globex/eurex breakdown - ideas for hedging?

Discussion in 'Trading' started by ranger64, Sep 19, 2006.

  1. ranger64


    i was simply wondering, how do you guys hedge your risk in case of a breakdown of the exchange, like eurex last week for example. i was wondering what i could have done, had i been long or short one or several dax futures. one idea would be to go opposite in er2, but i don´t think correlation is that good.

    i also trade the euro fx future at globex through ib. if globex is down, you could easily hedge through ib´s idealpro (forex). margin is 50:1 (2 %), so for hedging one euro fx globex contract, i´d normally only need about 2500 dollars initial margin, but the problem is, minimum order size is 25000 dollars. so this would only make sense if i want to hedge 10 contracts. any ideas?
  2. After last week downtime of Eurex, I am researching the same thing. How can one hedge DAX or Euro Stoxx when Eurex goes down and our stops along with it. I am looking for legitimate and electronic way.

  3. The EFE on LIFFE has a good correlation.
  4. Relatively closely correlated intruments for the FDAX would be CAC 40 futures, MIB30 / now S&P MIB or FTSE contracts (however, in GBP).

    MIB probably comes closest.

    ER2 is sth totally different.

    In general, a better idea would have been to set of in the cash market (DAXEX)
  5. just21


    You can sell the FTSE on Liffe.
  6. Pabst


    The CME's(Globex) Euro FX future's contract is sized at $125,000.
    Thus if IB's minimum trade size is only 25k you should be able to easily hedge through IB.
  7. ranger64


    papst, i never traded forex before, only the globex euro fx future, but if the minimum order size is 25000 and margin is 50:1,
    i would actually be buying euro worth 1,25 mio. dollars (25000 x 50), right? so hedging one contract would not work, i would be hedging minimum 10 contracts
  8. ranger64


    ok, think i got it now, that was stupid. minimum order size is 25000, margin 50:1, so i need 500 usd to buy 25000 usd worth of euro through ib´s idealpro.
  9. ranger64


    one other thing i´m worried about: suppose the exchange breaks down, you hedge your position, and when trading resumes, you find out your position was closed (stopped out or target hit) shortly after breakdown occurred, but you weren´t notified until systems were up again. so your hedging actually produced a (possibly huge) loss. anybody ever experience that kind of incident?
  10. KS96


    Don't hedge. The effects of those random downtimes will cancel out in the long run. Just don't bet the house...
    #10     Sep 19, 2006