Applies to all futures, but this place seems as good as any. Trading futures has one fairly substantial complication compared to many other assets. You can't just buy 'the CME Gold future'. There is no such thing. You need to select which delivery date future you are trading. Do you want to trade June 2015, July, August....? Once you've chosen you can relax - but not for long. If you're trading June 2015 (I'm writing this in mid May), then in a few weeks time - unless you've given up on Gold and want to close your position - you'll need to get rid of your June future and buy another one. What's the best way of doing this? This is the second post in a series giving pointers on building systematic trading systems (you don't need to read the first; this post stands alone). However nearly all the content will be useful to non systematic futures traders. It might also help those who trade similar 'rollable' derivatives, such as spread bets. First warning: This isn't an introductory guide to futures trading. I will be going very quickly or completely ignoring large parts of the mechanics of this asset class. You might want to read something first (like this, other alternatives are available). Second warning: This is quite long. So you probably want to make coffee and / or visit the bathroom now. Which contract to trade First decision is which contract to trade. There are a number of things we need to think about. Liquidity The most important thing when deciding where on the curve to trade is liquidity. There are four main liquidity patterns that you'll see in the futures market. These patterns are very important for how we think about rolling these different markets, so it's worth spending some time understanding them. SNIP More, much more, on my blog. GAT
The near vs. 9th ED contract! Thanks for the lesson. That seems a valuable concept that i have never quite heard explained as well.
oh no, more from the trading and algo expert. Dude, please stick to whatever you have been doing but spare us with your ridiculous attempt in trying to trade financial markets, especially from the systematic side. You are the perfect representation of everyone calling themselves "quants" these days. Ludicrous. Couple tidbits from your blog that made me particularly chuckle: * "Now imagine we wanted to be short. The curve gets more contangoed as we get closer to the front. The best contango is clearly in June". -> Go to the front? Contangoed? * "Create your stitched price series" -> the time series expert is talking here ;-) * Your explanation of Eurodollar rolls as well as VIX rolls could not be more wrong. No wonder you have to write blogs instead of ever having worked at a futures trading desk at an ibank (though you surely love to make it sound like you did)