I dont think taking more then the spread is market making. Maybe you should look into getting a programmer so you can quote prices continuously over a variety of maturities. Also you need to be aware of your message/fill ratio.
In order to scalp a low volatility large size bid/offer futures market successfully (I am referring to an exchange-supported implied spread market), you have to maintain queue priority - and that means that you will have to leave a number of orders working in the order book at any point in time, which means you get your ass run over quickly with sustained order flow in one direction. If you're plan is to wait that scenario out for eventual mean reversion, then good luck and God bless. If you are constantly cancelling and replacing orders as part of a HFT strategy, you will constantly be in the back of the order queue in terms of timestamp - which means that for the most part the entire bid or offer will have to trade out before you get filled. Futures exchanges also have message-to-fill ratio policies (about 18:1 is typical), which means that you cannot constantly bombard the exchange with orders like the stock HFT strategies. If you scalp you are restricting your focus and your efforts to one market space - and you are captive to the good and bad behaviour cycles of that market. I've never met a legit scalper who practiced the art in more than one market at a time. The idea of scalping with what is perceived by the trader to be a trend I find to be worthwhile in theory, but with slippage costs and queue constraints I am convinced a daily position trader or swing trader would show better net results over the course of time.
Well the edge is in knowing when you are likely to get sustained orderflow and when you wont. Knowing how much pain traders can take before the market takes on a new path of least resistance. Adjusting your orders and hedging so that you make money no matter where the market moves, just as long as it moves and doesn't move too quickly. Its possible. Time priority? What about pro-rata matching? Yes most scalpers spend the majority of their time watching one market intensely, however they normally have other longer term stuff going as well. Scalping is their bread and butter and they get their filling from other markets. Im not sure about these days, but I have heard stories of scalpers that could make more ticks in one day then the high/low range of the future for that day....on equity futures. So if you're good, there is actually more money in scalping.
I specifically mentioned CLM1 on Nymex/Globex... That's 3-4 months out... Which is HIGH volatility SMALL bid/offer size market... The opposite of what you are talking about... Queue priority seems almost irrelevant here... Even less relevant off the market.
That's really a momentum thing, I'm not wired for momentum... I'm wired for market neutral, reversion and scalping. The game is actually simple... Do you capture more spread ticks scalping... Than you lose on big moves. You're last point is spot on... Scalping is a skill, you get to be very good after 2,000,000 trades... And it's a skill that seems to transfer across different securities. My main concern was being cheated in subtle ways... Because in slower moving stocks... I can see that I'm being cheated 5-10% of the time... Just another cost of doing business.
ET: the Nymex markets are all FIFO. DD2: In terms of a market 3 months out like June, are you proposing legging the spreads yourself, or going with the exchange implied? Also, just to add a bit of color, the volatility in, for example, the CL H1:M1 spread will come from the March month moving around much more than the June month for crude oil at least (the March vol is greater than the June vol). Having traded alot of CL calendar spreads all over the curve, from my viewpoint it isn't 'scalping' in the conventional sense, in that the market will be trading through you quite frequently in those months and the bid/offers will show through you (past you) because the market moves in chunks in those back months - order flow is not constant and moves in spurts. Like just about all energy markets, you have to be willing to take some pain - very seldom will you be able to flip a position instantly for a gain. The order flow can run for for several tic price increments, and therein lies the difficulty. Whether you intended or not, you become a 'position trader' by default. I'm not trying to discourage or argue - just adding my perspective FWIW. A bit of color from someone who's in those markets just about all the time.
If you've watched the spread you must have seen that the back CL spreads are not ammenable to typical scalping (you will have to let it go through you for a bit as bone pointed out) and the front spread is not ammenable to market making. From my experience (not so much- 4 years) the only way I have found to trade the CL spreads intraday is to ride the momentum when they blow out. Im sure there are other ways people are making money, but I havent had any success with anything else. (On longer term positions the butterflies generally work well)
We are always looking for places to go with the grain of the order flow - we model and scan for 'pinch points' where the divergence stands a very good chance for some sustained continuation in terms of volume and momentum in the same direction.
Thanks for your reply. I view calendar spreads ONLY as a temporary hedge... 90% of the ballgame is the SIZE of the June spread... I trade stocks with decent spreads ($0.03-$0.05) all day long... So I know exactly how much of the spread I capture. And dabbling in Forex/futures... I cannot believe how large that CL June spread is... It must average 2 ticks by day... 4 ticks off-hours... You can be flipping for 5 ticks 100 times/day in your sleep... And in that 5 ticks is a big chunk of that spread. A key is learning enough about this niche... To avoid obvious points of volatility. I have decent Custom HFT infrastructure... My problem is what to Automate next... Where to allocate the next 100 hours of programming time... That's what I mean by "resources".
Yeah manual market making in dull markets is boring , wait to be filled .... scratch .... wait .... Ofcourse u cant make a market in a fast moving markets manually , i mentioned CL back months calendar spreads because it has tight range "mostly " and the Bid/Ask spread =10% and more from the daily range , so trying to capture the spread instead of paying it will give some edge , but as bone said it is boring and difficult , maybe directional trading is much better . There is a stupid question ,are there tradeable options for these spreads or for Crack spreads ?!