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CL vs QM (crude oil) tick size/value, margins


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CL vs QM (crude oil) tick size/value, margins

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  #1 (permalink)
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So a friend (George) and I were chatting via Skype today, and it got me looking at QM (emini) again compared to CL.

I first looked at QM several months ago when I stopped trading ES and started trading CL. At that point I discarded it almost immediately because I thought it did not trade tick for tick. I was looking for an ES-to-SPY type relationship.

However, today I realized that my mistake back then was I was looking at a 6 range chart, my favorite then, and they didn't even come close to comparing (QM vs CL).

Now I know why. And I also know now that it is in fact very similar to the ES-to-SPY relationship, and does trade close to tick-for-tick.

Here is what I know:

CL - Crude Oil Futures
Tick size: 0.01 tick size, 100 ticks per point (ie: 75.00, 75.01, 75.02, 75.03)
Cost per tick: $10.00
Margin: $2,000 per contract @ Amp, although you can negotiate this down a lot

QM - Mini of Crude Oil Futures
Tick size: 0.025 tick size, 40 ticks per point (ie: 75.00, 75.025, 75.050, 75.075)
Cost per tick: $12.50
Margin: $1,000 per contract @ Amp, haven't tried negotiating it down, but sure you could

For every 10 ticks CL moves, QM moves 4 ticks (2.5:1 ratio). Those same 10 ticks is $100.00 on CL [10x$10], and $50 on QM [4x$12.50] (2.0:1 ratio). Notice the difference in ratio there.

If your account has $20,000 and you assume the above ratios, you can trade (10) CL contracts [$2,000 margin per, qty 10] or (20) QM contracts [$1,000 margin per, qty 20]. If you entered a trade that went 10 ticks on CL (which is 4 ticks on QM), you could get $1,000.00 with CL, and you could get $1,000.00 with QM. Notice it's the same.

So why trade QM instead of CL? If you have a smaller account, but you want to trade more than 1 contract so you can have an ATM, runner, etc, then QM might make sense. But if you could afford to trade the same number of contracts on CL, then CL is the more valuable (higher risk/higher reward) instrument. QM really only becomes an advantage if you can't trade multiple contracts with CL due to your margin requirements.

On a range chart, you should multiply what you normally trade on CL by 2.5 to get an approximate identical chart on QM.

I found larger charts, like a 5m chart, to be nearly tick-for-tick identical. Since I am now trading only 5m or larger charts, personally I am content with this and didn't spend more time on smaller time frames.

Attached are some charts. QM on top, CL on bottom.

The daily volume seems to be quite different as well, as sam028 pointed out. CL traded about 280k today for instance, while QM only traded 12k. Wow. A bit scary.

Another interesting note: SPY is an ETF, which means you need 25k to day trade it due to regulations. QM is not an ETF, it's a future, so it can be traded the same as any other future.

Here are more details from CME:

Regular CL:
Light Sweet Crude Oil

Emini QM:
E-mini Light Sweed Crude Oil

Mike

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  #2 (permalink)
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Mike, you failed to mention that slippage on QM can be material as the spread is often more than one tick.

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Zoethecus View Post
Mike, you failed to mention that slippage on QM can be material as the spread is often more than one tick.

Very good point. I've heard this too and my opinion is that one shouldn't trade the emini. It's the same for the euro. The emini is for amateurs and as such there are probably professionals there to take advantage of them.

Also CL is the real market, QM just tracks CL so analyzing volume & trade intensity etc. is not going to be as affective. Sefstrat made a really good post about this in the particle oscillator thread.

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Zoethecus View Post
Mike, you failed to mention that slippage on QM can be material as the spread is often more than one tick.

When you say more then one, are we talking greater then 2 or 3 ticks? if so, I dont like the idea of the spread. In CL I dont think I've ever had slippage. I guess theres alot of vol to justify that?

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tellytub View Post
When you say more then one, are we talking greater then 2 or 3 ticks? if so, I dont like the idea of the spread. In CL I dont think I've ever had slippage. I guess theres alot of vol to justify that?

CL is one of the most liquid commodities. I rarely get slippage and it's just 1 tick. Sometimes I get slippage on the exit so it's not always a bad thing.

QM isn't even close when it comes to liquidity.

