How is spread order placed?

[RichieE]

What's the best autospreader for trading exchange listed spread, against exchange listed spread?

At the moment I use Stellar, but I may be forced to change to Ecco or something else soon.

I forgot to mention... a lot of people who sit near me use X-Trader by Trader Technologies. Trading Technologies International, Inc.

Someone informed me that X-Trader can actually limit the number of orders that you place so avoid getting fined by the exchange for submitting and pulling too many. However, I haven't verified this...

 

[hrokling]

I'm not currently spreading anything, but entertaining a thought. I've been spreading stocks before, and certainly know the importance of being constantly quoted in the market. For instance, Eurex has Transaction Limits and I'm wondering about the practical impact if you were to spread for instance DAX vs the Eurostock in an autospreader and try to quote in both legs. Anyone care to share their experiences with this?

 

[mauzj]

I'm not currently spreading anything, but entertaining a thought. I've been spreading stocks before, and certainly know the importance of being constantly quoted in the market. For instance, Eurex has Transaction Limits and I'm wondering about the practical impact if you were to spread for instance DAX vs the Eurostock in an autospreader and try to quote in both legs. Anyone care to share their experiences with this?

You'll get bummed over figures such as non farm. And could also get double fills if you show both legs.

I'd only recommending showing one leg. But which one you use is a bit of a religion. I prefer to show the Eurostoxx, but a colleague prefers the DAX and calls me a mentalist for doing so. But that's probably because I work spreads over NFP and bitch at him when I get hung and lose 6k in under 6 minutes.

 

[insight2]

What is "NFP"?

cheers, dejan

 

[mauzj]

NFP = Non Farm Payrolls.

Non-Farm Payroll

It can cause a LOT of volatility in the markets and is a good time to make or lose a lot of money.

 

[hrokling]

Thanks for your answer mauzj, I take it you don't get into problems with the Eurex Transaction Limits and have to pay for excessive re-quoting of the orders?

 

[mauzj]

To be honest I don't generally quote prices all day. Only when I'm actively trading. However, I haven't heard of anyone that I know getting fined on Eurex recently.

Problems are more likely to occur trading on CBOT or CME. A guy I know was fined a few thousand dollars for quoting on one of those markets last year. Nasty stuff!

 

[gametec]

Spread Matrix/Exchange traded spreads

Hi Gents

Apologies for my noob qestion but if I create a spread matrix for a futures contract in X_Trader or Pats and I trade the spread through the matrix, is the order sent for an exchange traded calendar spread (without knowing the exchange symbol for the spread) or does TT/Pats create the spread by sending 2 single legs? Does the trading platform automtically route the order to the spread market if it is exchange traded?

Thanks

 

[RichieE]

Hi Gents

Apologies for my noob qestion but if I create a spread matrix for a futures contract in X_Trader or Pats and I trade the spread through the matrix, is the order sent for an exchange traded calendar spread (without knowing the exchange symbol for the spread) or does TT/Pats create the spread by sending 2 single legs? Does the trading platform automtically route the order to the spread market if it is exchange traded?

Thanks

The latter... TT should recognise the exchange traded calendar spread and send a single ticket. (I.e. you won't get 'legged out').

 

[insight2]

Does somebody knows what are individual monthly costs for: CQG and Reuters?

By the way, what is CQG ?

I guess all intraday calendar spread trading is happening on-site in various prop. houses. Can such thing be done from home?

If it was possible to take it from home, would there be any interest?

cheers, dejan

 

[RichieE]

By the way, what is CQG ?

CQG is a high end graphing package. It's arguably the best Technical Analysis package on the market but has a price tag to match. Just curious here... why are you asking for the cost of CQG when you don't know what it is?

I guess all intraday calendar spread trading is happening on-site in various prop. houses. Can such thing be done from home?

I don't see why you can't physcially trade it from home. If you're thinking that the connection will be too slow that isn't the case, I believe that most prop houses offer remote access to their systems.

If it was possible to take it from home, would there be any interest?

A couple of guys who work with me will be trading intraday spreads structures from home soon.

 

[insight2]

... Just curious here... why are you asking for the cost of CQG when you don't know what it is?

I am doing research into calendar spreads trading, so CQG was constantly mentioned. I use old TradeStation 2000i. Isn't a sophisticated charting software an unnecessary overkill for intraday calendar spreads, where I guess, one just needs good autospreader?

I was thinking of approaching a small, private, prop house in order to rent their facilities, so I was just trying to work out the costs.

Only prob I can see is that standard ADSL is slow on the upload side and fast on download and for trading one would need it fast both ways.

cheers, dejan

 

[mauzj]

I wouldn't recommend using CQG for charting calendar spreads on STIRs. The bid/ask prices don't move too much, and quite often you won't be able to trade the high or low of a 1 hour chart candle.

