Order Execution in spread trading

Discussion in 'Order Execution' started by hermit_trader, Dec 31, 2006.

  1. I am a newbie in spread trading. I have some silly questions that I hope people can answer me. Thanks!

    When you start a spread, would you buy at the bid or at the ask? Sell at the ask or at the bid?

    Or would you use market order?

    If using limit order, would you miss one of the trade? If you can enter one but miss one side of the spread and the market starts to move quickly,what would you do?
  2. cvds16


    the question is 'what' do you want to spread-trade ?
  3. Do you mean the instrument that I want to trade?
    May be the TED, the NOB etc.
  4. If you're buying at the bid or selling at the ask, you take on the risk of not getting the trade. If you get the trade in that situation consider that the mkt is moving against your position, so you may be better off just buying at the ask/selling at bid - if you feel good about the price.

    If you take one trade and not the other - you are not spread trading, you are directional trading - until you take the other trade in that spread. If you feel good about it though, you may just decide to take the spread only if the directional trade looks like its going bad.
  5. So it would be better to take the spread (buy the ask/sell the bid) if I really want the trade?

    Does it mean spread trading is quite expensive in term of the slippage? Does it more suit for long term trading?
  6. spread trading, generally speaking, is on a longer timeframe than intraday. often for many days, or even weeks

    with that in mind, losing the bid/ask spread is relatively inconsequential

    when i daytrade futures (which is my income source) i almost always enter and exit on limit orders (buy the bid, sell the ask), except for stops of course, which are stopmarket orders

    spreads- it is risky to try to buy the bid, sell the ask, cause you run the risk of getting filled one side and being directional until the other side is filled
  7. btw, i am referring to spreads on liquid markets with a one tick bid/ask spread

    when trading extremely illiquid markets, the above may not apply
  8. rosy2


    some spreads have a quoted market that is inside the quotes of each leg. ie. grains, energy, short rates
  9. Where to find such information? Thanks!
  10. The spread quote is usually quite close to the difference between the markets in question. You can call your broker for the actual spread quote. The spread quote will be close to the number even though the actual prices of a fill may differ from the at the market quotes. You may give up a dime or so for the fill.

    I follow meat and grain spreads on a longer term outlook. That is pretty much inconsequential when looking at a spread that moves $13 or $14 per cwt. ($4200 to $4600 per contract)

    When spread trading, it is best to enter the trader with a spread order if possible. It is often troublesome to 'leg in or out' but it can be done.

    Spread trading is well worth the effort!

    Good Trading!
    #10     Jan 8, 2007