Spreads Trading

[fastnet]

Hi ERA - thanks for the post and for the margin detail.

I am trying to understand the mechanics of actually placing, monitoring and exiting a spread trade the information was very useful.

I have also learnt that some exchanges will offer the facility to enter simultaneous legs thereby eliminating the leg-in/out risk. I imagine that intra-market and intra-exchange trades would require full margin for each leg + leg-in/out risk.

For now I shall stick to seasonal inter-contract spreads. If they offer a packaged spread trade even better (sorry I know this is lay speak but I'm not familiar with the technical lingo).

I shall try and chose markets that are reasonably liquid to avoid excessive bid/ask on either leg but, more importantly, avoid leg-in/out risk as far as possible.

ERA - you mention an initial and maintenance margin. I imagine that you need to add these? So for SM = 338 + 250 = $588. Plus, aren't these exchange margins? I imagine a broker would require more again?

Thanks again for yr advice - I'm slowly piecing this puzzle together. Who knows one day I might even make a trade!!

Regards, FN

 

[FTSE Beater]

The margin on a spread trade is considerably lower than on an outright. Or are we talking at cross purposes here?

Hi Beach Runner

Yes you're correct, the margin is a lot less. This means you can trade more contracts than you could on an outright trade. This leads to larger losses when you place larger trades
To give you an idea, $2000 loss is easily done spreads trading
Also the minimum contract size is large. Soybeans is $50 a cent move

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Hi FN

Completely agree about your comments on MRCI. I have spoken to them in the past about posting charts and they we're very happy for us to do so, as long as we give them a mention

Here's the Soybeans chart.

Chart courtesy of MRCI​

My only concern with it is that it has already jumped 7c above where it would be. Apart from that it looks like a good trade.

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Hi Jimbo

As I read it, and conventions vary between market, you suggest purchasing a spread (ie buy near/sell deferred in my convention) and paying somewhat over 3. Your stop is at -10 (ie a possible loss of greater than 13c) and your profit at 20c(ie a gain max 17c). Forgive me if I have misunderstood, but this looks close to a 50/50 trade given the targets - why?

Yes, the trade that FN pointed out was 50/50 which is fine, because the chances of being right are very high, (well 15 / 15 correct anyway). So say this was the one year it lost money, it would still be right 15/16 times next year, and a trade I think most would want to take

 

[fastnet]

Thanks for posting the chart FTSE-B. It illustrates the point much better than any written description.

I would make two specific points in reply to your post.

1) You mentioned that you might hesitate to take this trade due to it having already moved up significantly. However you're looking at the 15 year chart. If you take a look at the chart from more recent years (and surely more recent history is more likely to be repeated than 10-15 yrs ago) then todays spread is still low.

2) Your point about margin. It is reduced for spread trades but only because the risk is much less. Brokers in the US are legally liable for losses by their clients. This is why their margin is often some % greater than that required by the exchange. However because a spread trade has two equal and opposite legs the trade is, in essence, market neutral. So, while you are correct to say that a lower margin requirement would allow you to place a larger position for your capital this does not mean there is inherently larger risk. I would never dream of trading full sized contracts through an exchange - margin and risk are far too great. However I would be happy to trade spreads - certainly the less volatile ones with smaller ticksizes such as soyabean meal.

FN

 

[ERA]

hi FN

I am trying to understand the mechanics of actually placing, monitoring and exiting a spread trade the information was very useful. I have also learnt that some exchanges will offer the facility to enter simultaneous legs thereby eliminating the leg-in/out risk.

Thats right, volume is a bit thin on the meal spreads, going by time and sale stamps there were 33 spread deals on friday, of which 3 were N/Zspreads. Bear in mind the local on the other end is going to do the legs on the spread to offset so the quote you get will not be as good as legging in your self, that sthe price you pay for less risk.

I imagine that intra-market and intra-exchange trades would require full margin for each leg + leg-in/out risk.

Depends on the exchange and if they use the industrial standard , CME's SPAN ( Standard Portfolio Analysis of risk) for calculating margin requirements, not all exchanges use them.
The other thing is if daytrade margins are on offer as aposed to overnights which are more.
Usually the system will recognize the first leg as requiring full margin, but then entering the second leg the system will realize that you are going into a spread position and adjusts for the margin difference requirements straight away.

