES rathen than the ES changing to the smaller interval of the pit. With a .20 spread, you have 5 levels per SP point. That's plenty of precision. In fact during times when the markets move, the exchange actually enforces minimum fluctations of .5 an SP point or even whole points when things are really going crazy.

 

[jaming5002]

Quote from Tea:



Now this is the difference between the pit and the electronic market. In the pit, everyone can see what the other pit traders are doing. If you don't help to maintain an artificially wide spread, then you get shunned or get your knuckles broken by the Italy boys.

In the electronic market they don't know who is cutting the spread, so they won't know whose knuckles to break. So, knowing human nature, if tick is .10 and the market is liquid - the spread will be .10 and not .20+ as with the pit.

Jammin: since you are near the pit, I wonder if you could provide us with the names of the traders who are shunning other traders who try to narrow the spread.

This sounds a lot like what the Nasdaq market makers did in the 1980's. That collusion cost them over $1 billion dollars.

peace and love

I disagree I wouldn't say this is collusion or artificially wide spreads at all. Trading in the pit is about competition and surviving to trade another day. If your good enough, you make enough money to take larger positions and become more of a force in the pit. As you take larger positions, more traders will trade with you so they can increase their liquidity in the pit. Wide spreads are not about fear of intimidation from other traders, it's about survival. Remember for everyone trader that improves the price, there's another trader to take advantage of it, so not much intimidation.

If there's bid size at 900.20, and you want to get filled by improving upon that, you're welcome to in the pit. So Local X bids at 900.30 Locals do it all the time. Of course, they get hit and then the price moves back to 900.20. The real question that no one has answered yet is WHY WOULD YOU BUY AT 900.30, WHEN THE MARKET PRICE IS 900.20. You typically won't unless your desperate to get order flow. Your paying more than market price. You know what they call someone who pays more than somethings worth? A fool. So instead, you join the bid at 900.20.

Everything comes at a price in this world. The price of liquidity is the spread. It's easy to whine and complain about pit traders. But at least the pit keeps things transparent. Some working class kids from Chicago found something to legally make money off and you can't appreciate or respect that. What you don't see is the stress and health problems they go through.

Retail traders want an elec. market to trade at all levels. Your upset because 10% of your trades get arbed to the pit? You won't be happy until your trades are sent through investmentbankonline.com, brokertec, or whatever you want to call it, and 40 or 50% are arbed against every imaginable index and currency. The banks' computers will post/retract bids and offers so fast it'll leave your head spinning. Think you'll see the cost savings of the elec. market. NOPE. The cost savings will go right to the annual bonus pool. Would the banks be pushing this system if they had the least to gain? Reducing the spread will do anything BUT make this a fairer market. Trust me, you have the most to lose by reducing the spread. Be careful what you wish for.

 

[Tea]

Quote from PuffyGums:


Your thesis is getting disproved. It seems the SP floor is imitating the wider spread in ES rathen than the ES changing to the smaller interval of the pit. With a .20 spread, you have 5 levels per SP point. That's plenty of precision. In fact during times when the markets move, the exchange actually enforces minimum fluctations of .5 an SP point or even whole points when things are really going crazy.

What thesis are you referring to? If you mean that if the Emini trades in .10 increments that the spread will narrow - there is no way it can be disproved because an electronic S&P contract with a .10 tick hasn't traded during regular market hours yet.

I do agree with you that the tick differential between the Emini and pit contract is perverting the market and is probably causing the pit contract to trade with a wider spread. This isn't good for the market or price discovery.

I pointed this out to the CFTC the other day. I hope they look into it.

 

[Tea]

Quote from jaming5002:
The real question that no one has answered yet is WHY WOULD YOU BUY AT 900.30, WHEN THE MARKET PRICE IS 900.20. You typically won't unless your desperate to get order flow. Your paying more than market price. You know what they call someone who pays more than something’s worth? A fool. So instead, you join the bid at 900.20.

Its called COMPETITION. That is why you jump in front and make a tighter market. That is why Wallmart cuts their prices so they are less than Kmart. According to your logic every store should have the same price because why would they charge less than something is worth? Clearly there is not enough competition within the pit. If I were a new trader in the pit and I wanted order flow (make less per trade but make up for it on volume) and I cut the spread to capture that order flow – what would happen? Other traders would stop trading with me – COLUSION.

Quote from jaming5002:
It's easy to whine and complain about pit traders. But at least the pit keeps things transparent. Some working class kids from Chicago found something to legally make money off and you can't appreciate or respect that. What you don't see is the stress and health problems they go through.

