Eurodollar Madness

BBB · Mar 31, 2004

I've been looking at the Eurodollar spreads recently.

I've got some more work to do in my 'feasibility' stage as to the workings etc before it becomes part of my arsenal, but there seems to be good money to be made here with not too much vol on the spread (hey whats new), easy trends, low margin requirements, blah blah blah, if I hold for a week or two.

I'm the first to admit that this research is based on hindsight, and my broker wont let me trade histories etc, but I've got to start somewhere!!

Can I spread any month off against the front month and trade it as a 'product' rather than legs?

(Get lost BBB, go do your own work on www.cme.com)

Any experiences of Eurodollar spreads much appreciated.....

youwho · Mar 31, 2004

legs vs spreads

I beleive you can trade them as a spread rather than as two individual legs (just as you do on Euribor), although not too sure about the CME. You should have alook at Liffe because they recently launched a eurodollar contract themselves. Although I cant vouch for the liquidity, also the contract is not fungible to the CME one, even though they are the same thing.

fillyerboots · Mar 31, 2004

BBB,

You can but most of the more exotic combinations are still floor executed. You probably realise this already but, watch out for everything being qoted round the wrong way from our perspective.

Sep04/Jun05 will be quoted Jun05/Sep04.

Looks like CME is finally forcing the dollar on to Globex but the system isn't great at spreads. Connect is much better at this but I don't see them stealing the liquidity.

BBB · Mar 31, 2004

Thanks guys. I wasn't aware of the inverse quote - thanks.

I agree with you on the LIFFE Eurodollar contract. Why would people want to move if there is no size on the connect platform. One exchange for one contract. I see the CBOT's move in to Jerry fixed income futures to be a waste of time also (and of course EurexUS move into Septic fixed income product).

I'll just be doing straight calender spreads I expect. I've had a look at cme.com and there are moves to make butterfly's and condors more attractive/tradeable on globex, but I prefer the simplicity of June/Dec whatever!!

This will be the first move back into derivatives since walking off the floor. I take it the brokers platform I am trading (probably Refco or GNI) will recognise any exchange/margin reduced spread as a product automatically???

From my initial conversations, they say I will be charges 1.5 commission for the spread, even if its a recognised product. Is this usual? Maybe I'm tight, but I would have thought as it's a product, I should be charged 1 round turn for each spread (if I'm executing on eCBOT or Globex). If it's not a recognised spread, then I am charged twice - once for each leg (fair enough).

youwho · Mar 31, 2004

...

That is correct: the spread is charged as individual legs, by all brokers I know. Your best option would be to trade yourself on PATS through GNI. When trading butterfly's, condors, etc the last thing you want to do is pay for brokerage, the trade ends up being a scratch when its a winner.

TWI · Mar 31, 2004

BBB, make sure you get some great costs sorted if you wanna do this.
Unfortunately no electronic platform can currently cope with margining for any more than outrights so the broker/clearer has to allocate a leverage to your account. It still means that they have a problem recognising that a fly is safer than a cal etc.
I looked at Liffe Eurodollar and think will let it pick up before getting my hands dirty. As for CME don't really know but orders to the floor better all be limit.

BBB · Mar 31, 2004

Youwho- Agree totally!

Both GNI and Refco UK provide PATS (which I dont like to be honest because stop orders are held on your PC so slower to fill when the price is hit, and you're in trouble if your machine goes down...) Easyscreen is offered by Refco US, so I may hold my account over there.

I just don't see the logic. If the spread is a product in its own right (like Euribor on connect) then why am I charged 2 commissions? If it's a single product and traded electronically, then there is no more stress on the brokers resources is there?? There again, I guess you could say the same for a 10 lot or a 20 lot, but commissions will still be more. Guess I've just got to face facts.....

TWI · Mar 31, 2004

Depite the fact it is a quoted product you will get a price for each individual leg so it is seen as 2 outrights.

BBB · Mar 31, 2004

'I looked at Liffe Eurodollar and think will let it pick up before getting my hands dirty.'

And here lies Catch22, because thats what everyone else is going to be thinking!

As for costs - yep - thats another problem. Because I will be holding for a few days/weeks, I dont see my commissions being very low

. I'm not trying to be a hyper active prop trader here, just a sit back and relax while the differential grows over a few days while I day trade other markets if I want to.

Iv'e had quotes between $8-$10 rt.

I guess your answers answer another question - I was hoping I could enter a stop loss for the spread on globex or eCBOT - but I guess not. Maybe I could leave it with my broker?

youwho · Mar 31, 2004

Perhaps you should try euroswiss, euribor or sterling?

BBB · Mar 31, 2004

aaah - back to my old game again!

ford · Apr 1, 2004

Excuse me for butting in chaps, but all this exotic talk of spreads, legs, butterflys and condors has got me inquisitive about this spread trading business..

If you could direct me to a resource that details what spread trading is, is not, involves, etc I'd appreciate it..

I've not seen much within certain trading forums about it.. so anything the mass of people are neglecting as far as I'm concerned is well worth looking at ..

anyway, back to your thread.. I'll be lurking in the shadows

TWI · Apr 1, 2004

Ford,
Think there is very little written about it. I do remember seeing some Liffe brochure detailing the recognised spreads once and this is probably still available somewhere on the Liffe site, otherwise most people learn it on the job.
Would be interested to know if you find anything in your search however.

fillyerboots · Apr 1, 2004

BBB,

IB offer Globex spreads margins are properly offset, I just looked up Sep/Jun and was quoted 178$ in margin outrights are 678$.

Commission is a bit lumpy, probably $9.60. Liffe is on there is well for comparison don't know what the charges are for that though.

Another old favourite:

Sweet Trolley!!!!

fillyerboots · Apr 1, 2004

Just checked out Liffe dollar, Jun/sep/dec fly 11 bid at 9 (implied)Gbobex can't do flys so 1-0 to connect.

Beach Runner · Apr 1, 2004

Liffe do have some information on spread trading, although not too much. It's in the Learning Centre on their site. There really does seem to be so little written on spreads, either in books or online. A secret and enclosed world, it seems - or does that betray my level of ignorance?

jmreeve · Apr 1, 2004

I have had a good look round and there is very literature on the subject.

Most of what exists is for commodity spreads and intermarket spreads. I have not be able to find any really useful literature on trading STIR spreads. Participants in the STIR futures markets seem to be predominantly professional and are too busy trading it to write about it.

Gary (IB Rep UK) · Apr 1, 2004

There isn't much info from Liffe.

When you trade the Euribor future spread for example on Liffe you are trading the differential between two different contracts e.g. June04 and September 04. commonly traded spreads also include June04 against June 05. It allows Instituitions to price Interest rate movements between two fixed points in time.

Exchange margining is less because you buy one month and sell the other so your position is somewhat offset. However, commission is higher because of the extra contracts involved.

In London there is a large Institutional market in Euribor spreads with a large input from trading boutiques.

jmreeve · Apr 1, 2004

Gary-
Can you do butterflys on these contracts using the IB platform?

I have managed to get it to do straight calendar but when I tried constructing a more elaborate spread it crashed when I entered it.

Gary (IB Rep UK) · Apr 1, 2004

jmreeve

yes. On Liffe they are available on STIR products. select the contract, then combo. Create the butterfly by selecting the individual legs on the leg by leg tab. You will see implied and any firm prices.

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