Please correct me if I'm wrong, though, as I haven't used CQG for a few months, and may not know its full functionality.

 

[patrickj]

I think you may have your terminology backwards. An imlied 'In' is a spread price generated from two outirghts. An implied 'Out' is a leg price (generally an outrigh) that is generated by a leg price and a spread price.

Regarding exchange recognition:
LIFFE matches two generations of implied ins and outs but only pushes out one gen of implied outs.

CME matched 2 generations of implied ins and outs, but only disseminates one generation of implied ins and outs.

Arbitrageur will know more about this than me, but here's a quick introduction:

As you know, a calendar spread is going long one month versus short another month.

So if March 08 of some contract is quoted bid 93.105 and offered 93.110, and December 08 is quoted 93.470-93.475, then one can immediately go long the March-December spread by going long March at 93.110 and shorting December at 93.470. Alternatively one can short the spread by going short March at 105 and long December at 475.

The exhances recognise this, and take the prices in the outrights to generate implied-out prices from the outrights into the spread quotes. In the above example, there is an implied-out offer for the spread at -0.360 and a bid for the spread at -0.370. In real markets, these bids and offers will be joined by other market participants, and there would usually be a bid or offer at -0.365 in the spread, making it more liquid than the outrights would imply. The main point is that the exchange guarantees that all or no parts of the transaction are executed; if one takes a position in a spread with an implied-out offer then the outrights will trade simulataneously.

The opposite happens with implied-in pricing. Suppose that there were no bids in the December contract, but there was an offer for the spread at -0.360. In this case, a price is implied-in from the spreads into December at 465. If this is hit, then three things will happen: Whoever takes the price will end up with a short position in december at 465, whoever is offering the spread at -0.360 will be at least partly filled, and whoever is bidding for March at 105 will also be filled the number of lots traded by the spread. Implied-in pricing only happens with calendar spreads on LIFFE; I believe that CME also supports implied-in pricing on butterflys.

Finally, there is implied-upon-implied pricing, where implied prices are created from other implied prices. As far as I know no exchanges implement this at all, but there are systems (the previously mentioned autospreaders) that will generate them, although as the different legs of the transaction are not guaranteed there is execution risk.

My experience trading STIRs is that most quoted prices are a combination of implied and, er, "real" prices.

 

[arabianights]

I think you may have your terminology backwards. An imlied 'In' is a spread price generated from two outirghts. An implied 'Out' is a leg price (generally an outrigh) that is generated by a leg price and a spread price.

Yep. Doh!

 

[patrickj]

Yep. Doh!

It's easy to confuse. Just remember legs come 'out' of the spreads and are therefore implied outs.

And implied from implieds...that's second generation and beyond implied prices. Most exchanges (CME, LIFFE, ICE) do match these. CME / LIFFE stop at two generations. ICE matches an infinite number of generations. Eurex only recognizes first generation outs.

 

[insight2]

Some valuable links giving more insight into implied prices and spreads:

CME Implied Price Overview.pdf

Nymex on Implieds

and a bit here:

CME Spreads

 

[dalimar]

The interesting trick on Liffe is that you can construct with a few calendar spreads a market such that a price will display on most vendors due to their calculation of implied on implied prices, that is executable, but only with a limit order, because the market order executes through to the level underneath. Effectively there is a 2 tier algorithm at Liffe. Quite interesting to play with, but not sure if it has any value, maybe a question for the boys at Communicating.

 

[patrickj]

The interesting trick on Liffe is that you can construct with a few calendar spreads a market such that a price will display on most vendors due to their calculation of implied on implied prices, that is executable, but only with a limit order, because the market order executes through to the level underneath. Effectively there is a 2 tier algorithm at Liffe. Quite interesting to play with, but not sure if it has any value, maybe a question for the boys at Communicating.

Are you sure about this? That sounds like a complex implied price and I thought only ICE matches complex spreads. Theoretically, that price should match, but I dont believe it is guaranteed by the exchange.

 

[dalimar]

Very sure, basically it takes any incoming order and compares it to current limit orders in the market, and if it can't match tries to see where it would create implied prices, and from this can produce a match, the evidence is the fact that you get different behaviour between market and limit orders.
But don't take my word for it, get yourself logged into the simulation market and then find some nice quiet markets and reproduce the effect. It is very possible. In fact there are traders who make money out of this existing, by placing orders a few ticks below the real implied markets, but above the best price, then immediatley arb out when hit by market orders from auto hedging machines. Mostly in back months of STIR contracts. It only works for implied on implied though, there is no full chaining here like ICE.

But even on ICE it doesn't work that well, it takes seconds to execute spreads when it is very busy, probably not the best design. It will be interesting if they ever have a straight competition with another exchange to see if ICEs performance is up to it.