There's front end software that has the basket trade feature. RTS Real Time is one and I believe TT and PATS as well.
Commissions are not done by the stock... but generally as a per share charge... E.g. $.015/share + 100 MSFT + 100 QCOM = same as one 200 share trade So when all is said it is comparable in commissions. Also, it offers dynamic structuring. It allows you to omit a "dog" stock if you do not like it. It does not have to deal with basis (diff. between the cash and futures changing) risk like futures.
gazmax, that may be so, although I don't fully agree when you take in consideration slippage. but let's say you are right. the commission just does not compare if you use futures. the margin effet let's you buy the index for much less commissions and actual cash (since you buy on margin). tntneo
I will concede that both a good tools... It depends on what you are tryng to do. I know one basket trader that started out with the stocks in the indexes, but she has all kinds of wild stocks mixed in there now. It does provide a more creative method of trading. Futures are very hard to be with the low margin requirments. I think it is good to know and familiarize yourself with as many aspects as is possible. Give them all a try if you have the $$ to experiment.
OK. now that we are on the same page. I would also say that basket trading is very interesting tool when you build your OWN index. there are very nice strategies based on this principle (I remember stocks & comm. mag, april issue). they are many ways to make money indeed. tntneo
Basis risk in the stock indices is purely a function of interest rates. With interest rates as low as they are I would consider it to be an insignificant factor. All three choices mentioned could be valid, tracking stocks, futures, or baskets. I used to do arbitrage in the Nasdaq futures vs cash, and we had a company who would make a market for us in the basket as a whole. Also, a representative basket could be constructed to cover a large percentage of the index without having to trade each and every issue. This is a common tactic with arbitrageurs. Transaction costs and the tightness of the bids and offers would be the primary concerns as to making a choice between the three. I am aware of some systems that use the cash price to throw off signals to the futures or tracking stocks, so that could also be a possibility.
Thanks for all the help so far. I'm not new to basket trading as i currently trade some sectors. But it would be different trading the SP500 vs trading something like the SOX (executing 17 different stocks in the SOX compared to executing 500 different stocks in the SP500). I was also going to start off with a small acount for this new venture, so the info about the poor routing for odd lots is helpful. The other thing to consider is that if basket trading the SP500, that would be 500 trades in and 500 trades out, at a minimum ticket of $1/trade, that's $1000 minimum commission (or nearly $250,000 per year!!!) assuming you only get in and out once per day and assuming you have no orders over 100 shares (which wouldn't be the reality). I know there are different variations of this of only using the top number of stocks which make up most of the index, but regardless, you're accepting a big comission hurdle before you even start. Can somebody point me in the right direction to learn more about margin requirements for futures (as well as the mini's), the amount of leverage each contract represents to the cash index/ETFs, and lastly where i might be able to access minute/tick data (historical or delayed) so that i can compare the strategy's cash index to the futures. Thanks for all the help thus far.
I've tried trading the futures based on an index strategy... didn't work for intraday because the futures never go in lock step with the index.... the premium does stay within a band... because arbitrage is only profitable outside of the band (the cost of arbitrage). the futures can often give u more risk than you want because the index is delayed. as a result, there can be no physical stop only a mental one... ie when the index hits here i'll exit the futures... but the futures sometimes will overshoot the index by alot. And will always overshoot the index to the limit of the band. I lost doing that strategy because I kept getting huge losses on stop outs... or because i stopped out often on the futures but the index went my way.... just due to the futures volatility within the band. best thing is to adapt your style to the futures, or to the qqq, or trade a basket of stocks as some have mentioned.. I adapted an index strategy to futures, and with some minor changes, it works fine. there are ways to bet on the indexes, look up index betting or spread betting on the internet.... i havent tried it tho and am not recommending it.
thereuare, INITIAL MAINTENANCE MULTIPLIER SP $19,687 $15,750 $250 X INDEX ES $3,937 $3,150 $50 X INDEX NQ $19,500 $15,600 $100 X INDEX EN $3,900 $3,120 $20 X INDEX I have the last few months of data, but there will be a few gaps from the places where I blew out my computer for a couple of minutes. I can mail it or post it, whichever you prefer.
Matthew, YES!! Please email me the data you have (i guess i'll start with the SP minis and NASD minis (i'm assuming the NASD mini futures are based off of the NASD 100, no?)) Please email to contactmypics@hotmail.com I think i have about 1.5MB available at the above email, if the file is larger than that, please email me above and i'll give u a different email address which can accept a larger file. Thanks for the assistance.