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EURUSD M6E/6E Euro

  #2281 (permalink)
 
chr1s's Avatar
 chr1s 
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dom64 View Post
Sorry, I give up, I am running ouf of ways to explain the same thing to the same question, which does not even really matter in the 1st place quite frankly. Does it really matter how it technically does follow the spot? It just does, that's the way it is, values are slightly different as it is not the spot but a future contract on the spot, which becomes the spot, i.e, matches spot bid/ask upon contract delivery.

Why would one want to know exactly how this is done? Do you think there is something secret or magical about to find out that thousands of very competent financial institutions who trade future contracts have not seen/do not know yet? It follows the spot value (EQUALS =) initially, and this is all there is to know. I think that any other revelation about the subject will not be found here, not matter how many times the question gets asked.

Please let us know what the CME's explanation is, can't wait..

I think this is a good educational discussion here, can I just ask what's the point of depth and order flow of 6E when it follows spot (which may have orders in different places)? If there is a larger buy order at some level on 6E and I hide my stops behind it then suddenly at some bank sell orders are executed pushing price way down what's the point of someone looking at the depth of 6E when it does not have banks orders (nobody has)?

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Chris

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  #2282 (permalink)
 JohnS 
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maybe the euro will break out to the upside of this triangle but on the other hand perhaps a small double top may have formed (the highs from 4th and 10th with reducing volumes) so we may test the lower side of the triangle. Jobless report this afternoon so we shall see..


and the dollar index is below the 28 ema.

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  #2283 (permalink)
 dom64 
London, UK
 
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chr1s View Post
I think this is a good educational discussion here, can I just ask what's the point of depth and order flow of 6E when it follows spot (which may have orders in different places)? If there is a larger buy order at some level on 6E and I hide my stops behind it then suddenly at some bank sell orders are executed pushing price way down what's the point of someone looking at the depth of 6E when it does not have banks orders (nobody has)?

Thank you
Chris

I thought this was more of a EUR-USD thread but this is turning into the basics of Futures contracts.
The "point" of trading from a DOM on the 6E is that it is a centralised market, where you can see Limit orders vs Market orders, exchanged volumes, and open interest.
FX is an OTC market and does not have the above and you don't get an official DOM.

Although the 6E follows the spot as it is initially a contract on the spot, this should be seen as separate instruments. So choose to work the spot or the Future contract, and big orders on the spot will be "priced" in the 6E so no need to worry that you will not see what happens on the spot if you look at the depth of the 6E (you will never see what happens on the spot anyway). Not sure what the last part means in relation to bank orders sorry.

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  #2284 (permalink)
 bebop 
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aaaaaa225 View Post
Simple question really I'm wondering if anyone knows what is making them follow eachother.

as someone already mentioned-what makes any liquidly traded futures contract follow its underlying cash market is simply the buying & selling of the arb traders. The futures is the exact equivalent of the cash with the additional premium of the time value of money until the expiry (plus the value of dividends in an equity index, or the cost of warehousing & transport for a commodity). If you can capture the mispricing between fair value of the futures & the current spot rate - thats pure arbitrage = free money. You buy one sell the other & either hold the position to expiry, or trade out of it when the basis flips the other way. There are a ton of prop desks around the world with automated systems tracking & trading this 24 hours a day. Back in the day the mispricing was huge. Nowadays it gets whacked back into line before you'd ever notice it, except in situations of extreme volatility.

So as was mentioned, pure arbitrage is the reason the futures "follows" the spot.

Hope this helps,
Brian

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  #2285 (permalink)
 dom64 
London, UK
 
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bebop View Post
as someone already mentioned-what makes any liquidly traded futures contract follow its underlying cash market is simply the buying & selling of the arb traders. The futures is the exact equivalent of the cash with the additional premium of the time value of money until the expiry (plus the value of dividends in an equity index, or the cost of warehousing & transport for a commodity). If you can capture the mispricing between fair value of the futures & the current spot rate - thats pure arbitrage = free money. You buy one sell the other & either hold the position to expiry, or trade out of it when the basis flips the other way. There are a ton of prop desks around the world with automated systems tracking & trading this 24 hours a day. Back in the day the mispricing was huge. Nowadays it gets whacked back into line before you'd ever notice it, except in situations of extreme volatility.

So as was mentioned, pure arbitrage is the reason the futures "follows" the spot.

Hope this helps,
Brian

Sent from my SM-N900 using Tapatalk

totally agree Brian as I stated in one line too but far less detailed that your explanation! Thanks, that will satisfy all those curious minds! ;-)

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  #2286 (permalink)
 JohnS 
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bebop View Post
as someone already mentioned-what makes any liquidly traded futures contract follow its underlying cash market is simply the buying & selling of the arb traders. The futures is the exact equivalent of the cash with the additional premium of the time value of money until the expiry (plus the value of dividends in an equity index, or the cost of warehousing & transport for a commodity). If you can capture the mispricing between fair value of the futures & the current spot rate - thats pure arbitrage = free money. You buy one sell the other & either hold the position to expiry, or trade out of it when the basis flips the other way. There are a ton of prop desks around the world with automated systems tracking & trading this 24 hours a day. Back in the day the mispricing was huge. Nowadays it gets whacked back into line before you'd ever notice it, except in situations of extreme volatility.

So as was mentioned, pure arbitrage is the reason the futures "follows" the spot.

Hope this helps,
Brian

Sent from my SM-N900 using Tapatalk


dom64 View Post
totally agree Brian as I stated in one line too but far less detailed that your explanation! Thanks, that will satisfy all those curious minds! ;-)

Thanks @dom64 and @bebop for the explanation! This "whacked back into line" is especially pronounced on the thinly traded E7...I traded it a bit and it was not fun..the deeper M6E is much better.

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  #2287 (permalink)
 JohnS 
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taking the short view today looking at a scalp towards S2 depending on the price action at S1. Good Trades everyone! John


edit: closed at 1,1257

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  #2288 (permalink)
Thxo
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JohnS View Post
maybe the euro will break out to the upside of this triangle but on the other hand perhaps a small double top may have formed (the highs from 4th and 10th with reducing volumes) so we may test the lower side of the triangle. Jobless report this afternoon so we shall see..

Thanks , i think i'll start looking for buy setup at the end of asian session ... we'll see.

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  #2289 (permalink)
 
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 chr1s 
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dom64 View Post
I thought this was more of a EUR-USD thread but this is turning into the basics of Futures contracts.
The "point" of trading from a DOM on the 6E is that it is a centralised market, where you can see Limit orders vs Market orders, exchanged volumes, and open interest.
FX is an OTC market and does not have the above and you don't get an official DOM.

Although the 6E follows the spot as it is initially a contract on the spot, this should be seen as separate instruments. So choose to work the spot or the Future contract, and big orders on the spot will be "priced" in the 6E so no need to worry that you will not see what happens on the spot if you look at the depth of the 6E (you will never see what happens on the spot anyway). Not sure what the last part means in relation to bank orders sorry.

Thanks dom64 and debop for patience and explanations. What I meant by "banks orders" is that very large spot traders who don't trade futures can have their orders waiting which are invincible to anybody including 6E traders. The arbitrage will make the price follow but there will be no 6e market depth reason for the move (if they caused a blip) if they didn't hedge or placed the same order in futures - unlikely situation though

Thanks
Chris

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  #2290 (permalink)
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Thxo View Post
Thanks , i think i'll start looking for buy setup at the end of asian session ... we'll see.

Change of plan ... long here,



will hold until end of asian session ...

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