Swing Trading Futures Spreads

Discussion in 'Announcements' started by bone, Sep 20, 2017.

  1. bone

    bone ET Sponsor

    R, speaking for myself I try to use the most current published CBOT ICS Ratios ( CME website link in a post above ). Unlike Eurodollars, keep in mind that these are fungible, physically delivered products, and that the Cheapest-to-Deliver (CTD) instrument can change from roll to roll ( this is especially true for the shorter duration products ). For the majority of circumstances, the NoB usually trades in the more familiar 1.6:1 ratio. But since the current listed CTD for Ten Year Notes has a bit less duration, hence the 3:1 ratio.

    It’s important to keep in mind that both the outright ZN future and the exchange supported inter market NoB volume are based upon the CTD, because that’s the issue that most of the Basis Traders will be using ( cash Notes vs Futures Spread traders ). Basis traders do huge size, and they account for a substantial share of the OI.

    When my clients are starting out to trade live, and they are modestly funded, I will suggest to them that they round up or down on inter market hedge ratios. For example, with the 1.6:1 NoB I would suggest that they trade it at 2:1. While not exactly correct, it is still less risk and margin than a 3:2 and the exchange will still assign a very favorable SPAN margin credit.

    Hope this helps ?

    In terms of Eurodollars and Libor products disappearing, IMO there would have to be some sort of replacement and I’m sure the exchanges are sorting this out at present. I say this because the need for an exchange cleared tradeable proxy for both Bank Credit Lending and Commercial Credit Lending would be so prominent and so desirable. The OI and Daily Volumes on Eurodollars make it the CME’s biggest product. Not everyone has access to the swaps market. And even those bank desks making markets in the swaps hedge with Eurodollars.
    #31     Jan 15, 2018
    R1234 likes this.
  2. bone

    bone ET Sponsor

    The sheer number of possible spread combinations is quite a challenge. Which is not necessarily a bad thing in this day and age.
    #32     Jan 24, 2018