Spread Trading
- Thread starter Markus
- Start date
Hi ADX,
let me try to answer your questions:
- You can enter a spread by buying one future and sell the other as you trade outrights OR you could place a spread-order.
E.g. if you want to buy 6 contracts of the spread SX2-SN3 @ 7 limit, you would call your broker and tell him:
"Buy 6 Nov Soybeans and sell 6 July Soybeans on a spread of 7.0 limit. The premium is to the buy side". - I have no idea how to trade spreads through IB. Most probably you have to leg in. I am using RefcoExpress for entering spreads.
- Liquidity: I haven't found any sources, that provide volume data on spreads. For any reason spreads are still something "magic" or "secret". Therefore I am using the volume data of the underlying future contracts. If your quote vendor does not provide good volume data, you can check the volume on the websites of the exchanges (for free).
- Spread Combinations:
On page 3 of this thread I wrote a post, how to reduce the amount of tradable spreads.
You can download a nice primer on spreads on using the following url: http://www.tradingeducators.com/trading_philosophy.htm
(Click on Spread Trading)
There is some hype at the end, but I think, it is a nice introduction.
Markus
Markus:
Thank for your help.
What is the meaning of 'leg in'?
Assume I trade different month TN futures as spreads. The futher one may have bigger slippage(3 or 4 ticks instead of 1 ticks) and lower volume than the near one. Would this cause a problem when I calculate the profit/loss? Also the chart I plot may not be accurate. Since it uses the last price, but the price I get filled may be quite different (for the futher one). It seems I cannot use market orders when trading spread, can I?
Is spread suitable for short-term trading(minutes to hours)?
Thank for your help.
What is the meaning of 'leg in'?
Assume I trade different month TN futures as spreads. The futher one may have bigger slippage(3 or 4 ticks instead of 1 ticks) and lower volume than the near one. Would this cause a problem when I calculate the profit/loss? Also the chart I plot may not be accurate. Since it uses the last price, but the price I get filled may be quite different (for the futher one). It seems I cannot use market orders when trading spread, can I?
Is spread suitable for short-term trading(minutes to hours)?
hey guys, I use to trade a lot of grain spreads, no need to go into this not knowing.
Generally the most common spread is old crop vs new. So for instance July is the new crop for wheat. If you think supplies are tight and demand is strong, but the new crop will be bountiful, you go long mar and short july.
This is a very common spread, and there is a quote on the open for this spread and that is the best time to put it on if you are going to put it on as a spread.
But the opening range in grains is the best place for the little guy to get a fair price, so you can just enter them simultaneously as separate orders.
Other common spreads are the crush and crack in the soy complex. There is a wealth of information on these spreads.
My favorite was KC vs Chi wheat, but it is by no means easy money.
The fills in the pits just aren't what they use to be. IMHO you need a good personal relationship with your broker who has a good relationship with the floor to trade that way anymore.
never traded ace, so maybe that is a new option. I think you'll have best luck sticking to at least one leg of new crop so that would be dec corn, july wheat and november beans.
Never want to discourage, but just to let you know spread trading is very old, nothing new, no secret, and like anything else has it's good points and bad.
Generally the most common spread is old crop vs new. So for instance July is the new crop for wheat. If you think supplies are tight and demand is strong, but the new crop will be bountiful, you go long mar and short july.
This is a very common spread, and there is a quote on the open for this spread and that is the best time to put it on if you are going to put it on as a spread.
But the opening range in grains is the best place for the little guy to get a fair price, so you can just enter them simultaneously as separate orders.
Other common spreads are the crush and crack in the soy complex. There is a wealth of information on these spreads.
My favorite was KC vs Chi wheat, but it is by no means easy money.
The fills in the pits just aren't what they use to be. IMHO you need a good personal relationship with your broker who has a good relationship with the floor to trade that way anymore.
never traded ace, so maybe that is a new option. I think you'll have best luck sticking to at least one leg of new crop so that would be dec corn, july wheat and november beans.
Never want to discourage, but just to let you know spread trading is very old, nothing new, no secret, and like anything else has it's good points and bad.
