Directional
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for the last three weeks now, I've had my trade limits increased to permit me to work a 250ct trade if I saw an opportunity that was golden enough to justify smashing it with my maximum size for that particular market. Prior to this my limits were 100cts in my three main markets, though I had never really got close to working any orders this big, I was always working in the 25-85lot range since i hadnt had any opportunities that were big enough to get my max limit onto any one trade.
Today, thanks to a little pre-non-farms volatility, I finally got to test my mettle and methods with a decent sized trade and allow me to see if I would feel and act the same way as I have been doing with much smaller size.
The way I trade basically involves looking for mis-pricing in the exchange quoted spread markets of the interest rate futures. My main product is LIFFE Euribor futures, but I also actively watch and trade CME Eurodollars, and to a much lesser extent LIFFE's Short Sterling future.
The opportunity I saw today was a chance to buy Jun6Sep7 spread at 0.260 and sell Jun6Jun7 spread at 0.215 - both with market orders. The net result of this trade put me long the Jun7Sep7 spread at 0.045
For those of you that are not familiar with spreading, the spreads are fungible against the outright quarterly contracts, so by doing the above two spread trades, the result was this:
........,Jun06....Jun07....Sep07
Buy...+170.....................-170...for 0.260
Sell...-170......+170...................at 0.215
As you can see from the above, the two Jun06 spread legs cancel each other out leaving me net long the jun07sep07 spread market at 0.045 (0.260 - 0.215 = 0.045)
The reason I felt this was such a good opportunity was because at the time of the trade the Jun7Sep7 spread was bid 0.045 for over 8000cts, and only offered 240cts at 0.050. By taking the above four legged spread trade I was essentially leapfrogging the 8000lots for a fill on the bid and getting long with only 240 lots on the ask at my exit.
The opportunity to take this trade was only there for a couple of seconds, and at the time it initially appeared there were over 250cts available, unfortunately in the second or so it took me to open an order ticket the size available dropped to 170cts so I took the lot.
I got my full fill with no partials and that was it - i was long 170cts, more than twice as big as I'd ever traded before on a single trade
. I did feel a little thrill of excitement for an instant and I wondered if I'd keep my discipline and work the trade out rationally and in as detatched a way as I've done on smaller trades. But only for a second, the next stage of this trade was to get out of it - hopefully for a profit!
My rules for trades of this sort are very simple - basically I have the advantage of size at the price I got the trade on at. The advantage of this sort of spread scalping is that if the trade doesnt work out, I can scratch it at the price I got onto the trade at - in this case 0.045. All I do is offer my exit at the ask and watch the bid size (at the time it was fluctuating around 0.045 for 7500-9000 cts ) and the last trade. If the size ratio of bids/offers switches over so that there is significantly more size on the ask than the bid, and at the price I'm leaning on starts to trade volume and looks like it'll trade out, I'll start thinking about getting out by hitting the bid for my exit to scratch the trade.
In my mind i was considering where my cutoff point would be for how small to let the bid shrink to, since obviously I need to be able to comfortably get 170cts off in one go, I didnt want to be missing my price and joining the ask for this sort of size.
As it was, I got my exit quite quickly - since LIFFE works on a pro-rata system of order matching, I'd been expecting to wait a while and get a peicemeal fill on my exit - there was originally 240cts on the ask, with my 170 lots joining it this swelled to over 400cts, and others joined after me, for an ask size of around 5-600cts, this meant my order formed around 30% of the ask size and should mean that I get 30% of the contracts to trade at the ask.
This didnt happen, as most of the ask was taken by one big trade - so I was pleasantly surprised to get my entire order filled in one go! And only four minutes after I'd submitted it.
The anatomy of this trade breaks down as follows:
170cts x 1 Euribor tick (€12.50) = €2125
170 x 6 legs (four spread legs for entry, two for exit) = 1020 lots traded
Commission = 1020 x 0.48p = £489.60
Approx value of trade in GBP = £1437.35
Profit after commission = £947.74
Risk/Reward ratio = 1.9 to 1
I do get rebates on both commissions and exchange fee's so my net commission cost is actually about 20% less, but to keep it simple I'm just showing initial costs before any rebates.
All in all - a great trade! I was especially pleased that after the initial zing of having managed to get some decent size on in the market, I really didnt behave any differently than I have on prior trades. Admittedly, this was a picture perfect trade, and had things started to swing against me or dragged on for hours upon hours as other trades sometimes have, then perhaps it'd have been a slightly different story. But as far as following my rules, I'm happy I did everything by the book - and in particular that I didnt hesitate to take the entry for this sort of size when I saw such a well qualified opportunity. I'm sure the same would probably hold true when it came to scratching a trade like this if the criteria for getting out meant thats what I should be doing.
So the purpose of this thread is really just to show that, if your risk/reward is right, and your rules are simple and crystallized, and well practiced then there is no reason not to trade as big as you feel comfortable or even uncomfortable with - for a 1 lot, 100 lot or 1000 lot trade, if you can detach from the fear/greed/doubt cycle and make it a case of simply following your rules, then IMO the size doesnt really matter any thoughts on this?
