Spread trading newbie has questions.

W

wartrace

I've started listening to Guy Bowers podcast and his most recent two were about spread trading the futures markets. The concepts explained piqued my interest.

Bowers offers a "course" in spread trading however before I spend the money I would like to do some independent education. I'm wondering if anyone has a free resource I can use to learn the basics.

I am just looking to learn more about the basics of spread trading. I am very experienced in futures trading on an intraday basis so I don't need to learn about how futures work.

Some of the things mentioned on the podcast were as follows:
1) Lower margin requirements as opposed to outrights. How does that work?
2) Limited risk. I've always thought futures had unlimited risk. Is there something about spreads that limit your risk?

So if anyone can point me to a resource to learn the basics of spread trading it would be appreciated. One link Bowers has is to https://www.seasonalgo.com/ which looks like it would be very useful in analysis of spreads. Are there any other sites like this?

Thanks in advance!
 
Welcome to the world of spreads! :)

1) if you go long Corn May and short Corn July your risk is reduced naturally since both contracts are highly correlated fundamentally. Hence the margin required is significantly lower compared to outright. Logically

2) very often when futures goes limit up / down it happens similarly with both contracts (spread legs) so while the outright is locked limit you still can trade (enter / exit) the spread. Limited risk also exists because of 1) ... corn spread is (very often but not always) less volatile compared to outright

Some spreads are very specific. What works in agricultural spreads for example (like carry cost etc) won't work the same way with financial spreads for example...

I have been using SeasonAlgo for years and am quite happy about that.
Simple as that
 
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wartrace said:
I've started listening to Guy Bowers podcast and his most recent two were about spread trading the futures markets. The concepts explained piqued my interest.

Bowers offers a "course" in spread trading however before I spend the money I would like to do some independent education. I'm wondering if anyone has a free resource I can use to learn the basics.

I am just looking to learn more about the basics of spread trading. I am very experienced in futures trading on an intraday basis so I don't need to learn about how futures work.

Some of the things mentioned on the podcast were as follows:
1) Lower margin requirements as opposed to outrights. How does that work?
2) Limited risk. I've always thought futures had unlimited risk. Is there something about spreads that limit your risk?

So if anyone can point me to a resource to learn the basics of spread trading it would be appreciated. One link Bowers has is to https://www.seasonalgo.com/ which looks like it would be very useful in analysis of spreads. Are there any other sites like this?

Thanks in advance!
More...
My colleague and fellow broker John Thorpe, follows and trades spreads quite a bit.

he had the below to share, PM me if you like and I will connect you with John:

Margin is calculated relative to “perceived” risk.

Margin is not a protection from “surprise” price movements.


Spread trading, whether intra or inter commodity requires a deeper fundamental understanding of

the driving economics rather than just the historical technical factors.


A high 3,5, 10,15,30 yr. win rate percentage doesn’t mean this year will follow.

#1 mistake is to blindly follow a seasonal spread recommendation ie, load up, expect the margin will cover a lengthy adverse price movement they don’t and people get lulled into a state of passivity because the service said to “Hang in there”


If you understand the driving economics , my view is you can avoid large losses trading seasonal spreads.

Some years just don’t add up to the historical results, as with anything.

Today I am offsetting +ZSN21/-ZWN21 I put on for clients on the 2nd of December. It is currently up nicely!

Another example of a less fortunate Grain spread:

I put on for clients the 15th of Dec. and stopped out a mere 3 days later +ZSX21/-ZSH21 -($950.00).




I will be happy to speak with you about spread trading educational resources, opportunities and RISKS.


I use a service to guide me, not mentioned in your post.


 
Like cattle to the slaughterhouse!!

Why do brokers love spreaders? 2 x the commissions and fees!! dont think they dont get some of those juicy rebates from the clearing firms.

the same bad habits that cause you to loose in outrights will crush you in spreads! i will say it again..the best of the best blow up in spreads. they lull you with this perception of limited risk.bahhaha then only 1 side moves against you amd the other one doesnt move! guess what..yeah thats basically am outright future.

Just size down to reduce margin and risk.

There is a reason most dont trade spreads because you cannot compete with double fees double slippage..but yeah brokers love them!!

I would say watching spreads is like watching grass grow in the winter!!
 
tradeking007yahoo said:
Like cattle to the slaughterhouse!!