You can enter a spread in 2 ways:
1. You place a spread-order (see previous post) or
2. you buy both futures contracts separately.
A spread consists of two "legs": Each side of the trade constitutes one leg. Long futures is one leg and short futures the other leg. When you choose the 2nd option to enter a spread, it is called "legging in". Some trader wait a couple of minutes or even hours before placing the order for the second futures contract (leg) and hope, that during the time they hold only one of the two future contracts, this contract move in the "right" direction, i.e. "up" if your 1. leg is the long position and "down" if your 1. leg is the short position of the spread. Though it sounds promising, it never worked for me. "Legging in" in this way is like daytrading outright futures for me.
That's what I mean: When you "leg in", you are facing these problem; when you place a spread order you don't.
For this reason I usually use limit-orders when trading spreads. Only in very liquid markets (e.g. US, TY, ED) I use market orders.
I heard about people, who daytrade spreads with stocks, e.g. QQQ vs MSFT or MSFT vs IBM and have good results. I never did that and most probably I will never do it:
For me the biggest advantage of spread trading is, that I do not have to sit in front of my screen all day long. You can not trade spreads every day, and that's very charming for me: I am trading, because I do NOT want to work 8 hours a day.
Markus
Profitseer,
Crush and Crack spreads can indeed produce nice profits, but most probably you have to explain your broker, what it is
Have you ever traded the "Cattle-Crush" (or however it is named)? Long Feeder Cattle and Corn and Short Live Cattle. I can't remember the ratio, but I heard, that there were times, when it was heavily traded. I never did it.
Markus
Crush and Crack spreads can indeed produce nice profits, but most probably you have to explain your broker, what it is
Have you ever traded the "Cattle-Crush" (or however it is named)? Long Feeder Cattle and Corn and Short Live Cattle. I can't remember the ratio, but I heard, that there were times, when it was heavily traded. I never did it.
Markus
ah, that was the past. But I always have a place in my heart for spreads. The traders who are truly delta neutral are the only ones I know who have a true edge. But it is very competitive and the competition is sharper than I'll ever be. Any inefficiencies are quickly exploited.Originally posted by Markus
Profitseer,
Crush and Crack spreads can indeed produce nice profits, but most probably you have to explain your broker, what it is
Have you ever traded the "Cattle-Crush" (or however it is named)? Long Feeder Cattle and Corn and Short Live Cattle. I can't remember the ratio, but I heard, that there were times, when it was heavily traded. I never did it.
Markus
It was a spread that saved my ass in oct 87. gold/silver, but I can't remember which one I was long. (well, it helped soften the blow)
But a good spread allows you to be generally right but doesn't require you to be exactly right. You still have to have an idea which pans out.
good luck
With an intraday timeframe, I would imagine that spread mis-pricings are goobled up quickly. That's what a market is all about.
You have to compete with the locals and trade against the market spread. It's one thing if you're in the Eurodollar pit, but it's an entirely another game if you're off the floor.
But never say never or never say always, right ?? 
You have to compete with the locals and trade against the market spread. It's one thing if you're in the Eurodollar pit, but it's an entirely another game if you're off the floor.
But never say never or never say always, right ??
Do you remember the Soybean-Trade I posted last week?
Today it closed at 14.25 and I had to exit, because tomorrow is FND for SX2. That's a nice profit of $750 per contract using less than $500 margin per contract.
Could you have made that money when trading outright futures in soybeans? I doubt.
I attach the charts of SX2 and the spread. Judge yourself.
Have a good day.
Markus
PS: If you follow the other spread trades I posted, you'll see, that they make money, too. Let me know, if I shall post more spread trades.
Today it closed at 14.25 and I had to exit, because tomorrow is FND for SX2. That's a nice profit of $750 per contract using less than $500 margin per contract.
Could you have made that money when trading outright futures in soybeans? I doubt.
I attach the charts of SX2 and the spread. Judge yourself.
Have a good day.
Markus
PS: If you follow the other spread trades I posted, you'll see, that they make money, too. Let me know, if I shall post more spread trades.