CAD/CL Spread

Hi,

New to spread trading, i'd be interested in trading the spread of this highly correlated instruments.

How would i go by to get my ratios? CAD contract is for 100k, CL contract being for 1000 barrels?

Any advice/tips would help.

Thank you.

 

at todays prices a CL is worth about 40k so if you wanted to get neutral you would just take the other side in cad at about 40k spot (depending on your base currency exchange rate). If you want to do it all in futures it is just a simple matter of figuring out how many of each you would need. But CL/CAD is not a recognized spread so it would get really crazy marginwise.So at 40k to 100k what would that be? About 5 cl for every 2 cad.

 

Thanks for the info, not sure what you mean by not recognized spread? meaning not enough market players?

As for the margin wise, can you actively trade the spread?
I was imagining trading it when the spread gets really out of whack, i understand nothing is written in stone, and sure enough, the moment i short the spread will most likely be the time the correlation breaks and changes but i was looking into it, so as i said, any info is appreciated.

 

Spreads should be notionally weighted and adjusted for volatility.

 

hey man, that's all I do everyday is trade that cad but not against cl, but against how cl moves. No. when I say recognized I just mean a special margin break you get from the exchange. Both cl and all the major currencies are very liquid.

 

I've been been a cad bull forever. There's no love lost between me and the loonies, but their currency gets treated like they have nothing going except extracting tar sands. I like spot, because I can trade really small and get as large as I want. But I like the idea. Just remember, there are two sides to your currency trade and the currency you are trading CL against. Sometimes you think you have made money, and all that has happened is your base currency has depreciated.

 

Notionally weighted is pretty straight forward. How would one go about adjusting for vol?

 

For managing vol, are you referring to playing the front month vs longer dated contracts?

 

Yes - good point, maybe that's why it's not a regulated spread! But it is a spread nonetheless, so the currency doesn't factor in, especially if i'm trading in US.

 

ok, good luck, all I'm saying is, if CL goes up is it CL or USD? If CAD goes up is it CL up or USD going down? Easy to see if you are watching, but not always so simple. But I agree, it's a good spread. FX has a tremendous propensity to go overboard almost all the time. But CL does also every great once in a while. Both of them have a core base of traders who really need to buy or sell some currency or crude, and they are the fundamental market. But you never know what us speculators will do.