Spread Trading

[neo1599]

Hi

I am comparatively new to Spread trading metals, I am currently spread trading:

GOLD Calender Spread

Lead/Zinc

Aluminium Calender

Silver Calender


Any seasoned spread traders who can warn against some risks which might have been overlooked?

Shed some light on any seasonal trends which might play out on other metals?

Any pairs which are a must to trade?

I want to start trading CrudeOil/Gold and Silver/Gold ratio but a little skeptical about the intricacies, any pointers?


Thanks in advance

 

[Whisknladle]

i would caution you with the crude:gold spread. make sure to set very liberal stops & be prepared to ride the lightning.

crude with its drivers, accompanied with gold & its drivers.. can lead to one volatile, abusive, bipolar relationship.

 

[nazzdack]

Quote from neo1599:
----new to Spread trading metals....
----risks which might have been overlooked?
----I want to start trading CrudeOil/Gold and Silver/Gold....
----little skeptical about the intricacies....
----pointers?

1) You have to be prepared to lose BIG money when both legs of the spread move against you simultaneously. It WILL happen from time to time. :eek: :eek: :eek:
2) You're not really trading a "spread" with those combinations. It's an "outright".

 

[neo1599]

Hi

Thanks for the replies. Have dropped the idea of trading:

Gold/Crude

for the moment.

Any pairs that you guys think are the best for a beginner?

I hear you about being sure to ready to lose money on some spreads, has happened a few times already.


The biggest problem I am facing right now is identification and complete analysis of possible pairs. Just using simple math for the moment, any specific relation that is used to identify and confirm pairs?

Thanks again.

 

[geostrathmore]

If you are still spread trading, I would suggest starting with intra market spreads, that way you can focus on one commodity. You can also use seasonality in your approach. There CTAs out there that will do the research for you like Moore Research http://www.mrci.com/web/index.php. Here's a great article on spread trading that might help you. https://www.cannontrading.com/community/trading-futures-spreads
Good Luck!

-Geo

 

[clacy]

What are the trading volumes in Zinc and Lead? I wouldn't want to be in a spread that I couldn't get out of.

 

[bone]

Stick with what you are doing - Gold vs. Silver or Gold vs. Crude Oil have real issues that you are not prepared or likely capitalized enough to deal with.

1. Gold calendar spreads are cheap to capitalize and carry overnight - for example, the initial margin for a June 2014 GC vs. an October 2015 GC is $660. On the other hand, the current CME hedge ratio for GC vs. SI is 1:1 but you do get a SPAN margin credit of 75%. So, $7975 + $11,000 = 18,975 x 0.25 = $4,744 initial margin requirement for the GC vs. SI spread. Big difference. The reason I don't personally like the GC vs. SI spread is that it is so delta directional with the flat price GC. IMHO, it is the same as trading an outright mini Gold contract in terms of modeling and risk profile.

2. Gold vs. Crude Oil is just a bad idea. The correlation is about 48 %. I personally will not spread anything under a 93 % positive correlation. You will not get a SPAN margin credit for it and the cointegration will eat you up fast. You could lose several thousand dollars very quickly on that even with one lots.