Anyone successful at trading spreads? If so how did you learn?
Thanks
Thanks
Trading Futures Spreads
- Thread starter winningtrader
- Start date
I got mentored by Ray Cahnman from Transmarket Group (they are all spread traders), and also the biggest independent spreader in the 30 year bond pit (who was also taught by Ray).
Once I started trading on a commercial desk, a proprietary firm, and on a hedge fund desk - I realized that all of them were trading some sort of spread strategy or arbitrage. No one was taking flat price directional risk.
The CME Educational Section has some excellent papers on spread trading. And it's free.
I am not personally aware of any textbooks that do the subject justice.
Stay away from spread trading exclusively for "seasonal" considerations. There's a heck of a lot more to it than that.
I wish everyone good fortune !
Once I started trading on a commercial desk, a proprietary firm, and on a hedge fund desk - I realized that all of them were trading some sort of spread strategy or arbitrage. No one was taking flat price directional risk.
The CME Educational Section has some excellent papers on spread trading. And it's free.
I am not personally aware of any textbooks that do the subject justice.
Stay away from spread trading exclusively for "seasonal" considerations. There's a heck of a lot more to it than that.
I wish everyone good fortune !
There is a very steep learning curve in futures spreads.
This is because, not only do you have to understand futures and outright risk (and how to trade it), you also have to understand calendar and intermarket spreads (and what might influence those markets).
Spreads are used for different things. You can build a synthetic instrument that tracks the behavior of a set of underlying assets. You can trade the relative performance of assets. You can trade delivery dates of an asset and even trade delivery spreads against each other. You can trade futures differentials that are being traded against OTC markets.
Basically, the way you trade this stuff is by being able to think like a professional trader. You can trade an index against another, trade crude against brent, buy bonds and sell notes, mix fixed income exposure with equity price risk.
Spreads can be used for hedging, trading, and as tools to gain information about market conditions, and are used throughout all of finance and markets.
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This is one of my posts from another thread. Futures spreads are amazing, but the stuff is hard to learn - even if you're really smart. Most people aren't smart enough for it -- they think spreads are just calendars and rate differentials. Also, the trading firms keep it a secret.
Personally, I learned market structure/microstructure, market making, spot/forward pricing and quant finance first. Then you just learn what the spreads are, and you can figure out how they're traded.
Basically, if you learn it really well, you will know more than almost anybody except for professional traders.
This is because, not only do you have to understand futures and outright risk (and how to trade it), you also have to understand calendar and intermarket spreads (and what might influence those markets).
Spreads are used for different things. You can build a synthetic instrument that tracks the behavior of a set of underlying assets. You can trade the relative performance of assets. You can trade delivery dates of an asset and even trade delivery spreads against each other. You can trade futures differentials that are being traded against OTC markets.
Basically, the way you trade this stuff is by being able to think like a professional trader. You can trade an index against another, trade crude against brent, buy bonds and sell notes, mix fixed income exposure with equity price risk.
Spreads can be used for hedging, trading, and as tools to gain information about market conditions, and are used throughout all of finance and markets.
-----------------------
This is one of my posts from another thread. Futures spreads are amazing, but the stuff is hard to learn - even if you're really smart. Most people aren't smart enough for it -- they think spreads are just calendars and rate differentials. Also, the trading firms keep it a secret.
Personally, I learned market structure/microstructure, market making, spot/forward pricing and quant finance first. Then you just learn what the spreads are, and you can figure out how they're traded.
Basically, if you learn it really well, you will know more than almost anybody except for professional traders.
Where did you learn market-making?
Speaking on spreads, a few pro traders told me to quit scalping and learn how to spread because most scalpers don't last long-term and are no longer doing it.
Most of quant finance is about making a market. Providing liquidity, no arbitrage pricing, HFT, structured products....it really can't be learned from a single source. You have to study so many things. It's really hard and takes forever.
Knowing market making will give you the ability to think about the actions and role of a market maker. Their trading facilitates trade in an instrument by trading in a related market, transferring risk, and making the spread. You can't really understand market structure/microstructure without knowing it.
Market making can mean a lot of different things. All those things I listed are related.
It can be easier to trade spreads, my favorite are front month index spreads. Most of the action in the outrights is a combination of investor flow/rotation, hedging of the underlying, vol hedging, spread trading, speculation, with scalping being just one small part of it.
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