Oh brother! I am also a working class kid from Chicago, but you don’t see me whining about stress or expecting others to provide me with a living because of how I grew up. There is a word called PRIDE. It’s not who your parents are or where you were born that matters - it’s where you are going in life that counts.

.

Quote from jaming5002:
Everything comes at a price in this world. The price of liquidity is the spread
Retail traders want an elec. market to trade at all levels. Your upset because 10% of your trades get arbed to the pit? You won't be happy until your trades are sent through investmentbankonline.com, brokertec, or whatever you want to call it, and 40 or 50% are arbed against every imaginable index and currency. The banks' computers will post/retract bids and offers so fast it'll leave your head spinning. Think you'll see the cost savings of the elec. market. NOPE. The cost savings will go right to the annual bonus pool. Would the banks be pushing this system if they had the least to gain? Reducing the spread will do anything BUT make this a fairer market. Trust me, you have the most to lose by reducing the spread. Be careful what you wish for.

When Wallmart takes over all market making functions and cuts costs to the bone and the only way you can make money is by betting on which way the market will go – then I will be a happy camper.

 

[jaming5002]

Quote from Tea:


Its called COMPETITION. That is why you jump in front and make a tighter market. That is why Wallmart cuts their prices so they are less than Kmart. According to your logic every store should have the same price because why would they charge less than something is worth? Clearly there is not enough competition within the pit. If I were a new trader in the pit and I wanted order flow (make less per trade but make up for it on volume) and I cut the spread to capture that order flow – what would happen? Other traders would stop trading with me – COLUSION.

Oh brother! I am also a working class kid from Chicago, but you don’t see me whining about stress or expecting others to provide me with a living because of how I grew up. There is a word called PRIDE. It’s not who your parents are or where you were born that matters - it’s where you are going in life that counts.

When Wallmart takes over all market making functions and cuts costs to the bone and the only way you can make money is by betting on which way the market will go – then I will be a happy camper.

Fine, jump in front of every trade and take immediate losses when the market moves back to the "market price". Should provide you with a real long, succesful career. Futures are a hedge, a form of insurance. No insurance co. is going to sell ins. for less than it's expected cost and no trader is going to sell you futures without fair compensation. That's life, please stop whining.

As for not whining? What are you talking about. All of your emails are about whining and how unfair you have it.

Walmart makes money by screwing it's suppliers. If Walmart's so great, go get a job there.

 

[Tea]

Quote from jaming5002:



Fine, jump in front of every trade and take immediate losses when the market moves back to the "market price". Should provide you with a real long, succesful career. Futures are a hedge, a form of insurance. No insurance co. is going to sell ins. for less than it's expected cost and no trader is going to sell you futures without fair compensation. That's life, please stop whining.

As for not whining? What are you talking about. All of your emails are about whining and how unfair you have it.

Walmart makes money by screwing it's suppliers. If Walmart's so great, go get a job there.

How would I take an immediate loss if I were in the pit and jumped in front of the bid (900) and then joined the offer(900.20)????

Wallmart? Good company, but I already have a job.

 

[jaming5002]

Quote from Tea:



How would I take an immediate loss if I were in the pit and jumped in front of the bid (900) and then joined the offer(900.20)????

Wallmart? Good company, but I already have a job.

For Ex. lets say currently spread is as follows:

10 bid at .10(Rest of the mkt)
2 bid at .20 (YOU)

15 offer at .40 (Rest of the mkt)


Order to sell 50 at the market. Broker hits you, the .10 bid and prob. rests at .50 Meantime offe has dropped to .80 or even. Your out already, assuming momentum doesn't pick further against you. You will get the short end of the stick every time. Your strategy does not compenate you enough for the large losses you will get hit with.

Also, confused by your strategy. You say you don't scalp, but plan on making money on the trends in the market. Later you say, you would improve the bid/ask in the market, what need is there for a position trader to improve bid/ask. Why not try to get every advantage you can?

And for the second time, please discuss your trading experience and volume. Beginning to feel like i'm talking to a one lot charlie. Also, don't respond unless you have something substantial to say. I'm sure you can find pinholes in any argument. I dont want to hear about those.

 

[rtharp]

Quote from Tea:



The poll is meaningless.

You can just delete your cookie and vote again, as you can on all internet polls.

How?

I just tried it after you suggested this to see what would happen.

It still shows my vote as no and won't let me vote again.

 

[plumlazy]

Making the spread smaller, will tighten the daily range.
This happened when stocks went from fractions to decimals.

I liked daytrading stocks with the fractions a whole lot better than with decimals.

The narrower the spread, the narrower the daily range. The narrower the profit potential.

That's the way I see it.