This is what I believe: Someone should not trade real money until they've proven their method is consistently profitable over several months on sim. Once you do that, you don't need to mess with QM as long as you can follow your trading method/plan. 2 months of repetition should enable one to do that. If not, trading 1-10 shares of USO is another option.

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  #6 (permalink)
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CL slippage happened to me. And it was bad and partially my fault.

It was the inventories at 1030. I was not aware and should have flattened when I had 42 ticks in the bag. Though my stop was BE, it returned against me in the spike up and I ended up -10 ticks from my stop a BE.

Tough. Should have marked up that time and flattened.

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cunparis View Post
Very good point. I've heard this too and my opinion is that one shouldn't trade the emini. It's the same for the euro. The emini is for amateurs and as such there are probably professionals there to take advantage of them.

Also CL is the real market, QM just tracks CL so analyzing volume & trade intensity etc. is not going to be as affective. Sefstrat made a really good post about this in the particle oscillator thread.

Could u give me the link of Sefstrat's particle osillator thread? many thanks.

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  #8 (permalink)
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CL vs USO (United States Oil Fund LP, ETF ):
- cheap: 1 tick -> 0.01 $ (1$ for 100 shares)
- enough volume -> 13.000.000 shares/day
- no slippage
It needs nice moves for being interesting (commissions), but maybe a good choice for testing something with a CL-like underlying (without the heat of 10$/tick).
And it's always easier to have a smart MM/position size when you trade with 20 X 100 shares than 2 X 1 car (in fact 1 CL == 2000 USO).

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sam028 View Post
CL vs USO (United States Oil Fund LP, ETF ):
- cheap: 1 tick -> 0.01 $ (1$ for 100 shares)
- enough volume -> 13.000.000 shares/day
- no slippage
It needs nice moves for being interesting (commissions), but maybe a good choice for testing something with a CL-like underlying (without the heat of 10$/tick).
And it's always easier to have a smart MM/position size when you trade with 20 X 100 shares than 2 X 1 car (in fact 1 CL == 2000 USO).

Good analysis Sam. I don't know if USO is as volatile as CL, but if you want to trade CL on the cheap then USO seems like a good choice. I'd also say that if doing stocks one shouldn't limit it to USO. Lots of volatile stocks to daytrade. I used to daytrade BIDU, it was so expensive it had a big spread and during churn bars I could often buy 100 shares at the bid and immediately sell them at the ask.

One disadvantage as someone may have mentioned is the 25k day trader rule. Isn't it crazy the government forces under capitalized traders to trade futures??

Still though, the simulator is looking mighty good. Trade oil with the big boys for free with no chance of losing.

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How many ticks of slippage do you get for CL, and are you referring to per Trade or per Fill?

Just trying to get a realistic number for backtesting.

Thanks.

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vagus View Post
How many ticks of slippage do you get for CL, and are you referring to per Trade or per Fill?

Just trying to get a realistic number for backtesting.

Thanks.

For CL you can usually just figure 1 tick of slippage -- buying @ the ask on either side, per contract.

For QM, the slippage can be higher because of the way the spread works with CL, it could be 2-3 ticks per contract.

You should not trade CL until you have many years of experience. And you should probably use a limit order and not market even then.

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The only tradeable alternative to CL would be Brent Crude (BC). Brent volume during the European session is comparable to volume of CL. Cumulated daily volume is about one third compared to CL. Ticksize and contract size are comparable (attention: NT7 instrument settings seem to be false).

The chart below shows volume of both crude contracts during the European session and the spread between the two prducts below. I have put the spread just to show that they can be traded as a substitute.

Trading this spread directly using a mean reversion strategy does not make sense for one reason: time lag.

CL has Cushing, Oklahoma as a delivery point, the pipeline is never pumping crude back to the Gulf, so there is only one-way physical arbitrage possible: shipping Brent to the Gulf Coast. A spread therefore would have to be defined as (A) contracts CL 06-10 plus (1-A) contracts CL 07-10 - 1 contract BC 06-10, just to account for the voyage time between the Atlantic Basin and the Gulf Coast. Maybe I will test NT7 to build a synthetic spread from the three data series, I am sure NT won't be happy.

