Trading calendar spreads?

November 17th, 2016, 08:44 AM

That's a bold statement. I can see how that could be true or maybe partially true in equity index's but do you also believe it's true in commodities such as crude, gold, lean hogs, etc?

November 17th, 2016, 08:59 AM

Yes that is a very bold statement. I think the growing world of managed futures / commodity trading adviser would beg to differ. As would the large number of prop traders who regularly buy puts for establishing positions and not simply for protection.

November 17th, 2016, 09:14 AM

Interesting post.

I used to trade CL spreads but not anymore.

SMCJB is the expert in this field and he had pretty much covered most of the key points already. Here's my take of why trading spreads can be difficult:

1.Almost complete opposite to outright trading in terms of methodology/psychology/money management, that is why most Prop shops that apply spread trading prefer to hire new traders with no prior trading experience/knowledge
2.Requires deeper pocket for margins and ability to hold through short term pain
3.Emphasis on fundamental analysis instead of technical analysis , hence requires good knowledge of physical markets and seasonality of the underlying asset. To really stay on the top of this game, one also needs to have a good understanding of the curve movement and economic cycles.
4.Statistical Arbitrage style of trading that requires good amount of historical data and good statistical knowledge to perform back-testing
5.Natural restriction to scale up
6.Only suits certain personalities of traders because it is about making small amount of money consistently while taking occasional big hit.
7.Heavy commission fees

Given the above, it is not strange to see majority of the participants are institutional traders. It is extremely difficult for retail traders to find and retain an edge in spread trading because of all these natural barriers.

Trading calendar spreads?

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Trading calendar spreads?