Hey fellas, I'm not sure if this should be posted in the career trader page or not, but it seems like more people know what they're talking about in this forum than the other, so I'll go with this one. I'm thinking about working for a prop. firm that trades primarily US bond basis (cash-market & futures, I'm sure you know more about it than I do) and was wondering what some of you thought about this market. More specifically, is this a good time to get into this market; is it worth studying and learning to trade; and are there still opportunities to make money. I guess my concern arises from having to talked to traders, at this firm and other firms that trade the bond basis, who say that it's increasingly difficult to be profitable in this market. I guess the "tricks" they were using a few years ago don't work any more, as one guy put it. What those "tricks" were, I don't really know. I do know that black box trading has really taken root in this market. I'd like to get into a market that favors discretionary traders, should I be looking into different markets? Can you guys recommend any? Energy? Eurex?
I could not disagree more about the trading opportunities of late in US treasury futures. From April or so of last year, which is the time period I'm most familiar with, the 10-year has produced excellent set-ups and risk/rewards -- that is for trades of days or weeks duration. I don't day-trade treasures (or anything else for that matter). Nor am I familiar with prop shops. I assume there's some pressure, direct or indirect, to produce commissions for the house daily. So, my comment may not be directly relevant to the type of trading you are considering.
The basis-trade is tough because there's too much money and interest focused on it. The "rocket scientists" will always be a few steps ahead of you. Speculative trading will always have good potential if you have a decent trading method and good discipline to back it up. Instead of the basis trade, try to trade the 10-year/30-year spread or the 5-year/10-year instead. They'll have more movement than the basis-trade.
The basis has become a pretty crowded trade the past few years. I heard Gelber, who has a fairly large basis group, has laid off several traders over the past year or so. That being said, you can still make very good money in the basis, it just takes fewer traders at a prop group to do so. There are endless possibilites in the basis market, you can trade the 5yr cash vs. 5yr futures, 2yr cash vs. 5yr futures, 3yr cash vs. 5yr futures, a 10yr futures vs. 10yr cash vs. 30yr futures butterfly (equivalent to about an 8yr vs. 10yr vs. 15yr cash fly), and the list goes on. If you like solving puzzles, challenges, and figuring out pricing discrepancies, slightly intermediate and longer-term trades, the basis group is for you. Daytrading the basis probably isn't worth it as this trade is extremely crowded, a pure speed game, whoever has best connectivity to the exchange wins.
Thanks for the replies. Yes, I would definitely like to learn how to trade treasuries on the intermediate and long-terms. But is it possible to learn this strategy at a prop. shop aimed at day-trading? I know one guy at big Chicago firm who can carry positions overnight because he is experienced and I guess pretty profitable, but by and large, the few firms I know of all seemed be focused on the day trade. That's something that I really don't care for. But would it be worth my while to get in with a firm that day-trades as a place to learn more about the basis in general, and then maybe strike out on my own once I have some experience in the market and feel more comfortable making longer term bets?
Its not that daytrading the basis isn't profitable, in fact, there are some guys that are extremely profitable in Chicago that NEVER carry positions overnight. PM me with the firm you are thinking about joining, some are awesome, others aren't worth it.