Spread trading success

-oo0(GoldTrader)

-oo0(GoldTrader)

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Long-term seasonal futures spread trading

1 Use Mony you can afford to lose
Playing with the houses chips gives you more freedom.

2 Start small
One calendar spread per $1,000.00 equity.

3 How long can you hold a position?
Calendar spreads take about 6 weeks to develop. Full Seasonal cycles are about six months. What is your personal risk and time preference?

4 Do not be a nickel and dime'er
When you want in get in. When you want out, get out.

5 Do not put your complete position on at one price.
In this way, you can keep your wins, bigger than your losses.

6 Do not add to a losing position
Scale down losing streaks, build up winners. It is easier to add in the direction of an established trend.

7 Build a Pyramid
Add to your winners by stacking or averaging up. Build your position when you are breaking out to new highs in the seasonal window.

8 Do not form opinions during trading day
Spread Trading is end of day trading. Read and make your plan when the market is closed. Make your daily decision about each one. Buy, hold, add, sell, or wait.

9 Do not over commit
Because calendar Spreads are fully hedged you can run tight margins. Usually it can be touch and go for about a week. Nevertheless, when that seasonal thrust starts, you can pyramid and use equity to add diversification.

10 Avoid Market Orders
A system using limit orders may be better. Simultaneous MOO and Simultaneous MOC may be they only way you can be sure of getting in or out of spreads with minimum slippage.

11 Use everything you know
Block out opinions. You alone are responsible for your own trades.

12 Act promptly
Do not go to sleep without placing your orders for the next trading session.

13 Diversify
Spreading out your risks may reduce drawdowns.

14 Cut your losses short
Small losses, large profits.

15 Let your profits run
Longer profit runs have higher profits.

16 Always take Windfall Profits
The reason for it all. Buy yourself some luxury items.

17 Take a trading break
Trade, rest, Trade, rest. -ooO-(GoldTrader)-Ooo-
 
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Hi GT -

Okay - I'm back from my holiday - still a bit jet lagged but nevertheless am standing on he edge and waiting for the right time to jump in!

My main point of concern is still actually placing the trade with the broker:

You mentioned once that it is best to place a trade with a broker in the same country/US region as the main exchange i.e., place orders for Soybean, cord and bonds with a broker in Chicago; cotton, coffee and sugar in New York etc.

Maybe I have mis-understood your advice. Isn't is surely better to build a relationship with one broker and hope that they grow to understand what you are trying to achieve?

Also, many contracts are primarily traded on a US exchange but are also traded in London, Paris, Brussels or Sydney. Especially for trades involving contracts that can be traded in the UK there would be no FX risk - would there be any main detriment to placing a trade outside the primary exchange? This is a minor detail really.

My main concern is the type of order to use: your point 10 above. I don't understand why a simultaneous MOO and MOC is preferable for closing out and how it reduces slippage compared with two MOC orders. Also (and this might sound a little thick!) but when you place a MOC order when is it actually executed? Once the market is closed no trading can be done so does it sit there to be snatched by a local first thing the next day? Maybe a MOC order is executed minutes before the closing bell.

Sorry to go on about this but surly if the whole point is to trade ''spread'' then the fill on both legs is crucial if you want to replicate the intended Moores chart. If you got a bad fill on both your long and short position the effect is multiplied because you are trading the difference between the two.

The ideal would be for them both the be entered together? If they are not when does the broker recognise a spread trade (and extend reduced margin) - does the exchange software recognise an equal and opposite trade from the same ring member and net them off against each other. I know this happens in electronically traded contracts but what about open outcry?

I have been offered $15 per round turn by the way - is this pretty standard?

I know that at some point I have to actually place a trade and, hopefully, the act of doing so will assure me about these 'theoretical' problems.

Thanks in advance for your continued unreciprocated support.