[QUOTE/fastnet]
ERA - you mention an initial and maintenance margin. I imagine that you need to add these? So for SM = 338 + 250 = $588. Plus, aren't these exchange margins? I imagine a broker would require more again?
[/QUOTE]

No, they are not added. The simplist way to explain it is disregarding costs. Using the SM spread as an example . The minimum account balance to open the spread needed is $338 init. margin. Say the spread goes against you and your open balance on the account drops below $250. You will get the dreaded margin call, you need to top up your account back to $338 ( init margin level), so you need to add $88 to your account at least to keep the position open.

So simply maintenance margin is the lowest your account can go and still keep the position open .

I see ftsebeater posted the SM spread seasonal from Moores , great stuff. I am working on some comment on this spread and will post soon.

cheers
era

 

[Markus_H]

Why I stopped trading spreads

For the past three years I have been trading spreads, and I achieved excellent results: More than once I double my account. IMO spread trading is an excellent trading vehicle.

However, I stopped spread trading last year, and here's why:

Commissions
Commissions are significantly higher as you pay for both legs. Let's say you pay $15 per RT per leg, i.e. $30 for the spread. This doesn't matter as long as you catch the "nice" moves, e.g. 30 points in the soybeans (=$1,500).

Then you commissions for the spread would be 2%, compared to 1% if you'd traded only the soybean contract.

But what if the spread moves only a few points, and then reverses? Many times I entered a spread and realized only small profits, e.g. a 5 point move = $250. Then your commissions for the spread would be 12%, instead of 6% for trading only the outright.

Please feel free to share YOUR experiences, but in my account the commissions were quite substantial.

Limited Order Types
Many times you can only enter a spread with a LIMIT or a MARKET order. Very few spreads can be entered with a stop order. These restrictions make it sometimes very difficult to enter the spread at the price you want, especially if you are not watching the markets all day long.

Slow Fills
Sometimes I received a fill 2 hours after placing the order. If you are trading non-electronic spreads you won't received your fills instantly. You should ONLY place a stop-loss or profit-taking order AFTER you received your fill, and sometimes I experiences that by the time I received the fill the market already turned and moved against me, and instead of exiting the spread with a small gain I realized a loss.

Slippage
Only if you trade very liquid spread you might be able to avoid slippage when entering with a MARKET order. But this again limits your spread choices (see my post about the lumber spread earlier in this thread).

Trending... or not?:
The picture below shows a recent example of a nice move in the soybeans (green bar chart). The move was more than 100 points (=$5,000). In comparison, the spread SK5-SN5 moved only 4 points (=$200), and then retraced.

Focusing only on spread trading you might have missed this fantastic move during the February Break in the soybeans.

Conclusion
Spread Trading has many advantages, but also some limitations. It's up to you to decide whether spread trading is for you or not. For me the disadvantages outweigh the advantages, and that's why I stopped trading spreads.

What are your experiences?

Markus

 

[ERA]

Fastnet's Meal Spread.

Hi all,

I'm really enjoying this threat, Thanks to FSTEbeater for initiating it and Fastnet , who has thrown us this bone in this Moore's seasonal meal spread for us to chew on.

I think we can use this spread as a good educational example for those interested. I have seen lots of people asking simple questions like 'what is a spread?', and that's great because 7 years ago I never knew what a spread ways either. Practical examples are sometimes the best way learn.

As a few have mentioned, I to think we are a bit late for the party at this stage. But Moore's prepares their seasonals months in advance, so for the purposes of learning we can easily say we could have had this seasonal trade data weeks before as many MRCI subscribers can a test to. So instead of saying we should put this trade on now, lets rewind the clock abit to the middle of Febuary heading into this seasonal trade.

Looking at the correlation between the current trend and the 5 and 15 yr seasonals, it's not WOW! but its definately not displaying counter seasonal moves, so thats the the first tick in the box. If the spread action looks nothing like the seasons, probably a good idea to stay clear of that spread. Not so in this case.

The seasonal 'optimal' entry and exit generated by Moore's I think would be best used within a window period either side of the date. That window is discretionary. On the spread chart I have placed the window 10 days either side of the optimal entry date ( it could be 10 trading days or 10 calendar days, depends on personal choice, not to big not to small). Looking for some kind of technical entry within that window, slow moving stoch, MACD or just using price action, 1-2-3 etc.

In this seasonal, the first sign of it kicking in is the last week of February when the spread broke out of it tight range in the -$6 -$7 range, this was slightly before the 10 day window, but going into the window the trade is confirmed by the extention in the widening of the spread.
So for our educational example lets rather say we had an entry at -$2 to -$3. I know this is hindsight but I think using it will for this example will help give us a better overview from entry to exit.