The resulting spread should then be tradeable intraday using a mean reversion approach. As Brent Crude and WTI are different qualities, the spread between CL and BC will also be affected by the crack spread or a light sweet crude at the Gulf Coast. This induces seasonality due to demand shift between summer and winter season.

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I have been trading QM in sim and I've had DOMs of both QM and CL next to each other. It looks to me like QM bids and offers are coming from autospreaders for the most part. If CL is 90.26 bid at 90.27 ask, there will be a 90.25 bid on QM and a small 90.275 ask on QM (small because the arb is only 1/2 cent). If CL is 90.25 bid at 90.26, there may or may not be a 90.25 bid on QM but there will be a large 90.225 bid on QM and a large 90.275 offer, as you would expect from someone trying to make free money.

Sometimes there is a substantial standing bid or offer on QM, especially after the RTH close of CL. Earlier this week there was a ~70 lot standing bid on QM. Occasionaly CL would trade 1 cent lower than that bid in small size. It took about 20 minutes before CL broke enough for the QM bid to be taken out.

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QM movement seems sticky that leads to more than 1 tick spread.

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Cushing connection: TransCanada The Keystone Connection - Preview

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  #17 (permalink)
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1) The reason it's better to trade CL vs. Q's is because of the commission burden.

As pointed out earlier, the QM's are simply "half" a CL contract. Example:

If CL moves 5 ticks, the profit realized/lost is $50 (1 contract). The corresponding move would be 2 ticks (2.5c/tick) for the Q, resulting in $25 profit/loss.

However, for both transactions, the comission is the same. Therefore, a typical futures contract commission of $5 round trip, would be a 10% burden for the CL transaction, but a 25% burden for the Q transaction.

The only reason one would trade multiple Q's would be if the commissions were comparable (if you have a broker that will do that I have not seen/heard of it....although that doesn't mean it doesn't exist).

It goes without saying, that if you can't afford to trade a single CL contract, then you probably are either not qualified/prepared to trade oil futures or you're an oddity in that you have the knowledge/experience but not enough capital to do so.

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2) There are 2 types of slippage. Computer lag/momentum slippage occurs when the market is moving so quickly, that the trade server lags behind the physical trade price. For example....if you have a sell limit order at $100.00 and the current price is below and there is a SIGNIFICANT up volume thrown upon the market, it's not uncommon for you to get "filled up" beyond $100.00. I've personally seen momentum slippage as much as 6 ticks before.

This really isn't an issue if you're trading strategy incorporates bracket orders....generally, over a long period of time, it comes out in the wash (kinda like how the IRS rounds to whole dollars, sometimes they win, sometimes they lose, but on a large scale, it's inconsequential).

However, if you're utilizing a bottom side exit strategy only (i.e. trailing stop loss only), then momentum slippage is always a negative impact, because you're stop is always on the bottom side of the trade (i.e. when you're taking profit, it's potentially less profit and when you're stopping loss, it's potentially more loss).

The second type of slippage is spread. Spread has varying degrees of effect based upon the immediate volume. For instance, during certain hours when the US and European markets are off hours, you can literally "move the market" with a few contracts. However, during peak volume periods, you can enter with several contracts and the market has existing orders to cushion the entry. I.e. during/after news events, you can place an order for 100 contracts and not see the price move more than a couple of ticks because the outstanding orders for each price tick are tens if not hundreds of orders.

Lastly, slippage depends on the trade entry. Market orders obviously are advantageous because you ensure that your order will be filled (however you have less control over the price). Limit orders eliminate spread slippage (but not necessarily momentum slippage like outlined above), but you trade price control for the risk that your order may not fill immediately. (partial orders are also a nuisance when dealing with automated trading systems). (it's noteworthy that if you get a partial order fill or no fill at all, then it's really a blessing because the market obviously didn't go your way). Market orders are subject to spread slippage.

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Hello BM & everybody !

Good work here BM !! and all !! al my respect .

I have a quest (hope no too offtopic-well,this is my first post here so please have mercy ) : know someone a broker who offer the micro crude and brent contracts (so,not mini) MCL and MBZ ?And maybe some details like open interest , dayly volumes , a RT and overnight margin , cause i'm pretty confused ..if i buy 1 barrell(or 257,the number is not important) how much money will be block overnight from my account? or if the minimum amount is 1 barell how much could be the RT ? I'm interested in to trade live (accomodation , etc. but don't wannt to try QM-don't like 2.5 spread and could be a much expensive live course) before try to trade live the big beast (CL) .