Best regards, FN
 
Spread Orders

Hybrid Thread

It’s really pretty simple. You can use email. Place the order before the market opens by email or 10 min before the close by phone. When you place the order when the market is not open, your broker has time to think and ask questions about the order if necessary. You can cut & paste from your research’s web site to reduce mistakes.
fastnet said:
My main point of concern is still actually placing the trade with the broker:

You mentioned once that it is best to place a trade with a broker in the same country/US region as the main exchange i.e., place orders for Soybean, cord and bonds with a broker in Chicago; cotton, coffee and sugar in New York etc.
Click to expand...
The more people/distance etc, between you and the pit, the more chances they get to screw it up.
Maybe I have mis-understood your advice. Isn't is surely better to build a relationship with one broker and hope that they grow to understand what you are trying to achieve?
Click to expand...
You just have to understand what the broker is trying to achieve. See if they give you a break on commissions when you take a loss. If your broker cannot place your Spread Orders correctly get another broker.
- would there be any main detriment to placing a trade outside the primary exchange?
Click to expand...
The most liquidity will probably be found in the main market on the close. The closing price is published worldwide. Trading near this price is your best opportunity not to get messed with. You can always trade using a limit near the main markets close. The only determent is that when the market is really moving in your favor you will not get in at all.
I don't understand why a simultaneous MOO and MOC is preferable for closing out and how it reduces slippage compared with two MOC orders.
Click to expand...
You want both sides at the same time. If the close in 5 min. What is to prevent some order taker from placing one side, taking an order then placing the other side. They could claim they were both on the close. Time & Sales would show that they were not simultaneous. You would have been naked at your own risk. This is what we are trying to avoid. Do not give them a chance to screw up. They will and you will pay. It’s that simple.
Also (and this might sound a little thick!) but when you place a MOC order when is it actually executed? When you find out let me know. What I want is the fills to match settlements. We don’t know settlements until after the market is closed so expect a little difference. When you are holding for six to eight weeks as long as you are near the close you will be ok.
Once the market is closed no trading can be done so does it sit there to be snatched by a local first thing the next day?
Click to expand...
If they accepted a market order then they owe you a fill at the closing price. It is not your problem.
Maybe a MOC order is executed minutes before the closing bell.
Click to expand...
Better would be 30 sec.
the whole point is to trade ''spread'' then the fill on both legs is crucial if you want to replicate the intended Moore’s chart.
Click to expand...
We can only trade the close, Moore will use the settlement just like the margin department. Moore’s close is the basis.

Jerry keeps track of spread results each day in the daily spread report. When I get filled a few points way from the settlement price. I can follow the trade using the dsr just remembering that I am a few dollars away from the actual price. Once we start averaging up it throws everything out of whack. A lot of trades end on the high so I just watch the dsr for new highs.
If you got a bad fill on both your long and short position the effect is multiplied because you are trading the difference between the two.
You just get a bad fill on the spread. All we trade is the spread. If you keep getting bad fills, get another broker. There is no sane reason to marry your broker.
The ideal would be for them both the be entered together?
Click to expand...
As a spread.
If they are not when does the broker recognize a spread trade (and extend reduced margin)
Click to expand...
At the end of the day all we look at is gains, why would the broker be any different. The only difference is brokers gains come directly from our accounts. Brokers recognize their own profits.
- does the exchange software recognize an equal and opposite trade from the same ring member and net them off against each other. I know this happens in electronically traded contracts but what about open outcry?
Click to expand...
Not my problem. If they ever give you a hassle about Margins, have them show you that the exchange minimums add up to what they are holding in your account.

Your job is to buy near the beginning of a seasonal window and hold until the end. Your research department can show you what to buy, TA when to buy. Your task, what you really get paid for is to decide “How many!”
I have been offered $15 per round turn by the way - is this pretty standard?
Click to expand...
Tell them you will be trading spreads, every order will be a double order. $60.00 a spread is on the high side. Shop around.
Click to expand...
Click to expand...
Click to expand...
 
Thanks again GT.

I've contacted the broker in question and they have explained that a complete spread would cost just $30 ($7.50 each way on both legs). This sounds reasonable although, like you say a few bad fills would soon wipe out any advantage of low commissions.