Why do brokers love spreaders? 2 x the commissions and fees!! dont think they dont get some of those juicy rebates from the clearing firms.

the same bad habits that cause you to loose in outrights will crush you in spreads! i will say it again..the best of the best blow up in spreads. they lull you with this perception of limited risk.bahhaha then only 1 side moves against you amd the other one doesnt move! guess what..yeah thats basically am outright future.

Just size down to reduce margin and risk.

There is a reason most dont trade spreads because you cannot compete with double fees double slippage..but yeah brokers love them!!

I would say watching spreads is like watching grass grow in the winter!!
More...

I respectfully disagree. There are certain set ups when it comes to swing or long term trading where spreads can provide staying power that outright dont. Also some daytraders have found better success trading spreads like es/nq or ten year/ 30 year than day trading outright.

That being said, each trader is different and one should know the different trading styles/ strategies, pros/cons and trade what they feel more comfortable with .
 
Cannon_Trading said:
My colleague and fellow broker John Thorpe, follows and trades spreads quite a bit.

he had the below to share, PM me if you like and I will connect you with John:

as a registered representative I hope you understand the regualtors stance on balancing how you selll your services and products with a full risk disclosure. I say this from the stand point of i could open and account with cannon trading. Take screen shots of you saying day traders are finding success with spreads and less risk and lower margin which is exactly what you said.

I could then blow out my account and try and hve you compensate me for losses because you didnt really make it seem like people who trade spreads lose. The NFA would arbitrate and most likely side with me and if i made money well then it wouldn't be a problem.

I find it interesting also how you said. yes on a swing trade the commissions and fees wouldn't be that big of a problem but then you go on to make it seem like they wouldn't be a problem day trading!!

Because why 2x the fees on day trades doesnt hurt the traders pocket book and let's not forget all those precious profit point eaten up by the losing trade on the other side of your spread.

Did you mention the RISK of getting leggd or hung? the added risk of overleveraging.
Oh boy I can only afford 1 micro future but with a spread i can do 3! Now i will make money.

I am not attacking you specifically i just don't like it when people try and use spreads to make more money for themselves. Is it true that on 1 outright future versus 1 spread that your company would infact charge more for the spread since there are 2 contracts involved and possibly many more if it got complex?

Sounds like a much bigger win for the CME and the brokers at the expense of the clients taking on risk.
The margin is reduced to induce more trading not because there is less risk and teh risk is not actually that defineable since the markets are right now almost parabolic and everything correlates but what about when that stops?

There is a time and place for all strategies but I just want to make it very clear that spreads are not LIMITED RISK vehicles they are UNLIMITED and just look at crude oil calendars back in april if yo don't think they are risky.

Margin is calculated relative to “perceived” risk.

Margin is not a protection from “surprise” price movements.


Spread trading, whether intra or inter commodity requires a deeper fundamental understanding of

the driving economics rather than just the historical technical factors.


A high 3,5, 10,15,30 yr. win rate percentage doesn’t mean this year will follow.

#1 mistake is to blindly follow a seasonal spread recommendation ie, load up, expect the margin will cover a lengthy adverse price movement they don’t and people get lulled into a state of passivity because the service said to “Hang in there”


If you understand the driving economics , my view is you can avoid large losses trading seasonal spreads.

Some years just don’t add up to the historical results, as with anything.

Today I am offsetting +ZSN21/-ZWN21 I put on for clients on the 2nd of December. It is currently up nicely!

Another example of a less fortunate Grain spread:

I put on for clients the 15th of Dec. and stopped out a mere 3 days later +ZSX21/-ZSH21 -($950.00).




I will be happy to speak with you about spread trading educational resources, opportunities and RISKS.


I use a service to guide me, not mentioned in your post.
More...
 
you are very right with most of what you said and i appreciate the point of view and the way you shared your comments.
I am not trying to say that spreads are better or safer, I have seen large losses on both sides. Spreads and outrights. Selling options as well as buying options....I can share many "war stories". I also shared observation that SOME day traders prefer spreads. Most dont. This business is tough , futures trading is tough. It is also very highly regulated business and we try our best to share some opinions and resources as well as opinions and be as balanced as possible. There is time and place for different strategies and not all strategies suit all traders.
Spreads have many disadvantages that you shared including the commissions on both sides. There are certain set ups where i personally feel spreads can offer an edge depending on the specific set up, the trader and his/her risk capital and more.
Thanks again for shedding a diff. light on the topic and happy new year.
 
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