I think a good place to put the initial mental stop is below the gently rising trend line of the narrow range at -$7/ton. So initial risk, $400-$500. As the trade has gone to +$6, maybe a good place to move the stop to would be just below the 50% retracement from the late feb breakout to the recent high at +$6, so in the region of -1$/ton.

Lets see how it all unfolds in the weeks to come. All comments and opinions welcome

 

[ERA]

Hi Markus,

You bring up some good points I would like to comment on,

Commissions are significantly higher as you pay for both legs. Let's say you pay $15 per RT per leg, i.e. $30 for the spread. This doesn't matter as long as you catch the "nice" moves, e.g. 30 points in the soybeans (=$1,500).

Sadly no matter which way you cut it spread costs will always be double outrights, So finding a low cost broker helps, like 5perside will cost $20/ spread R/T.

Trending... or not?:
The picture below shows a recent example of a nice move in the soybeans (green bar chart). The move was more than 100 points (=$5,000). In comparison, the spread SK5-SN5 moved only 4 points (=$200).....

Focusing only on spread trading you might have missed this fantastic move during the February Break in the soybeans.

This is where I see things differently , but you highlight an issue well, namely choosing the right spread to trade.

Your example is an example of 'the well chosen example'. Being both an oldcrop/oldcrop spread and being one delivery apart, makes for lacklustre performance.

If it is a oldcrop/new crop spread, it's a whole different animal. Like SN5/SX5.

Running the numbers lets see how efficient this spread is compared to the SN5 on its own.

SN5 from the first week in Feb has run up to a close of 684 6/8 c at the high, thats a move of 178cents give or take a quarter. Thats a move of $8900. The margin is $1813. So thats a ratio of 4.91:1

The corresponding SN5/SX5 over the same period moved 58c give or take quarter, for a move of $2900, The margin was $473. So thats a ratio of 6.13:1

Basically the spread was 25% more efficient than the outright. If the $1813 outright margin was utilizied in spreads the profit would have been $11115 instead of the $8900 in outrights.

As a function of margin I think spreads have quite a bit to offer.

 

[fastnet]

Hi Markus - thanks for your post. I'm not sure where to start with a reply really except to say that you made some very valid points. I'm not sure why you would stop trading for the reasons given when, despite those reasons, you were so successful?

Commissions and legging risk appear to me to be a real pain with this type of trading. I feel as though these risks aren't even part of the trade but rather to do with inefficient exchanges and poor brokers.

What I am really trying to ascertain is the magnitude or the collective effect of these annoying aspects of the trade. What sort of difference would slippage make to the soybean meal trade above for example?

Commissions are an unavoidable part of trading. Anyone used to trading stocks in the UK will still be pretty impressed with the commissions charged in the States. I don't really understand how your point about commission being a % of profit/loss is especially relevant to spread trading. This is true of all trading. Okay, you pay double commission with spreads but I can't see a further relevance.

Regarding trends this my main point of skepticism. I am still not so convinced that spreads trend better of fo longer than the outright contract. However it is the repeated patterns going back so far that really attracts me. You don't find this sort of expectancy with outright trades. Comparing a single contracts outright chart against it spread is no evidence either way. It is a single example which on its own proves nothing.

I am going to persevere with spreads. Your post was much appreciated and I hope you will follow this thread and contribute again. You have actually placed a trade which puts you streets ahead of me!!

Best regards

FN

 

[Markus_H]

As a function of margin I think spreads have quite a bit to offer.

ERA,

I absolutely agree: When trading spreads you achieve an excellent return on margin. That's how I managed to double my account in less than 6 weeks

This is where I see things differently , but you highlight an issue well, namely choosing the right spread to trade.

Your example is an example of 'the well chosen example'. Being both an oldcrop/oldcrop spread and being one delivery apart, makes for lacklustre performance.

If it is a old crop/new crop spread, it's a whole different animal. Like SN5/SX5.

I've chosen an old crop/old crop spread because it's less risky than an old crop/new crop spread. Earlier in this thread the reduced risk of spread trading was mentioned as an advantage (and I agree!).

When trading an old crop/new crop spread your risk in increasing. In your example the spread dropped 5.5 cents (=$275). If we calculate "return on margin" then we should also consider "risk on margin". $275 means a 58% risk based on the margin of $473. The worst drawdown in the outright was 26c (=$1,300) or 71% based on the margin.

The risk when trading the spread is still less than trading the outright, but not by much.

