Correctly constructing a DAX/FTSE spread

Discussion in 'Strategy Development' started by AntelopeStew, Jan 3, 2008.

  1. What is the correct way to construct and weight a spread on the DAX and FTSE index futures?

    The formula I am using with the esignal spread tool is (AX H8-DT * 25 * '6E H8') - (Z H8-EEI * 10 * '6B H8'). That is, (the index value of the DAX times 25 EUR times the value of the EUR futures contract), minus (the index value of the FTSE times 10 GBP times the value of the GBP futures contract).

    The dollar value ratio of the indices is roughly 2.3:1 (DAX:FTSE). The spread position size would be 5 FTSE contracts to 2 DAX contracts.

    Obviously this isn't an exact solution, but it appears to make sense on the chart. Also, the simulated trades I did were profitable even with the sloppy execution (i.e., legging in manually, as my platform doesn't have a spread trader).

    I want to be sure I'm not overlooking something here, especially with respect to dollar value weighting and the influence of the respective exchange rates.

    Thank you.
  2. bump
  3. This sounds like a most interesting topic, and while I have no idea of the answer, it is surely something one of our senior ET member would be able to shed some light on. Hypo, are you out there? Good luck with it Antelope...I will check back to see what you uncover.
  4. TraDaToR


    Is there no intermarket spread margin credits between those 2 instruments? Investigate LIFFE and EUREX websites.

    If there are , simply choose the ratio that give you credits.

  5. Using the same currency would make things easier.

    You could look at using ishares Europe against ishares UK.

    Another idea would be to trade dax futures against eurostoxx 50 or NQ/ES

    Your real trade here might be financials against tech. You may be able to do this better with an ETF or Eurostoxx sector futures on Eurex.

    If you like spreads check out the bund vs bobble spread

  6. whats the symbol for eurostoxx 50 in interactive brokers
  7. estx50, i'm pretty sure
  8. I have been looking at es/nq and sim trading it a bit, looks interesting. Good be something that would work in the overnight session.

    Anyone else trade this spread?
  9. asap


    there is much more to consider other than the contract value. the most important aspect you should factor in is volatility. say, the dax normally has an higher vola then the footsie, hence, you should compute the spread quantities considering that 1 point move in the footsie is likely to have a lower (or higher) impact in the dax. this is hard work because you have to predict the future vola relation between the instruments based on historical analysis rather than relying "just" on what have happened in the past.

    on top of this, you have to neutralize the currencies involved in order to keep the spread immune from FX influence, otherwise you are also involved in a FX spread transaction.

    and finally, you have to add some discretionary input to the system, i.e. deciding which side of the spread you'll take, which ultimately will be key driver in obtaining long term success with the strategy.
    #10     Jan 4, 2008