I feel as though I have taken far too much of your time with these issues of execution already. It's all very new to me and quite confusing frankly.

Maybe I am making things far too complicated. A better way to ask the question might be:

- Once I'm set up with an account what would be the best way to enter a spread trade?

From what is written above I would enter/exit by email MOC orders at some point before the market actually closes. My order would detail both legs which would hopefully be executed simultaneously and at the reported close price.

I would literally write in a single email - pls buy ''x'' MOC and pls sell ''y'' MOC.

I would then receive a confirmation from the broker at some point after the close which would should match the published closing prices.

OR,

To achieve better fills I could send one email minutes (seconds) before the close asking for one leg MOC - I'd receive confirmation then write a separate email asking for a MOO order in the opposite leg.

Is this correct? Presumably this would only work if the contract was traded on a single exchange that closed and opened at the same price.

I think I prefer the first option ie two MOC orders? Would this be okay?

I don't really understand how you could expect to send an email ''seconds'' before the close and have it filled. . . .

Thanks again GT - your advice is really useful but please don't take up too much of your time. At some point I have stop wondering how to swim and just jump in there and try.

I simply don't want to be seen as easy pickings for the broker and want to avoid obvious mistakes.

Best regards

FN
 
Email Spread Order

Hybrid Thread

Email Spread Order Example
fastnet said:
I've contacted the broker in question and they have explained that a complete spread would cost just $30 ($7.50 each way on both legs).
Click to expand...
Sounds good.
- Once I'm set up with an account what would be the best way to enter a spread trade?

From what is written above I would enter/exit by email MOC orders at some point before the market actually closes.
Click to expand...
Read carefully
It’s really pretty simple. You can use email. Place the order before the market opens by email ... When you place the order when the market is not open, your broker has time to think and ask questions about the order if necessary.
Click to expand...
You are trading close only. The close is when you can get a valid spread quote. The rest of the time the trades may not have been at the same moment.

After the market closes, you have 24 hours before the next close. Why do you want to wait over 23 hours to send in your order. It does not make any sense to me. If you want to minimize your brokers mistakes deal with them when they are not on the phone with a hundred million people. Email them when the markets have not opened yet.
My order would detail both legs
Click to expand...
It is one spread, in my mind it is not two legs. If you were going long a contract in gold would you say long gold/ short currency. No of course not. When I chart it is one line, one spread. We are not legging in. No legs at any time. Just one spread.
which would hopefully be executed simultaneously and at the reported close price.
Click to expand...
hopefully at better than close.

I would literally write in a single email - pls buy ''x'' MOC and pls sell ''y'' MOC.
Click to expand...
Below is a copy of the email I got back from my broker confirming the order. The original email was sent before I went to bed the previous night. You can see they understood my order and placed it MOC.

It usually says: Please buy for my account #xx05:

You can see that the subject of the email was the name of the spread Long so&so/Short sp&so. Inside the email is the action to be taken, how many, buy this and sell that, and when the action should be taken, in this case MOC.
You can cut & paste from your research’s web site to reduce mistakes
Click to expand...
Then cut and paste in, what your research told you to do.
I would then receive a confirmation from the broker at some point after the close
Click to expand...
Nobody said anything about after. We have online statements. It might show up when it happens, it might not show up until the next morning. Don’t hold your breath. If you are charting your daily equity, just use the last price that you have, it is a record of a gone moment in time. You can always adjust the next day.
which would should match the published closing prices.
Click to expand...
should be near published closing prices. No trades may have actually taken place at the reported prices.
To achieve better fills I could send one email minutes (seconds) before the close asking for one leg MOC - I'd receive confirmation then write a separate email asking for a MOO order in the opposite leg.
Click to expand...
This line is total garbage, run a spell checker or something on it and rewrite it. If you send them an email 24 hours after you knew what you were going to do, they will probably say they did not get it until to late. Contracts do not open at the same time so you never know how you will be filled, and you have no way to check slippage unless it is MOC.