Again, I still recommend to every trader to at least TRY spread trading.
I just thought I share some experiences. Stop me when I start ranting

Markus

 

[Markus_H]

Hi Markus - thanks for your post. I'm not sure where to start with a reply really except to say that you made some very valid points. I'm not sure why you would stop trading for the reasons given when, despite those reasons, you were so successful?

In my opinion an important aspect of trading is my personal comfort level. I want to "feel good" when trading, because then it is more fun. The factors I mentioned stressed me, and I guess it's the same as in any profession: Maybe you *could* make more money by doing certain things that you don't like, but how would you feel about it?

Regarding trends this my main point of skepticism. I am still not so convinced that spreads trend better of fo longer than the outright contract. However it is the repeated patterns going back so far that really attracts me. You don't find this sort of expectancy with outright trades. Comparing a single contracts outright chart against it spread is no evidence either way. It is a single example which on its own proves nothing.
FN

Yes, I guess the "trending-question" is an everlasting discussion, because you will probably find many examples and proofs for either point of view. I should have added in my previous post that I am not really a trend trader, because in my experience you will realize many small losses before you catch the really big move that takes off and will pay for your bills for the next months. (oh, boy, did I start a new discussion now? ).
Many trend-traders that I know trade successfully on a 20-30% winning ratio. That's not for me, because it requires enourmous discipline to enter the 8th trade after realizing 7 losses in a row.

Trend trading is definitely more rewarding than other kinds of trading, but if you don't have the discipline to enter the trades exactly according to your trading plan, then despite having an edge you will lose.

"Good" spread selection will boost your winning ratio to 50%, sometimes even 60%, but you are still facing the normal problems of long-term trend trading.

If you are disciplined enough for a long-term trend following approach, then spread trading might be very rewarding for you.

Take care,

Markus

 

[ERA]

I've chosen an old crop/old crop spread because it's less risky than an old crop/new crop spread. Earlier in this thread the reduced risk of spread trading was mentioned as an advantage (and I agree!).

Trend trading is definitely more rewarding than other kinds of trading, but if you don't have the discipline to enter the trades exactly according to your trading plan, then despite having an edge you will lose.

"Good" spread selection will boost your winning ratio to 50%, sometimes even 60%, but you are still facing the normal problems of long-term trend trading.

Again Markus some interesting topics to discuss. Can't disagree with you on the math.

I agree, it does have reduced risk but I see it not in the conventional way. I think the real way spreads can be used to reduce risk is by diversification. If we use the example of the amount of the out right spead margin on Soybeans we were talking about earlier of $1823 and used that amount for 1 SN5/SX5 with margin $473, that leaves us with $1350 to play with, we could take on more of these bean spreads but that would increase or risk. Rather diversify, if there are other trades setting up, so say we go into a lean hog spread and a short term interest rate spread like eurodollar spread. We would still have change left over.

So now the $1823 is spread across 3 uncorollated hopefully high probability spreads, instead of all in one market. That to me is true risk reduction. Without doing a binomial event calc, the chances of 3 high probability trades all failing is way less than 1 of those trades failing on it's own.

And that's what gives long term staying power to say ' Gee! I'm $500 down on my bean spread but its ok, because I'm up $300 on the hogs and $120 up on the eurodollars', it has a good dampering affect.

That's what's so great about Moore's, it's systematic to an extent and there are always multiple spreads on, and that softens the blow of any large adverse move, giving time to deal with it. While in outrights to get that kind of diversification and damping effect takes like 4 times as much margin. And that can be tough on a smaller account.

Again, I still recommend to every trader to at least TRY spread trading.
I just thought I share some experiences.
Markus

Amen to that and keep it coming.

 

[Markus_H]

If we use the example of the amount of the out right spead margin on Soybeans we were talking about earlier of $1823 and used that amount for 1 SN5/SX5 with margin $473, that leaves us with $1350 to play with, we could take on more of these bean spreads but that would increase or risk. Rather diversify, if there are other trades setting up, so say we go into a lean hog spread and a short term interest rate spread like eurodollar spread. We would still have change left over.

So now the $1823 is spread across 3 uncorollated hopefully high probability spreads, instead of all in one market. That to me is true risk reduction. Without doing a binomial event calc, the chances of 3 high probability trades all failing is way less than 1 of those trades failing on it's own.

Bull's eye!

Folks, read these sentences from ERA again and again. Trading reduced margin spreads does NOT mean that you should trade a smaller account, it means that you should use the remaining money for diversification!.

