How do I trade Credit Defaults Swaps (CDS)?

Discussion in 'Trading' started by Newmoney24, May 12, 2013.

  1. I want to trade Japanese jump risk, never traded CDS before, I know its OTC, but how do I trade them/what do I need?

  2. Right, OTC and customized for each customer so just call Goldman Sacks, UBS, Deutsche Bank or other major bank and open a trading account (probably need one million dollar plus minimum account size).

    Failing that, forget about CDS and you can trade JGB bond futures at any futures broker. There are some ETF's too.

  3. +1 on the high minimum account size. i'd suggest looking into a mini prime broker that might have better relationships and more pull to be able to get you an ISDA agreement which is required in order to trade them.

    read michael lewis' the big short and about cornwall capital for their story about how they went about trading them given they were a really small HF at the time.
  4. Afaik, the bare minimum is usually 20 million, and the realistic minimum around 100 mill.
  5. ddecker


    Not sure if you are referring to notional on the swap or account size, but either way you should be able to get away with much lower. Any decent private bank will do this for you. Minimum to open an account ranges from $1->$25MM, although banks requiring $1MM probably require a bit more to trade swaps. Open an account, sign an ISDA, and trade.

    Minimum notional on the swap is probably going to be around $5MM. Since you're buying protection, the bank's credit exposure is capped at the PV of the fee leg, so you should be able to do a decent size.
  6. Maverick74


    ICE is launching 4 new contracts this month on credit default swaps based on the Markit CDX and Markit iTraxx indices. Both reflect corporate credit spreads and will settle into cash. CME launched a few of these last year but are barely trading. ICE will probably fare a little better.