spread trading STIRS and bunds

richi rich

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hey folks.

Ive heard that spread trading on the STIRS and Bund is scalable to a certain level.
what might this level be?
Also how about crude oil spreads?

Just curious to know as i will be trying these out at a certain prop firm. I may also touch index spreads on Dow-SP500.

Ive also been reading around, what are ''cars'' and ''clips''? i know what roundturns/lot etc are but just abit confused as to what traders mean when they say ''400 clips lots'' or along those lines.

Could someone give me an example of a spreads trade? for example a calander spread on a bund? and the level/lots it can easily be scaled up to.

Have a good trading week ahead.
 
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cars = contracts; clip = number of contracts you buy/sell at a go.

I don't know much about spreads...
 
"cars" came from commodities trading, where one contract would be for a "car" on a freight train - e.g. a "cars' worth" of lumber...

Spread trading is basically about trying to capture the bid - offer spread, maybe plus a tick or two, depending. The whole idea is to get in on the bid, get out on the offer. However, with outrights, one is exposed to directional risk - spreads are used to hedge out some / all of the directional risk, leaving only execution risk (i.e. of being legged out)... the contracts are highly correlated because of the maths; so by going long the front month, you can cut your directional exposure alot by shorting the following quarterly contract (or any other in the series, but the nearer the contracts are to each other, the better the "hedge"). Spreads can be used to take low-volatility position trades too.

So spread traders will build a portfolio of contracts, sometimes many many months out, and position themselves so that they have little exposure to directional moves (their position nets out; a bit like duration matching, or Delta hedging). They then quote various prices to the market, waiting for someone else to "hit their bid" or "lift their offer". The risk of course is that someone will take some of their quoted contracts, but not all, and they are left with an "un-hedged" position in the outrights.

The "spread" refers to the difference between any two contracts in the series - e.g the 12m spread between March 09 and March 10. The longer the difference between the two contracts, the more volatile the spread. The 'spreads are quoted by exchanges in their own right, and are fungible for individual contracts - so you can go Long H9M9, and then sell h9 x 1 and buy m9 x 1 to close out your position.

A good book for spreads is by Stephen Aikin; then, for STIRS, Burghardt is good for some nitty gritty. 10 mins in Amazon and you'll find them. Don't know d!ck about oil, but I guess it ssomething similar (like a crack spread; the difference between crude and its refined products).

Never tried spread trading the longer end of the curve. IMO the shorter end is better for spreading because of the multitude of contracts, liquidity (HA!), permutations and combinations. The longer end is better for directional trades or scalping in the traditional sense. The two compliment each other IMO; using the longer end of the curve to make directional speculations (e.g. bund / bobl / schatz is going to come off this level) and use the long term trend @ the long end as a guide for your directional bias (if any) at the short - say you are Bullish on the longer end, which can pull up the short end with it - you only make bids to open, the offers to close, hoping to gain a tick or two as the long end pulls you with it... in these conditions, of course, you must take this all with a rather large pinch of salt.

Forget about earning a million quid. Sure its possible, but you gotta survive first.

"There are old Dogs, and Bold dogs, but no old, bold Dogs" (Anon.)
 

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Are you definitely starting "there" then?

"They" may not put you on that anyway, last group of people were working on wall st/S&p spread - you have to trade what they tell you to.
 
ill add its just training - not live.
but im curious about all the spreads. ive spent all my trading life looking at outrights.
so im reading books etc. now.
 
wall street spread

yeah that sounds interesting....hope they have the options open now
 
wall street spread

yeah that sounds interesting....hope they have the options open now

Edit:

If you are talking cross-asset spreads, things are a little different.

The spreads aren't quoted by an exchange (e.g. YM / ES); you will probably be working orders through an autospreader
 
yea ok

a while back i downloaded a trial version of TT software, but that thing didnt work...it only had a few contracts on, and hey were all outrights dating back to sep 06
 
You need a Pro subscription to get the autotrader + autospreader...

anyhow, I *think* this shop use their own proprietary software, with an autospreader of its own...??
 
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