arabianights
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I feel like writing about how I trade STIRs intraday. Unfortunately, I am extremely lazy and hate explaining stuff (way off the scale in fact - my appallingly full private message box is a testament to this). So I am going to add to this in drips and drabs over the next month or so and may never finish it - it's going to be very long. Heck, I might not even bother to make another post in this thread. There is also a sticky in this forum with a link to my STIR chatroom, which although only a fortnight old is going pretty well during market hours. There are also plenty of spreaders and such like there who have a very different style to me, so if you're interested, especially if you trade them yourself, I would encourage you to check it out 
As that rather disjointed first paragraph shows, I am also not the best writer in the world and tend to go stream-of-consciousness. If this is a problem, please re write all my posts for me in perfect English.
The purpose of this thread will be to explain how I would go about trading STIRs from the order book and the order flow (that is to say the trades that actually occur). I am going to focus on short sterling although there is nothing special about that market, and indeed these ideas can be extrapolated to bond futures as well but it is my belief you would need market profile or similar to do that successfully.
Firstly, let's discuss price making or price taking. To say the least, tickwise STIRs do not trade much of a range intraday and therefore the spread (although usually one or half a tick in the more respectable contracts) is a major factor in the costs of a trade. You could consider these over all transaction costs, entry costs, or exit costs but I would prefer to consider them the latter.
So the advantages of price making are pretty obvious: You earn the spread, or at least do not have to pay it. There are essentially two disadvantages, the first also blindingly obvious: no trade is guaranteed to even occur. To me, this is no disadvantage, as the one aim of trading is to avoid blowing up. The second is also obvious to anyone who has been trading for a while but in my view is far more serious, and it is that when you do trade someone has decided to pay the spread to trade with you and there is a very good chance that they have a good reason to do so. If that is because the spread is unimportant to them (for whatever reason) then great. On the other hand, if it generally is then you are probably in some trouble. You don't have the chance to pull your offer just because you don't like the trade.
Thus, the decision about price making or price taking, like so many things in trading, comes down to the risk of taking on a horrible unexpected trade versus the reward of earning the spread. And my next post, whenever I make it, will examine this further.
As that rather disjointed first paragraph shows, I am also not the best writer in the world and tend to go stream-of-consciousness. If this is a problem, please re write all my posts for me in perfect English.
The purpose of this thread will be to explain how I would go about trading STIRs from the order book and the order flow (that is to say the trades that actually occur). I am going to focus on short sterling although there is nothing special about that market, and indeed these ideas can be extrapolated to bond futures as well but it is my belief you would need market profile or similar to do that successfully.
Firstly, let's discuss price making or price taking. To say the least, tickwise STIRs do not trade much of a range intraday and therefore the spread (although usually one or half a tick in the more respectable contracts) is a major factor in the costs of a trade. You could consider these over all transaction costs, entry costs, or exit costs but I would prefer to consider them the latter.
So the advantages of price making are pretty obvious: You earn the spread, or at least do not have to pay it. There are essentially two disadvantages, the first also blindingly obvious: no trade is guaranteed to even occur. To me, this is no disadvantage, as the one aim of trading is to avoid blowing up. The second is also obvious to anyone who has been trading for a while but in my view is far more serious, and it is that when you do trade someone has decided to pay the spread to trade with you and there is a very good chance that they have a good reason to do so. If that is because the spread is unimportant to them (for whatever reason) then great. On the other hand, if it generally is then you are probably in some trouble. You don't have the chance to pull your offer just because you don't like the trade.
Thus, the decision about price making or price taking, like so many things in trading, comes down to the risk of taking on a horrible unexpected trade versus the reward of earning the spread. And my next post, whenever I make it, will examine this further.