I'm actually really looking forward to the next chance I have to put this or even more size on now.
(PS. to divert any thread disrupting accusations of spinning a yarn here, I've attached screen-snaps of my order book and preliminary statement for the trade)
Today, thanks to a little pre-non-farms volatility, I finally got to test my mettle and methods with a decent sized trade and allow me to see if I would feel and act the same way as I have been doing with much smaller size.
The way I trade basically involves looking for mis-pricing in the exchange quoted spread markets of the interest rate futures. My main product is LIFFE Euribor futures, but I also actively watch and trade CME Eurodollars, and to a much lesser extent LIFFE's Short Sterling future.
The opportunity I saw today was a chance to buy Jun6Sep7 spread at 0.260 and sell Jun6Jun7 spread at 0.215 - both with market orders. The net result of this trade put me long the Jun7Sep7 spread at 0.045
For those of you that are not familiar with spreading, the spreads are fungible against the outright quarterly contracts, so by doing the above two spread trades, the result was this:
........,Jun06....Jun07....Sep07
Buy...+170.....................-170...for 0.260
Sell...-170......+170...................at 0.215
As you can see from the above, the two Jun06 spread legs cancel each other out leaving me net long the jun07sep07 spread market at 0.045 (0.260 - 0.215 = 0.045)
The reason I felt this was such a good opportunity was because at the time of the trade the Jun7Sep7 spread was bid 0.045 for over 8000cts, and only offered 240cts at 0.050. By taking the above four legged spread trade I was essentially leapfrogging the 8000lots for a fill on the bid and getting long with only 240 lots on the ask at my exit.
The opportunity to take this trade was only there for a couple of seconds, and at the time it initially appeared there were over 250cts available, unfortunately in the second or so it took me to open an order ticket the size available dropped to 170cts so I took the lot.
I got my full fill with no partials and that was it - i was long 170cts, more than twice as big as I'd ever traded before on a single trade
. I did feel a little thrill of excitement for an instant and I wondered if I'd keep my discipline and work the trade out rationally and in as detatched a way as I've done on smaller trades. But only for a second, the next stage of this trade was to get out of it - hopefully for a profit! My rules for trades of this sort are very simple - basically I have the advantage of size at the price I got the trade on at. The advantage of this sort of spread scalping is that if the trade doesnt work out, I can scratch it at the price I got onto the trade at - in this case 0.045. All I do is offer my exit at the ask and watch the bid size (at the time it was fluctuating around 0.045 for 7500-9000 cts ) and the last trade. If the size ratio of bids/offers switches over so that there is significantly more size on the ask than the bid, and at the price I'm leaning on starts to trade volume and looks like it'll trade out, I'll start thinking about getting out by hitting the bid for my exit to scratch the trade.
In my mind i was considering where my cutoff point would be for how small to let the bid shrink to, since obviously I need to be able to comfortably get 170cts off in one go, I didnt want to be missing my price and joining the ask for this sort of size.
As it was, I got my exit quite quickly - since LIFFE works on a pro-rata system of order matching, I'd been expecting to wait a while and get a peicemeal fill on my exit - there was originally 240cts on the ask, with my 170 lots joining it this swelled to over 400cts, and others joined after me, for an ask size of around 5-600cts, this meant my order formed around 30% of the ask size and should mean that I get 30% of the contracts to trade at the ask.
This didnt happen, as most of the ask was taken by one big trade - so I was pleasantly surprised to get my entire order filled in one go! And only four minutes after I'd submitted it.
The anatomy of this trade breaks down as follows:
170cts x 1 Euribor tick (€12.50) = €2125
170 x 6 legs (four spread legs for entry, two for exit) = 1020 lots traded
Commission = 1020 x 0.48p = £489.60
Approx value of trade in GBP = £1437.35
Profit after commission = £947.74
Risk/Reward ratio = 1.9 to 1
I do get rebates on both commissions and exchange fee's so my net commission cost is actually about 20% less, but to keep it simple I'm just showing initial costs before any rebates.
All in all - a great trade! I was especially pleased that after the initial zing of having managed to get some decent size on in the market, I really didnt behave any differently than I have on prior trades. Admittedly, this was a picture perfect trade, and had things started to swing against me or dragged on for hours upon hours as other trades sometimes have, then perhaps it'd have been a slightly different story. But as far as following my rules, I'm happy I did everything by the book - and in particular that I didnt hesitate to take the entry for this sort of size when I saw such a well qualified opportunity. I'm sure the same would probably hold true when it came to scratching a trade like this if the criteria for getting out meant thats what I should be doing.
So the purpose of this thread is really just to show that, if your risk/reward is right, and your rules are simple and crystallized, and well practiced then there is no reason not to trade as big as you feel comfortable or even uncomfortable with - for a 1 lot, 100 lot or 1000 lot trade, if you can detach from the fear/greed/doubt cycle and make it a case of simply following your rules, then IMO the size doesnt really matter
any thoughts on this?I'm actually really looking forward to the next chance I have to put this or even more size on now.
(PS. to divert any thread disrupting accusations of spinning a yarn here, I've attached screen-snaps of my order book and preliminary statement for the trade)
