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Trading natural gas futures
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Trading natural gas futures

  #101 (permalink)
Market Wizard
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That's an interesting question, and the answer is very different today than it would have been ten years ago before everything went electronic. Today because of HFT and the ease to make electronic markets there are markets that have low volume but very high liquidity. Take for example QM, the crude oil eMini. Yesterday it only traded 22,000 lots but I suspect the bid-ask was 1 tick wide the entire day - it is arbitraged against CL the full size contract. So liquidity isn't 100% volume based.

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  #102 (permalink)
Trading for Fun
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SMCJB View Post
That's an interesting question, and the answer is very different today than it would have been ten years ago before everything went electronic. Today because of HFT and the ease to make electronic markets there are markets that have low volume but very high liquidity. Take for example QM, the crude oil eMini. Yesterday it only traded 22,000 lots but I suspect the bid-ask was 1 tick wide the entire day - it is arbitraged against CL the full size contract. So liquidity isn't 100% volume based.

Thanks really appreciate your reply. This issue of volume v liquidity is what is confusing me. I was equating high volume with high liquidity but it seems like this may not be the case? For example, the Eurodollar has very high volume but very low margin which indicates low liquidity to me?

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  #103 (permalink)
Market Wizard
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They are different things. Margin is risk based and it's simplest form is a function of contract size and volatility. Volume is obviously how much a contract trades and liquidity is how efficiently you can enter and exit positions, at good times and bad. Liquidity is also trade volume dependent, trading 1 lot can be different than 1000.

Some examples
- Eurodollar has low margin, high volume and massive liquidity. Literally 1 tick wide, tens of thousands on bid and offer.
- In contrast there are many energy products that only trade over the counter. Hence if you were to look them up some of them might appear to have high volume, but for an electronic trader they have literally zero liquidity as they dont trade on screen.
- Natural Gas has something called "Bid WeeK" (last 5 business days of the month) where gas is bought and sold for the following delivery month. If you log onto ICE during bid week you will see lots of these products not only trading but also having quiet deep markets, but if you check early in the month there won't be a single quoted market. So that's a case of liquidity changing due to time of month.
- Liquidity can be heavily effected by news events. There are important data releases, employment, payroll, product in storage etc that are released at predetermined times. For Natural Gas the EIA release gas in storage on a Thursday at 10:30 Eastern. As such liquidity starts drying up at 10:28 and at 10:29.59 there's almost nothing there at all. So if you send your order exactly then you are probably going to experience massive slippage, but if you send it 1 minute later the market is more than likely be back to 1 tic wide.
- Crude Oil is very international in nature. On days where there is a European (especially British) Holiday, but not a US Holiday, you will notice lower volumes, but for most purposes liquidity is unchanged for all but the largest orders.

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  #104 (permalink)
Trading for Fun
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SMCJB View Post
They are different things. Margin is risk based and it's simplest form is a function of contract size and volatility. Volume is obviously how much a contract trades and liquidity is how efficiently you can enter and exit positions, at good times and bad. Liquidity is also trade volume dependent, trading 1 lot can be different than 1000.

Some examples
- Eurodollar has low margin, high volume and massive liquidity. Literally 1 tick wide, tens of thousands on bid and offer.
- In contrast there are many energy products that only trade over the counter. Hence if you were to look them up some of them might appear to have high volume, but for an electronic trader they have literally zero liquidity as they dont trade on screen.
- Natural Gas has something called "Bid WeeK" (last 5 business days of the month) where gas is bought and sold for the following delivery month. If you log onto ICE during bid week you will see lots of these products not only trading but also having quiet deep markets, but if you check early in the month there won't be a single quoted market. So that's a case of liquidity changing due to time of month.
- Liquidity can be heavily effected by news events. There are important data releases, employment, payroll, product in storage etc that are released at predetermined times. For Natural Gas the EIA release gas in storage on a Thursday at 10:30 Eastern. As such liquidity starts drying up at 10:28 and at 10:29.59 there's almost nothing there at all. So if you send your order exactly then you are probably going to experience massive slippage, but if you send it 1 minute later the market is more than likely be back to 1 tic wide.
- Crude Oil is very international in nature. On days where there is a European (especially British) Holiday, but not a US Holiday, you will notice lower volumes, but for most purposes liquidity is unchanged for all but the largest orders.

Thanks, this is an amazing post and clears up plenty for me regarding liquidity v volume.

Coming back to the Eurodollar, would you say this is a good product for a beginner to start with? I've also read that the ZN is good (treasury notes).

Sent using the futures.io mobile app

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  #105 (permalink)
Market Wizard
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I have no experience trading Eurodollar's in the way you would so can not answer that.

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  #106 (permalink)
Market Wizard
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kazz View Post
Thanks, this is an amazing post and clears up plenty for me regarding liquidity v volume.

Coming back to the Eurodollar, would you say this is a good product for a beginner to start with? I've also read that the ZN is good (treasury notes).

Sent using the futures.io mobile app

I do not think it is possible to give an easy answer, eg. "yes" or "no".

My trading is mostly based on fundamental information. My interest is more towards growing commodities (eg. corn, wheat, coffee, lumber) and energies, and thus, most of my trades include these commodities. Interest rates are influenced by very many factors and events, and, thus, I think it is difficult for a beginner to trade the Eurodollar, based on fundamental data. (As long as you do not have a special education in this field.) In case you are iontereted in trading based on fundamentals, it is a good idea to start with a commodity with which you like spending many hours ...

I know traders who love trading the Eurodollar, trading based on charts. But I do not have an own opinion on this topic.

Best regards, Myrrdin

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  #107 (permalink)
Market Wizard
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SMCJB View Post
NG "Tier" Margins are dropping (which is actually what they announced)
- Tier 1 down $900 to $1850
- Tier 2 down $250 to $1300
- Tier 3 down $200 to $1100

But as you highlighted since this is effective 27th, and March expires on the 26th, April is going from Tier 2 to Tier 1, which results in an actual increase.

So if you have an April position margin is going up.
If you have a prompt month position, and are rolling March to April, then margins go down.

Effective today Tier 1/May'19 NG Member margin requirement drops from $1850 to $1650. Jun-Oct unchanged.

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  #108 (permalink)
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SMCJB View Post
Effective today Tier 1/May'19 NG Member margin requirement drops from $1850 to $1650. Jun-Oct unchanged.

That's effective at close of trading for today.

Non-member rate is $1815. That's a drop of 10.8% for option margin for May.

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  #109 (permalink)
Market Wizard
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Effective COB May 1st Tier 1/Jun'19 NG Member margin requirement drops from $1650 to $1400. Jul-Oct drop $100 to $1200 in July and $1000 for Aug-Oct.
Non Member rates are 110% of these numbers.

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  #110 (permalink)
Market Wizard
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For the second week in a row the EIA reported the largest ever storage injection for this week of the year!

In the last 7 weeks storage has gone from more than 350 BCF below last to year, to more than 100 BCF higher than last year. Quiet a swing!

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