The above quote has a trader holding one leg, not a spread overnight, with all the risk and margin that entails. Lame!
Is this correct? Presumably this would only work if the contract was traded on a single exchange that closed and opened at the same price.
Click to expand...
What?
I think I prefer the first option ie two MOC orders? Would this be okay?
Click to expand...
Can you translate that into American?
I don't really understand how you could expect to send an email ''seconds'' before the close and have it filled. . . .
Click to expand...
I don't really understand how you could expect to send an email ''seconds'' before the close and have it filled. . . .
 

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GT - I have read each of your replies on this thread with great care and also thought carefully about each question asked. If there is confusion and mis-understanding then it is completely genuine.

Your attachment showing an emailed order to your broker proves to me that I have managed to make quite a simple operation very complicated in my own mind.

I am sure that there are additional precautions to be taken when trading inter-market or inter-exchange spreads (the source of my leg-in, leg-out confusion). However as I plan to begin (as you advised) with regular seasonal spreads by email this isn't a consideration.

I'll let you know how I get on. Just waiting for the paperwork to arrive from my broker, cheque to clear and the account to be opened. Could take a week or so I imagine.

Best regards

FN
 
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Trends

Hybrid Thread

It looked like you dropped the ball crossing the finish line. You were going for a touchdown when you started that stuff about legging in, two Moc orders.
fastnet said:
To achieve better fills I could send one email minutes (seconds) before the close asking for one leg MOC - I'd receive confirmation then write a separate email asking for a MOO order in the opposite leg.
Click to expand...
It did not make any sense. It still doesn’t. Maybe you were falling asleep.
fastnet said:
Presumably this would only work if the contract was traded on a single exchange that closed and opened at the same price.
Click to expand...
It did not match the rest of your well thought out post, about trading spreads. It is as if a ten-year-old kid finished the post off for you. Sorry if I appeared abrupt.

The copy of the Spread Order email should have cleared it all up for you. It shows what my broker received from me and what they sent back to me. The next time I contact them about that trade I will use the word liquidate. Do not bother them when the market is open. Do not bother them about fills. When you want in get in. That’s it. If the slippage is to far from the close get another broker. Maybe they are taking trades against you.
I am sure that there are additional precautions to be taken when trading inter-market or inter-exchange spreads (the source of my leg-in, leg-out confusion).
Click to expand...
Just using inter- is a major cause of confusion. Don’t! Cross market spreads are placed the exact same way. Don’t mess with it. That is not your side of the game. If you see a tradable trend. Send in the same email with the different spread. Let the broker figure it out. If it is riskier they will hold back more margin.

Why do people expect good service when they contact brokers at the busiest times?

It does not make any sense. When the broker screws up, you pay. That pretty much sums it up. They do not work for you. You do not sign their checks. When you lose, they take a chunk out of your capital first. They turn break-even trades into losses.

You can make up a Spread Order email similar to this one. Always send yourself a copy as well. When something goes array like the quote:
fastnet said:
email MOC orders at some point before the market actually closes
Click to expand...
Not before it Closes, before it Opens. Send them in when the market is closed. When you screw up like that and it costs you money, you can go back and read what you told them to do, “before,” you jump on their case.

Accountants can take care of the numbers. I do not understand why people are so concerned with getting their fills back the same day. The settlement prices may be pure made-up fiction anyway. What is the trend?
fastnet said:
I'd receive confirmation then write a separate email asking for a MOO order in the opposite leg.
Click to expand...
Have you thought about what you are going to do when they forget to send you a confirmation?

What are you going to do when the confirmation is wrong?

Why make the confirmation a part of your plan at all?

What difference does it make as long as you are in. It is off course, a distraction. It has nothing to do with trading. Its just accounting. Are you an accountant or a trader?

Are you looking at a spreadsheet or reading a chart?

Are you spending your time adding up imaginary numbers or are you exploiting the trend?

