OK. For an number of years I hear that most good futures traders are "spreaders" who use autospreaders... First time I come to the CBOT, the broker tells me the ones making money are spreaders, I go to London, Gibraltar, same thing... For the last seven years I have lived off trading outrights and then native calendar spreads...So this year I decide to switch to X Trader Pro to pursue "spreading"...Yoohoo...Everytime I have a genuinely good spreading idea, i get picked up( of course I am in Europe, 1 sec latency...LOL) and when I try to find spreading ideas based on correlation, I can't find anything... The products which are really correlated( different wheats, soy and soy products...) already have intercontract native spreads. The products you think might correlate well logically( cocoa NY and London, robusta coffee and arabica ...) don't. There's no mean reverting property there...On the other side I don't see any real trendy property in spreads like Bone claims... Of course, it all dépends on the instrument... So seriously , what's the deal? I must be missing something...In the agricultural space, no need for an autospreader, just trade native spreads, right? Thanks for your help...
For what it's worth, I have taken repeated stabs at going outside the spreads already provided by the CME with very limited success. My time horizon is admittedly very short.
Not long enough to take my word for it. I am pretty decent at chasing down the dollars however, and haven't found many in ag spreads not provided already by the CME. If your time horizon is sufficiently short, you may find some (risky) dollars to be had spreading between soy products.
I don't think spreading is some magic bullet. It's just a way to increase your opportunity set. CL grinding in a range? The calendar or crack spreads might be trending nicely (or vice-versa). Same with every other liquid outright contract. There's also basis trading in the interest rate markets, but that is very capital-intensive and requires member rates. If you trade mean-reversion, you will have a higher chance of finding a nice product if you choose from 200 spread combos rather than 10 outrights. (I hear butterflys work well for mean-reversion). I don't claim any special knowledge here - it's just math.
Spreads offer low risk trading opportunities because you are not concerned about the movement of the financial instrument itself anymore. Here are some classic spreads and trading opportunities to consider... Long May Corn vs. Short July Corn. May vs. July Chicago Wheat. July vs. November Soybeans Long December vs. Short May Cocoa Long September vs. Short December Coffee.
Thanks for your answers, Drm, I understand flies are mean reverting but you need member fees. Even in the IIP program, my butterflies fees are still almost a tick... Xelite, Are those based on seasonals? I don't trade based solely on seasonals( got killed in the past )...
I've been doing the Agri Intramarket Spread for basic products like beans, oils, meals, corn, wheat, and cocoa. Based on my experience, it provides alot of contract and reduce the risk, and less margin compared to outright. The more contracts, the more opportunities. Basically trading aim for long term strategy but perpetually day, scalp, swing trade the open positions. Butterfly is one of the way, but it ties your position and margins. The butterfly can actually rocks the account. I love it.
What has been your typical position holding timeframe for the spreads you have traded to date ? Since you mention the use of an AutoSpreader, I am assuming you try to be in and out of the market on a very short term basis ?
I would say an average of a few hours, depending on the liquidity of the quoting leg. I guess your horizon is more like 2 weeks if you follow spread trends. I agree some are really clear and tradable , but I don't think MOST calendar spreads have a trendy property.