I guess most spread volume is completed during the US session (I'm probably wrong ... usually am). I guess day trading spreads (if you can get better rates) requires staying up during the US session regardless where you live.
All, My main goal currently is trying to reduce my true cost of spreads for non natives. Ie crude fly. Execution is fixed, we all pay based on our size. Slippage and spreads are variable. There is a direct relationship between liquidty and these costs. I view this as a double edge sword, I am rewarded more for making a book in a thinly traded market, but I need participants to sell my goods to. To aid in spread selection, I am trying to ensure enough liquidty but not too much where the profit can't cover my costs. Knowing that the back lots are typically the thinnest traded, What do you use to gauge liquidity and what ratio of the daily volume is your max for spread sizing on non native spreads. Ie min daily volume required to trade a ten lot fly on the least traded calendar? I have used an spread trader in the past to stand on the back leg of a pair to some success in terms of mitigating slippage, but have got stuck waiting for a order to come to market and not get picked off by another bot or have the other leg move. Thanks for your time. PS. Where is ET hiding the spell check button? Sorry for any typos on my phone.
Yeah, all automated spread leggers have to be registered with the exchange, and the orders are tagged by the exchange as "conditional" - which means they will always be at the back of the order queue. Question - sounds like you are possibly at a prop firm. Will they allow you to carry spreads overnight ? That would make all the difference. With these somewhat illiquid expiries this is NOT going to be a day trade for you if you're going to make some real money with it. My opinion, YMMV.
Thanks for the response. I carry overnight. Mainly 5 to 10ish lots. Smaller or bigger based on liquidty and volatility. I am not looking to day trade but have had a few spreads that widened to my profit target but could not get hit on the hard side and the b/a was too wide to pay up in terms of profit potential. I want to remove these types of spreads from my universe so am working on a way to quantify liquidity. As I type this, I think I just answered my own question and should use a ratio of the b/a spread to profit target and normalize it by trade size to have a halfway stable risk per trade across different products.
I personally trade ALOT of the types of spreads you describe. I do not avoid them - on the contrary I am best bid or best offer when I want them. Having said that, it sounds like you are making markets (correct me if I'm wrong, it's an assumption) - if that's the case your dilemma is understandable. I have an opinion and a specific axe to grind. I'm not looking to flip positions and buy bids and sell offers. I'm looking to build and hold positions in order to take big chunks out of a modeled trading range.
Here's an example of what I mean by these non-implied energy flies using CL M7/Z7/M8 as an example and why they present difficulties with native stops and limit orders: IB quotes: CTS quotes (sim, but still live data): I took these screen captures within seconds of each other so aside from some minor differences they should be quite close. The main things to notice in the CTS capture above are the bottom row which consists of the following three instruments in increasingly preferred order: Synthetic fly using M7, Z7, and M8 outrights (CTS tradesniper) Exchange traded fly (Standard order book) Synthetic fly using the M7:Z7 and Z7:M8 calendars (CTS tradesniper) The top row is the outrights and the middle row is the calendars (with M7:M8 thrown in for the hell of it). As can be seen the worst possible execution would be buying and selling the outrights individually. Never, ever do this unless your house is burning down and you absolutely must get out right that second. Based on the math of the outrights themselves and crossing the spread (hit the bid/ask for everything): Code: 1 M7 @ 51.63 51.65 2 Z7 @ 52.54 52.57 1 M8 @ 52.53 52.58 A == 51.65 - 2 * 52.54 + 52.58 == -0.85 B == 51.63 - 2 * 52.57 + 52.53 == -0.98 This squares with what CTS shows with the synthetic outright based fly and we see a 13 tick bid/ask spread (which is complete garbage). Using the native exchange based spread (remember, the liquidity seen there is a separate book from the outright book and a separate book from the calendar books without any cross-spread or outright implication [because the latter is disabled]) we go from a 13 tick spread to "just" a 10 tick spread: Code: A == -0.86 B == -0.96 Another thing to remember here is that the liquidity in these native fly books comes and goes (especially after hours). There are times I've seen my *target* order on a CL fly as the best bid or ask because all other liquidity on that side of the book disappeared and even had a friend confirm he saw my target as the best bid or ask using a different platform. That friggin' sucks and it especially sucks if one of these wide ass books gets lifted by a 1 lot unfairly triggering your stop in the process (which is why you should never use anything but a stop limit, period). The only positive these native flies have going for them is that they're guaranteed to fill in one order (but you'll never be filled at anything particularly advantageous compared to using the calendars for execution). Now using the 3rd synthetic fly based off of the two underlying calendars results in the tightest spreads (because the calendars have tight liquidity and implication enabled) but is impossible to use with native exchange based stop/limit orders - which is the overall crux of this issue I'm getting at: Code: 1 M7:Z7 @ -0.92 -0.91 1 Z7:M8 @ -0.01 +0.01 A == -0.91 - -0.01 == -0.90 B == -0.92 - +0.01 == -0.93 That's a 3 tick spread and also jives with what CTS shows. 3 ticks is greatly preferable over 10 ticks and especially preferable over 13 ticks. However, what sucks about it is that it requires a separate program to monitor said synthetic instrument, has the potential for leg risk (2nd calendar might not get filled), cannot use exchange based stop/targets whatsoever, and requires said program have constant internet connectivity to monitor the instruments. In the case of tradesniper while it's not an auto-spreader in the traditional sense (doesn't keep sending/pulling orders) and can actually manage risk on a synthetic it's still something that needs to be constantly on/present at all times. I honestly don't know how people are doing risk management on WTI and Brent flies (or anything else beyond a calendar spread with a separate book that has implieds disabled) using exchange based stop/limits. The order books suck compared to the calendars and you cannot use the exchange to risk manage these flies using the underlying cals which have much tighter spreads. This is also another avenue where ICE could take advantage of the situation by out-doing CME but even they seem to be doing similar stuff with their own WBS and BRN flies although they have the technology to do it (https://www.tradingtechnologies.com...arket-window/implied-functionality-by-market/ https://www.theice.com/publicdocs/technology/Additional_Implieds_FAQ.pdf). The one piece of good news here is that there are relatively cheap non-autospreader based options (tradesniper) that allow you to get the job done if you're willing to ensure they're kept connected and monitored at all times. A backup native order could also be used but better make sure you have a way of killing it if/when you get filled on the synthetic. If you have the $$$, then a server-hosted auto-spreader still seems like the best possible option.
Thank you for very clearly presenting this - I didn't realize how bad it was. With TradeSniper, are you entering and exiting with limit orders for both calendars that make up the fly, or a limit for just one side and a market order for the other?
For energy markets the bulk of the volume is completed 12 midday to 7.30pm London time. The liquidity in spreads is slightly better in Brent v. WTI especially middle/back of curve.