You can follow the trend easily by looking at your daily charts. You can see the day you got in and the day you got out. When you catch a trend what difference does it make what the numbers are. Trends look the same whether its Corn or Eurodollars. It’s the number of contracts that makes the difference. As long as the securities industry can keep your attention on what is not important, you will not see what is important. The trend is your friend.

1st seasonal

When you get in during the right week, so what if you pay above the high. Then you get out eight weeks later, so what if you are filled below the low. Your gain on margin during the intervening weeks, will be an annualized thousands of percent with calendar spreads. Trade the long-term seasonal trend.

Good luck on the trade. You will kind it easier than you think.
 
Cheers GT - maybe I'm still a bit jet-lagged after my flight back from Asia on Monday. . .

I should have applied Occam's razor much earlier. . . . the email to your broker and confirmation that orders should be placed outside market hours has made light work of the confusion I had created.

I'm looking forward to getting stuck in once the account is live.

In the meantime thanks again for your help (and patience) and have a good weekend.

FN
 
Hi GT,

It has taken me almost a month to open my account with REFCO. The amount of paperwork to prove my tax staus, nationality, net worth etc etc really is incredible. This wasn't helped by the surly attitude of the account opening salesperson - if you aren't opening a USD 50K account they don't want to know!!

Anyway - enough moaning and down to business. The hunt begins for my first seasonal spread trade. . . .

SMQ5 - SMZ5 and CH06 - CU05 both look good.

I'm also going to take a day or so to re-read all the excellent and very informative contributions you have made to this forum.

Best regards

FN
 
Corn

Hybrid Thread

Here are the charts for anyone that wants to follow along. Fastnet, I think I’ll go with the corn MOC today.
fastnet said:
The hunt begins for my first seasonal spread trade. . . .
SMQ5 - SMZ5 and CH06 - CU05 both look good.

I'm also going to take a day or so to re-read all the excellent and very informative contributions you have made to this forum.
Click to expand...
There are a few more over at Elite
 

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250% return on margin (Corn) so far ..

Hybrid Thread

New Highs in Corn
 

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Update

-oo0(GoldTrader) said:
Futures spread trading

1 Use Mony you can afford to lose
Playing with the houses chips gives you more freedom.

2 Start small
One calendar spread per $1,000.00 equity.

3 How long can you hold a position?
Calendar spreads take about 6 to 8 weeks to develop. What is your personal trading cycle?

4 Do not be a nickel and dime'er
When you want in, get in. When you want out, get out.

5 Do not put your complete position on at one price.
In this way, you can keep your wins, bigger than your losses.

6 Do not add to a losing position
Scale down losing streaks, build up winners. It is easier to add in the direction of an established trend.

7 Build a Pyramid
Add to your winners by stacking or averaging up. Build your position when you are breaking out to new highs in the seasonal window.

8 Do not form opinions during the trading day
Spread Trading is end of day trading. Read and make your plan when the market is closed. Make your daily decision about each one. Buy, hold, add, sell, or wait.

9 Do not over commit
Because calendar Spreads are fully hedged you can run tight margins. Usually it can be touch and go for about a week. Nevertheless, when that seasonal thrust starts, you can pyramid and use new equity to add diversification.

10 Avoid Market Orders
A system using limit orders may be better. Simultaneous MOO and Simultaneous MOC may be they only way you can be sure of getting in or out of spreads with minimum slippage.

11 Use everything you know
Block out opinions. You alone are responsible for your own trades.

12 Act promptly
Do not go to sleep without placing your orders for the next trading session.

13 Diversify
Spreading out your risks may reduce drawdowns.

14 Cut your losses short
Small losses, large profits.

15 Let your profits run
Longer profit runs have higher profits.

16 Always take Windfall Profits
The reason for it all. Buy yourself some luxury items.

17 Take a trading break
Trade, rest, Trade, rest. -ooO-(GoldTrader)-Ooo-
Click to expand...
These 17 rules, some overlapping have held up well over the years. Keep them in mind when trading futures spreads.
 
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