Here is a link from CME https://www.cmegroup.com/tools-information/lookups/advisories/market-data/files/MicroCrudeOilFutures_New_Product_Summary.pdf

Until now , Mirus said no offer and Optimus,AMP,Velocity,Infinity are very quiet .

TYA

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raduku View Post

Hello BM & everybody !

Good work here BM !! and all !! al my respect .

I have a quest (hope no too offtopic-well,this is my first post here so please have mercy ) : know someone a broker who offer the micro crude and brent contracts (so,not mini) MCL and MBZ ?And maybe some details like open interest , dayly volumes , a RT and overnight margin , cause i'm pretty confused ..if i buy 1 barrell(or 257,the number is not important) how much money will be block overnight from my account? or if the minimum amount is 1 barell how much could be the RT ? I'm interested in to trade live (accomodation , etc. but don't wannt to try QM-don't like 2.5 spread and could be a much expensive live course) before try to trade live the big beast (CL) .

Here is a link from CME https://www.cmegroup.com/tools-information/lookups/advisories/market-data/files/MicroCrudeOilFutures_New_Product_Summary.pdf

Until now , Mirus said no offer and Optimus,AMP,Velocity,Infinity are very quiet .

TYA

I really don't fully understand your question, sorry. But I think you are asking what the overnight margin is. Your broker can tell you this, most have pages on their websites that list margins.

If you trade overnight or hold a position through the cash close, overnight margin will be in effect and you must have sufficient funds in your account or the position will be closed.

For example:
NYMEX Futures Commissions | Velocity Futures

Overnight on QM is 4219, while intraday is 1500. So to trade this contract overnight you need 4219 in your account per contract. To hold a position past cash close, you need 4219 in your account per contract.

I would recommend you double or triple the broker margins as an absolute minimum for your own safety and sanity.

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  #21 (permalink)
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Overnight margins usually have two tiers...and initial margin and a maintenance margin...which means you must start with the intial and maintain at least the maintenance to keep the position open.

Additionally, you should check with your broker about any other limitations/restrictions. Some brokers require you to maintain a stop when you holdover night. If you don't maintain a stop in place, they'll liquidate you.

Other issues include rollover. Make sure you thoroughly understand the rollover procedures for your broker. Some brokers allow you to hold all the way to volume superiority (the new contract surpasses the old). Some have a specific number of days prior to the contract closing/settlement.

You must also go back a lengthy period and determine what a reasonable gap range for your instrument might be.

As we just saw, CL gapped $1.55 on last Sunday's electronic open. If your stop for a long position wasn't at least $1.55 from Friday's close....guess what? It got jumped.

Granted, 155 ticks is uncommon for an opening gap, but you should keep it in mind.

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  #22 (permalink)
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Hey Big Mike & RM99 ,

Thanks for your answers & imputs - i know what imply a overnight position (gaps,margins,etc.) but thanks again .
Please excuse my poor english (if I wasn't crystal clear) , I just wanted ( and still want) to know which broker(or introducing broker) -IF there is any - offer the MCL & MBZ .
And i just wondered how much can be a RT and margins for this kind of micro contract .
Anyway , CME and some brokers offer some micro contracts with decents volumes , like micro gold for exemple-yeah gold is shining nowadays...

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  #23 (permalink)
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Hi, everyone i find this thread particularly useful. I have been working on a method: typically with a stop loss of 5-10ticks and same, sometimes more for Profit. Since i have not traded in a real account environment, am worried about the slippages discussed here. On sim trades, its a perfect scenario for me.

Would appreciate any advice

thanks

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  #24 (permalink)
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At the risk of necro posting am about to start trading CL real money so want to add IB apparently wants something pushing $5000 per contract for margin. Not an issue, just an observation. Opinion welcome.

ETA: my bad--turns out that must be the overnight margin. Otherwise it's $2600.

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futures io Trading Community Traders Hideout Commodities > CL vs QM (crude oil) tick size/value, margins


Last Updated on April 9, 2013


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