In my limited experience of it, spread trading is not much easier or safer than outright positions trading, for the reasons you point out. There is only as much profit potential as there is loss potential, and predicting the future of the market is never easy, whether trading spreads or outright positions. The notable claim of spread trading, however, is that spread markets trend better (that is, stronger, longer, and with less variance) than outright positions. If that is the case, than yes, spread trading is the way to go. I have yet to ascertain whether the claim of superior trendability is valid. Any comments to this point would be valued. As for the trading methodology, your ideas seem good and I'm going to keep them in mind in my own spread trading. I usually do something a little different: I just buy the stronger of two related markets and short the weaker one. Simply illustrated, if corn were trending higher and wheat were flat, I'd go long corn and short wheat. That flies exactly in the face of the statistical arbitrage (mean reversion) approach, but seems to work well in the short term. What do you folks all think?
Stock Index Spread Trading Opportunities
- Thread starter bone
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In my limited experience of it, spread trading is not much easier or safer than outright positions trading, for the reasons you point out. There is only as much profit potential as there is loss potential, and predicting the future of the market is never easy, whether trading spreads or outright positions. The notable claim of spread trading, however, is that spread markets trend better (that is, stronger, longer, and with less variance) than outright positions. If that is the case, than yes, spread trading is the way to go. I have yet to ascertain whether the claim of superior trendability is valid. Any comments to this point would be valued. As for the trading methodology, your ideas seem good and I'm going to keep them in mind in my own spread trading. I usually do something a little different: I just buy the stronger of two related markets and short the weaker one. Simply illustrated, if corn were trending higher and wheat were flat, I'd go long corn and short wheat. That flies exactly in the face of the statistical arbitrage (mean reversion) approach, but seems to work well in the short term. What do you folks all think?
been really looking at the YM vs ES spread trade...seems to me as the best Index to spread over time with "minimal risk"...got a demo Index spread on right now:
short one ES vs long one YM
actually was profitable about an hour or so ago...a little (-) negative now...interesting...will continue to monitor...
short one ES vs long one YM
actually was profitable about an hour or so ago...a little (-) negative now...interesting...will continue to monitor...
have to disagree...with one short and one long...the risk goes way down, waaayyyy down...from my research and study
still down a little $$$...but a short ES and long YM bias for spreading still seems the route to go...
still here in my thinking...my hold after 5:00pm EST
Gabfly:
I am simply not smart enough to take flat-price directional risk with one product, but I can do very well with relative value. Most successful spreaders are terrible scalpers.
The more common and obvious U.S. equity spreads get arbed to death, you should also be looking at the European and Asian flavors. FTSE vs. DJ EuroStoxx50 for example.
I am simply not smart enough to take flat-price directional risk with one product, but I can do very well with relative value. Most successful spreaders are terrible scalpers.
The more common and obvious U.S. equity spreads get arbed to death, you should also be looking at the European and Asian flavors. FTSE vs. DJ EuroStoxx50 for example.
this honestly, is an amzing post...this is the type of reasoning behind why I also believe in spreading...very good