ZN ZB and NOB spread

Discussion in 'Financial Futures' started by londonkid, May 8, 2013.

  1. bighog

    bighog Guest

    ten is thicker than the 30, better to trade twice as many TY and forget about commissions..............A couple of "slips" in the 30 when possibly none in the 10 will make costs mute.

    Times change and now the time has arrived for the notes, bonds to awaken from the induced sleep by the FED. The "rates" and ES will shine for all to see in the next couple of years as interest rates make for a far more interesting game.... Mkts change with the times, we will leave the CL for the girls. (That was a Joke Donna, HA!)

    PS: Donna knows how to trade the ES, I bet she will latch to the 10 and 30 once she looks closer..........
    #11     Jun 16, 2013
  2. Handle123


    I started to get much more involved into trading spreads in January, and I have to say it is much easier to profit by trading those than me trying to trend trade outright positions in short term durations. So maybe there is somthing that can give one a little edge in trading outright position in the NOB. But it still comes down to have a solid backtested trading plan, one can't get around this.

    I can now see why Bone has done so well all these years. I have done well trading long term commodities, but am betting Bone's equity curve is smoother?

    Isn't the "Bund" a much better deal in terms of tick and commissions?
    #12     Jun 16, 2013
  3. bone

    bone ET Sponsor

    1. Many of my clients come to me as shorter term, higher frequency scalpers and day traders who are quite frankly frustrated trying to compete against the bots with a manual mouse and point-and-click DOMs. They are desperately looking for more consistency.

    2. You are correct about a solid trading plan. I provide a model that was expressly designed by me for spread trades - it took about 20 years to refine. At the time of trade entry, we also set the profit target and the stop-loss level.

    3. Most of my clients are paying non-member rates, so generally speaking we are not particularly sensitive to commissions given our trade holding timeframes and targeting. If I thought that the NOB was a much better set-up than the Bobl-Bund, I would take the NOB and not think twice about the commissions.

    4. We like to do some synthetic intra market interest rates spreads as well. Many combinations possible there, and the exchanges give us a generous SPAN overnight margin credit. One example might be a CBOT Two Year Note versus GE U5.
    #13     Jun 17, 2013
  4. bighog

    bighog Guest

    It is a fallacy to believe spread trading will not produce just as many losses to capital than directional trading. The truth is spread trading can produce more and faster losses.

    In spread trades, BOTH legs of the trade can go the wrong direction and blow the intended narrowing/widening of the position to hell real fast.

    Never forget, if the spread is placed as a spread trade and Not lifted as a spread (lifting legs different times) you will get charged for double commissions than intended and now stand a swell chance to be wrong in TWO directional trades.

    BEWARE of believing there are safe ways to play in a game of chance............the more one try's to avoid risk, the more risk has a way of biting you in the ass.......... :eek:
    #14     Jun 18, 2013
  5. bone

    bone ET Sponsor

    1. We deal with highly correlated instruments, and our experiences simply do not agree with your observations. There is no way that an intra market spread trade in the same instrument will produce more or faster losses than the flat price front month instrument. And I have seen only a handful of times in 21 years of trading where an intra market spread had a larger daily trading range than the flat price front month instrument. Incredibly rare event.

    2. The trading exchange clearing houses say you are wrong. Look at the incredible SPAN initial margin credits they give for both inter and intra market spreads for highly correlated instruments. The CME will give you an 80 % margin credit for the ES vs YM, and 75% for ES vs NQ. The initial margin for CL outright is $4510. The initial margin for Aug CL vs Sept CL 1:1 is $165. The SPAN margin credit for CL vs RBOB is 80%. The initial SPAN margin requirement for a CL condor Q-U-X-Z is $82.

    The initial SPAN margin requirement for an outright ZF is $743. For a 5:3 ratio spread ZF vs ZN ( FiT ) the exchange gives you a SPAN margin credit of 80 %.

    SPAN is a historical volatility risk tool, and it says that you are flat wrong about the risk associated with spreads that are correctly executed and hedged.

    If someone is stupid enough to leave naked legs open, then you are correct in terms of risk. But naked open legs are flat price positions and are not spread trades.

    3. You are going to pay the same exchange and clearing fees on a spread whether you leg it manually or you do an exchange supported spread.
    #15     Jun 18, 2013
  6. bighog

    bighog Guest

    Let me say it this way: To say spread trading is a "SAFER" way to reduce trading risk is being coy at best.

