Spread Trading Strategies

1. Re: IB, I have had new clients in the past who were unable to access exchange supported spreads - like Crude Oil or Eurodollar intramarket spreads, and intermarkets like the CBOT ICS spreads and the Nymex Crack Spreads. As I mentioned in a previous post, if IB now offers them to clients then I think that is a good thing and would be pleased to have that information confirmed.

2. Re: Velocity, I have had new clients who had difficulty logging into multiple different exchanges at the same time using the same Trading Technologies product key. That can be a non-starter for a serious spread trader.

3. I have noticed that many introducing brokers and those brokers whose business model gravitates more towards retail scalpers and such - have no earthly idea how to correctly marging spread positions. That is a very big deal. All larger Chicago FCMs will correctly margin a spread trade - because they all have institutional clients, and spread volume is overwhelmingly institutional volume. ( and that is a good thing for speculators )

http://www.cmegroup.com/clearing/margins/spread-calc.html

http://www.nfa.futures.org/NFA-compliance/publication-library/margins-handbook.pdf ( look at Chapter 12 )

I have newer clients with very modest accounts who can carry several spread positions overnight for just a few thousand dollars. And it is all because of margin credits for spread positions. This is a very big deal.
 
Quote from bone:



3. I have noticed that many introducing brokers and those brokers whose business model gravitates more towards retail scalpers and such - have no earthly idea how to correctly marging spread positions. That is a very big deal. All larger Chicago FCMs will correctly margin a spread trade - because they all have institutional clients, and spread volume is overwhelmingly institutional volume. ( and that is a good thing for speculators )

http://www.cmegroup.com/clearing/margins/spread-calc.html

http://www.nfa.futures.org/NFA-compliance/publication-library/margins-handbook.pdf ( look at Chapter 12 )

I have newer clients with very modest accounts who can carry several spread positions overnight for just a few thousand dollars. And it is all because of margin credits for spread positions. This is a very big deal.
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Can you elaborate on that please?

As far as I'm aware, margin requirements are determined by the clearing house to the clearing firm, who in turn request the money from the intro broker who takes the money from the account. The IB dont calculate the margins, although they do have the right to ask for more if they deem necessary - I've never heard of that happening.

The only real benefit I can see of going with a GCM FCM as for margins is that they may/should offer cross margining between exchanges and asset classes. i.e. you could trade LIFFE Eurodollars against CME Eurodollars and get a similar margin as if they were on the same exchange - or Eurostoxx on Eurex - mini S&P on CME.
 
Quote from TheBlackHand:

Can you elaborate on that please?

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I have had some clients whose brokers margined their spread leg components individually as flat price risk on an intraday basis. You are correct that in terms of your daily statement, the exchange does the margin calc and the broker, being an exchange member, has no choice but to comply accordingly with the positions carried overnight. A large Chicago FCM risk manager will be able to make some adjustments and accomodations for a spread trader ( client order default settings ) so that you can maximize your capital useage intraday before the exchange credits kick in.
 
Quote from bone:



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are u sure it is ok to post XTrader? 99% can't afford
 
Quote from emg:

are u sure it is ok to post XTrader? 99% can't afford
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I have clients who use both X Trader and CTS T4 and CQG IC. I would say that most use CTS which is very reasonably priced. There are some large Chicago FCMs who will lease it to you on a transactional basis with a monthly cap - which is a smoking hot deal for a spread trader.
 
Quote from emg:

are u sure it is ok to post XTrader? 99% can't afford
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you make so little sense on so many levels. even if your loaded question was statistically correct...who cares?
 
Quote from emg:

are u sure it is ok to post XTrader? 99% can't afford
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I would guess that I have had about 50 Clients who went live with accounts of $25K and leased CTS T4 on a transactional basis. They can carrying a portfolio of a dozen different one-lot futures spreads overnight for about $5K in margin. They even use the CTS charting package in combination with eSignal using delayed data in order to minimize their monthly nut. And they do really well for themselves.
 
Bone-

Regarding your clients - are they dependant on your proprietary software for trade decisions/signals, or do you teach them how to find trades with out the software?
 
Quote from TheBlackHand:

Bone-

Regarding your clients - are they dependant on your proprietary software for trade decisions/signals, or do you teach them how to find trades with out the software?
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Depends upon the inherent skillset and disposition of the client - some are plain vanilla missionary position, and others are smarty pants who cannot leave anything alone. Many of my really experienced clients ( hardcore pros who were very competent before they hired me ) frequently make adaptations or tweak things with their own personal flair. Occasionally a client will alert me to an improvement or refinement that I incorporate into my own trading and pass on to my other clients.

I still Skype IM or email on a daily basis with clients who I took on up to four years ago.

Generally speaking, I want my clients to be as self-sufficient as they can be. They need to learn to fish for themselves - and that means making entry signal adjustments when market conditions warrant, and most importantly - to construct their own spread combinations. I do not think it in a client's best interest if he is dependent upon another party for ongoing trading subscription services or whatever. Quite frankly, some of my clients trade my system better than I do. And that is truly a point of pride for me.

Probably the biggest point I can make is that my new clients, about three weeks into training, will have a portfolio of maybe 500 spread combinations in every market space and sector. This is a very big deal. There is edge in spread construction. I want my clients to be able to tune for vol, trading range, trendiness, what I call 'good behavior', and to some extent mean reversion if that is what they are looking for.
 
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