Markus

 

[FTSE Beater]

Hi All

If anyone has a question regarding spreads, please post them here so we can keep all the questions together FAQ: Spreads Trading

Thanks

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Hi Markus

Thank you for posting your views. Always great to hear both sides of the story

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Hi ERA

I couldn't agree more with check-list. Those rules alone will help keep me out of lifeless trades

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Hi FN

1) You mentioned that you might hesitate to take this trade due to it having already moved up significantly. However you're looking at the 15 year chart. If you take a look at the chart from more recent years (and surely more recent history is more likely to be repeated than 10-15 yrs ago) then todays spread is still low.

Ah ha. Ok how do you get a 5 year chart? or is it just using the lower pane of the chart

 

[fastnet]

Hi FTSE-B - I've not really worked out the format of the MRCI charts myself yet. Sometimes there's a 5 and 15 year chart given sometimes not.

These charts should be used with care. I am not sure how they are constructed but I imagine a computer simply averages the spread on each day over 15 years. Same with the 5 year charts. There is often a strong correlation which is comforting.

When you then scroll down to the bar charts showing the location of the spreads in each of the years it does show how careful you should be. Any single year might vary quite considerably from the 15/5 year consolidated spread. (of course or else it really would be easy money right?).

It's useful to look at the individual charts of the years included if you have the time and resources to do so.

The part of the chart I found at least as useful as the consolidated chart over 15/5 years is the lower chart that shows which part of the year the spread is ''usually'' making tops/bottoms. This should be useful for timing trades.

My spreading knowledge take-up rate has stalled a little. My MRCI subscrip has finished and I'm still waiting for Amazon to send my ''18 top seasonal patterns'' (or some such title) - didn't go with the JR book just yet.

Anyone fancy posting one of the more current charts for us to discuss??

ERA - if you got chance it would be great to hear what you think about the relative importance of the consolidated charts and the relative charts (bottom bit) provided by MRCI.

Our SMN05-SMZ05 spread has faltered a little but not convincingly so. Down to 2.6.

Enjoy the Easter break!

FN

 

[ERA]

ERA - if you got chance it would be great to hear what you think about the relative importance of the consolidated charts and the relative charts (bottom bit) provided by MRCI.

Our SMN05-SMZ05 spread has faltered a little but not convincingly so. Down to 2.6.

FN

Hi Fastnet, Hi all

Interesting question regarding the 5 and 15 year averages for the spread.

I have attached Moore's AugCrude05/Febcrude06 spread to illustrate. I just hope they forgive me for mauling their fine work with my annotations.

I also choose this spread because frankly it is going T!TS up at the moment, but I will talk more about that at the end, there are some things to point out that would have kept us traders well away from getting into this spread, But first the use of the 5 and 15 yr performance.

The 15 yr gives a good average overview of how the spread has performed. The 5 yr gives a good view of how the spread has been changing in character from the longer average in recent years. That is obvious.

If we look at the first half of the illustrated spread, there was little up trend in the 15 yr and the 5yr average is basically moving sideways with no trend. In the second half of the seasonal from the 1 week in April the 15 year average has shown a marked uptrend and the 5 year from the last week of April has shown even a steeper trend.

So simply the first half of this seasonal is not great, it is where the highest likelihood of experiencing a drawdown will occur. The historic seasonal shows that really the money has been made in the second half of the trade when the trend kicks in . In recent years the trend has been kicking in later and more forcefully as shown by the steep and later rise in the 5yr ave.

So steep seasonal trends in the 5 and 15 yr are good, good for the confidence and good for putting the odds in our favour, thats what it is all about putting the odds in our favour consistently with risk management.

Back to the trade at the moment. Looking at the crude spread it followed the seasonal average very well until the last week of Feb, since then it has been in a steady counter seasonal down trend, with no logical long entry, everything is pointed down, indicators and price action.
It's just to illustrate that to follow the seasonal trade blindly is foolish and good use of a trading plan and common sense are needed. This one was easy on to avoid, others are more tricky. It will be interesting to see how it performs in the second half of the seasonal though.

I'll post more about the meal spread in the coming days, it is not looking bad at the moment.

Happy easter to you all, enjoy the break.

ERA

 

[fastnet]

That's great - thanks ERA. I am glad that you have confirmed that these charts actually do mean what one would intuitively imagine by reading the axis labels and using a bit of common sense. This crude spread really does look awful. I think I'm right in thinking that Moore's hypothetical portfolios takes ALL trades. This will affect their results. Even I, a novice at he spreads game, would have stayed clear of this one.

