Hedging YM with INDU

Discussion in 'Retail Brokers' started by ranger64, Mar 2, 2008.

  1. trading with Interactive Brokers: suppose I have a position in ym and globex goes down. If I want to hedge my ym contracts with the pit-traded dow contracts (indu), do i need additional funds in my account to pay margin for these pit-contracts? what i´m doing is neutralizing my risk, so it wouldn´t seem logical.
    For example if I am long 2 ym-contracts, globex goes down and I hedge my position going short one indu-contract (one indu equals two ym), margin requirement should actually go back down to zero. is this the case?
  2. ids


    This hedge will decrease margin.
  3. Thanks for the response, good to hear that. But I talked to a woman from IB on the phone today, she told me the opposite. She said I would need sufficient additional funds to pay full required margin for the floor-contracts...

    I tried buying the maximimum possible amount of ym through my IB-paper-trading account, thought that would clarify the problem. A pop-up said I didn´t have trading permission for INDU (floor contract). I realized i hadn´t checked the box for floor contracts in my real account, just did that, will my paper-trading account now also be adjusted?
  4. ids


    You should check the box for floor contracts in your real account if you want to use floor for hedge. Unfortunately, our execution simulation for CBOT floor is dead. So, my hint to you on IB internal discussion will not work. It is hard really to ask our customer service to know all offsetting rules. I know our margin rules very intimately. I guarantee you that INDU will offset YM.
  5. ids, thanks for the reply!
  6. Wait a minute...

    IDS, please clear this up. I am not an IB customer. Are you saying that if I am say long intraday 6 YM, I can sell 3 DJ (your symbol INDU) WITHOUT ANY ADDITIONAL MARGIN REQUIREMENT to put on the 3 DJ trade and all will be well?

    If that's true, that is truly risk-free trading and Im moving my accounts to IB immediately! Slightly higher fees will be more than offset by the ability to be long and short different instruments for only the initial positions margin requirement.

  7. Yes, the required margin will go almost to zero (don't know the exact spread credit rate at the moment) if you sell 1 DJ for every 2 YMs long in your account - or vice versa.

    However, be warned: The IB data feed from the floor is extremely unrealiable. Actually, I have subscribed to the floor feed before the migraton of the YM from eCBOT to Globex took place, just in case that the YM would went down. The data feed never worked, at least not for the Dow, despite numerous tries from IB to fix it.

    So, if you want to trade floor contracts, you should have a third-party data feed for the floor contract if you don't want to trade 'blind'.
  8. ids


    The margin for 2YM -1DJ spread will be exactly $150. We charge minimum $50 per future contract. Same will apply to 5ES vs. 1SP.
  9. YM and DJ are fungible for identical months in the ratio 2 YM to 1 DJ. Wouldn't a fungible position of 2 YMH08 to 1 DJH08 convert to a zero positon in the overnight settlement process?
  10. ids


    No, it is still different contracts.
    #10     Mar 3, 2008