    Margins are less because if the risk is less then so is the reward...........THAT is why in general spread trading is not worth the time and effort for the average small retail trader. Losses are still going to happen. A common fallacy about spread trading is that since the risk is lower and the reward is even smaller then MORE cars can be traded which increases the commissions and makes the broker happy.

    The objective remains the same as in pure directional trading...........to get the DIRECTION correct. Correlations sound nice but they are not magic as we all know. If markets always did what they were supposed to do, how would anyone ever make money?

    Spread trading is just as risky as pure directional trading.

    DONE.......... have a great trading day. :)

    PS: Yes, the FEES are the same but if a SPREAD trade is placed as a SPREAD TRADE, the commissions are considered as a single trade. If one side of THAT spread is removed (lifted) then a second commission is charged because the initial spread trade was not finalized as a spread, it was two individual trades and charged commissions on each. Again, spreads are a tool, but not the answer to end losses in trading...........that is a fallacy and should be entirely explained in a clear light of day.
    #16     Jun 19, 2013
  7. bone

    bone ET Sponsor

    Pure unadulterated uninformed naivety quite frankly. Swing trading or position trading spreads makes a great deal of sense for the average small retail futures trader. In fact, given the reality of automation/HFT in the markets these days - the honest truth is that scalping or day trading flat price outright futures is not worth the time and effort for the average small retail futures trader.

    I have had many, many clients who are more consistent and who have much better long term performance metrics swing trading one-lot futures spreads with $12K accounts than they ever had scalping ES or 6E or CL or GC with a $30K account.

    My clients have on average about 500 or so spread combinations across every listed futures exchange in the world. They can "cherry pick" trades. They can be patient and very selective. My clients learn how to build and model their own spread combinations - they literally construct their own trading vehicles. Pairs, butterflies, condors, inter market synthetic combinations. Spread trading should bring out creativity and flexibility in a trader.

    Yes, the reduced capital costs for spreads is quite appealing. But you are making the mistake of assuming that all spread trades are delta directional with the flat price analog and with the exception of the front months in the intra market calendar spreads that is a huge error in judgment and a false assumption on your part.

    The real advantage to trading spreads is that when properly constructed and modeled they generally "behave" and model much better than flat price markets. We find that our spread combinations have smoother price action characteristics and they trend better than their flat price analogs.

    We throw out spread combinations that are choppy and nonsensical to us. We tend to shy away from delta directionality with the underlying. We build our own trading products. And we build and track so many freaking spread combinations that there is always something that looks appealing to us.

    Nonsense. Any ET Member who trades exchange supported futures spreads knows that's not true. Who do you clear ? Look at your fill window next time on your trading platform - the individual spread component legs are listed as a separate fill and that's exactly what appears on your daily trading statement. CME, ICE, Eurex, and NYSE/Euronext exchange matched spreads clearing Advantage, RJ O'Brien, Rosenthal-Collins Group, New Edge, and any other FCM that we have dealt with assigns fees and commissions to each individual spread leg product just as if it were a singular flat price trade. There is no "reduced price" for the courtesy of having the exchange leg your spread for you. Same cost schedule.
    #17     Jun 19, 2013
  8. londonkid


    let me try and add some balance to this. there is no such thing as a free lunch full stop, period, paragraph. so those looking at spreads as an 'easier' route will likely be disappointed.

    One big advantage of spreads is they are quite clinical. What I mean by this is whilst all others around you including the media are fixated with key levels and 'is the dow gunna pop 15000' spreads particularly of the synthetic kind offer an opportunity to detach yourself from this and for some at least this is helpful.
    #18     Jun 20, 2013
  9. You are totally wrong on both statements.

    John Arnold made well over 2 Billions dollar trading ONE nat gas spread. Paul Johnson Made 4 billion dollars trading the Libor/OIS spreads in 2010. Eric Bolling made his fortune trading spreads. Soros, Buffett, Tudor Jones, Harris Brumfield, GoldmanSachs, JPMorgan, Gann, Louis Bacon, Ben Graham, Sam Zell, Even the Mortgage Bankers are all spreaders. 95% of successful traders through history were and are spreaders by nature. Even Paul Rotter was trading spreads on his flips.

    Secondly, If you use a real clearing firm instead of a broker, you should pay even less than an outright position. By your comments Its seems to me that you are using Interactive Brokers because that's they way the quote their commissions for spread traders.
    #19     Jul 11, 2013
  10. scalping outrights is for newbs
    spread trading is for the advanced
    spreading spreads is for the pro's
    #20     Jul 28, 2013