Your discussion about seasonal spreads and their reliability made me think about their more obvious cousin: seasonal trends in the outright? Do folk trade these? We always talk about contract spreads but it would be interesting to see correlation charts for seasonal correlations (especially relative ones like the bottom chart) in the outright contract. I wonder if these, being more accessible) are available for free anywhere?

5 MINUTE PAUSE

Phew! While writing the above I realised that the book I had ordered from Amazon UK was actually about seasonal trades i/o spread trades. I managed to get in before dispatch and have now cancelled it. Maybe I should go for the JR book. There's a guy on Elitetrader called ooO(GoldTrade)Ooo who raves about this book both in ET and on Amazon. I even thought he was JR! He seems to be a pretty knowledgeable guy though and has posted many times with bits and pieces of advice.

Anyway wrt straight seasonals: anyone any experience? These would certainly be easier although I suspect a lot riskier to trade?

Regards

FN

 

[ERA]

Anyway wrt straight seasonals: anyone any experience? These would certainly be easier although I suspect a lot riskier to trade?

A lot tougher those, my interest in using them is more for option writing, ie if the market has a historical tendency to bottom and move higher during a timeframe, that info. is useful to incorporate in a strategy to write OTM puts below the market price. But that's a whole different story for another thread.

 

[FTSE Beater]

FWIW, I'm looking at ED M6 - ED U5
Here's the MRCI chart

and here's the Esignal version

I'm currently on a paper short on the chart, which is against what MRCI would suggest, but I still think it's got further to fall, until the uptrend in April.

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Anyway wrt straight seasonals: anyone any experience? These would certainly be easier although I suspect a lot riskier to trade?

Hi Fn

I agree with ERA. The problem I find is controlling the risk, because your taking away the safety net with the other leg of the trade

Thanks for your explanation on the 5 / 15 year charts

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Hi ERA

Thanks for your explanation of the crude oil trade. Looks like one for the watch list as oppose to the Must get some of this list

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Hi All

A quick note to say thank you to Sharky for setting up a special Spreads Trading Forum which hopefully will keep all the information together

 

[fastnet]

Thanks FTSE-B and agree with you about this trade. A couple of points:

1) Do you think there is a period in the life of the spread where it is more likely to follow the route determined by the 5/15 year chart? For example your chart uses the June 06 contract. Can this be very liquid in March 05? I assume that the yellow highlight is the period MRCI would trade. The 5 year doers seems to correlate better with the 15 year on the lower relative chart during this period.

2) You know I've been thinking. I am very enthusiastic about spreads but still can't imagine myself placing a trade. All the reasons are based on actual feasibility of placing trades and the slippage and legging problems. Firstly I wouldn't be very keen converting, say £10K into dollars right not. We might have seen very recent strength in the greenback but the underlying momentum for weakness is still there. The only option would be to hedge with an FX contract - this is messy and will require it's own significant margin.

The other thing is that I still don't understand the intermediaries and the contracts themselves. This will require work on my part. Which are pit traded, which are electronic? Which are liquid, which aren't so? Which borker can handle which contracts? What are the margins required and tick sizes for each? Where is the risk of slippage and when is the best time of day to place a trade?

I know that Andy Jordan over on ET only uses pit traded contracts and uses REFCO as a broker. Any comment on their service? Would I just call the guy in London or would I have to speak to someone in Chicago or wherever? Is my margin safe? I understand the fundamentals of the FA rules and clients money etc but how does it work in the US? Can you imagine trying to chase a bankrupt US broker for our margin thru the US courts? It just aint gonna happen.

Please understand I don't expect answers to these questions. I have to work it out for myself. That said if there are obvious pit-falls and mistakes that could be avoided by an old-hand then this would be appreciated.

What is clear is that despite many of the MRCI trades being very attractive, many are practically untradable for one, or a combination of the reasons above.

I suppose, above all, it is the idea of having multiple dollar accounts that worries me most. I suppose I'm just stuck in my spread betting ways. In that game they bend over backwards to lower the barriers to entry. That's because 90%+ lose money. No punters - no profits for them. You must make it easy for the punters to play.

The flipside of course is that if you are able to learn the ins and outs of the contracts, set up broker accounts and find a trusted broker then this, in itself, provides a barrier to others entering the game. Keeps it slightly out of reach of the undisciplined and easily deterred.

Enjoy the holiday folks. The lamb's just gone in!

Cheers

 

[ERA]

Futures Market liquidity

Here's a nice quick reference guide to market liquidity for futures.

Those ED's are right up there as the most liquid futures contract in the world, quoted 10 years out with plenty of depth.