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Is it profitable to scalp the spead in ES mini


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Is it profitable to scalp the spead in ES mini

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  #1 (permalink)
Pass Christian, MS
 
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With the ES mini, can i get instant fills if i play the spread, sell the ask and immediately buy the bid? And is this profitable?

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  #3 (permalink)
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You cannot get instant fills if you wish to buy the bid and sell the ask. It is the other way round that would get you instant fills

In the scenario you are looking at, the exchange will put you in the queue and on an instrument like the ES the order queue can get pretty long ;-)

Assuming that you can get "instant fills"; that strategy would give you a 1 tick gain per contract or $12.5 for the ES.
But how much would you pay for commissions? It will eat out virtually 50% of your gross profit and that's an expensive way of doing business of course...

With my broker, I pay $4.02 per contract in commissions and that's like 32.16% cost of business.

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tracy View Post
With the ES mini, can i get instant fills if i play the spread, sell the ask and immediately buy the bid? And is this profitable?

Blast from the past moment for me as soon as I read this. And a hilarious one too. Waaaay back, when I had just started out and funded a very small account with TradeStation, I did exactly this in SIM for more than a month - buy the bid and sell the offer and vice versa - AND I told everyone I knew that I am going to be a millionaire because I "figured it out" .

Sorry tracy, but it does not work this way. Limit orders are filled on a first in first out basis so there is no way you or anyone can get "instant fills".

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  #5 (permalink)
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LogicalTrader View Post
Blast from the past moment for me as soon as I read this. And a hilarious one too. Waaaay back, when I had just started out and funded a very small account with TradeStation, I did exactly this in SIM for more than a month - buy the bid and sell the offer and vice versa - AND I told everyone I knew that I am going to be a millionaire because I "figured it out" .

Sorry tracy, but it does not work this way. Limit orders are filled on a first in first out basis so there is no way you or anyone can get "instant fills".

well becky you are right, i am sim trading on NT. but i also sim trade on the CME's sim model and i do very well by using my indicators. what if you were almost 90% sure which way it was going...and can catch the very tops and bottoms. i could stay in and make maybe two or three ticks. but i choose to get out and then get back. i trade about 64 contracts with one or two tick loss. so i dont know what will happen live...but i will be finding out next year

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  #6 (permalink)
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I don't have any experience trading this way or even trading indexes but I had a thought;

What if you were a market taker when it's bid/offered at the price you think is near low/high of the range and then make the market in the direction you think it will break out? Ideally you would take inventory at the midpoint or better of the range and then be easily filled as price leaves the range. Maybe try looking at VWAP to give you some kind of directional bias for taking/making?

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tracy View Post
what if you were almost 90% sure which way it was going...and can catch the very tops and bottoms. i could stay in and make maybe two or three ticks. but i choose to get out and then get back.

I have watched John Grady scalp 2-4 ticks per trade, sometimes more. Thats his game, nothing else. He trades smaller now but I believe he used to do it with size in the past in the treasuries markets so I would say it is very much possible to make a living this way. He trades with a similar philosophy of getting out at the slightest hint of unfavorable conditions when in a trade with the intention of getting back in if he got out too soon. He uses Jigsaw now to help with his tape reading. So yes, if you have a similar method/trading idea, it should work for you.

Good luck.

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Tracy. I totally disagree with those above that say it is possible. You are a retail trader, not a market maker. In real LIVE trading you will be paying for the bid ask spread. Your success at SIM trading is an illusion. Please think twice about the path you are taking. I f you insist on trying it, please do it with one contract ONLY.

After a day or two of REAL losses, you will quickly shelve this plan.

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A friend I trade with is a liquidity provider for CME, as such he pays $0 commission. He scalp trades ES every day, very successfully. He won't look at any other market, ES only. His 'trick' is to trade off levels where price gets stuck. So for a price resistance level, let's say 1837.00 from this afternoon's trade, if you look at a short term chart from today you will see that level very clearly. He will enter at the price resistance level on a limit order, and exit for a 3 tick profit (also a limit order). And he keeps doing that over and over and over as long as the level holds. It is not uncommon for him to repeat that process 20 times in an hour at the exact same price levels every time. So, based on my experience with what actually does work, 1 tick profit + paying retail commission forget it the math doesn't support it. Use the expectancy formula with a reasonable win%, and find what the math supports (don't forget to include the commissions). Also, to even consider something like this you need a 100% rock solid plan to control risk. With such a narrow margin for any error, if even one trade "gets away from you", you could give back a month of profit in that one trade alone. (...lots of small wins and a few big losses is not a winning trading strategy). Managing risk is where the rubber meets the road with something like this.

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trendwaves View Post
Use the expectancy formula with a reasonable win%, and find what the math supports (don't forget to include the commissions). Also, to even consider something like this you need a 100% rock solid plan to control risk. With such a narrow margin for any error, if even one trade "gets away from you", you could give back a month of profit in that one trade alone. (...lots of small wins and a few big losses is not a winning trading strategy). Managing risk is where the rubber meets the road with something like this.

Ditto

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trendwaves View Post
A friend I trade with is a liquidity provider for CME, as such he pays $0 commission. He scalp trades ES every day, very successfully.

@trendwaves

Just for my education ....

How does one become a liquidity provider? What does that mean? What sort of volume do they have to do? Why does he pay $0 commission?
Is he based in Australia like you?

Thanks

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steve2222 View Post
@trendwaves

Just for my education ....

How does one become a liquidity provider? What does that mean? What sort of volume do they have to do? Why does he pay $0 commission?
Is he based in Australia like you?

Thanks

seems more like a liquidity taker

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steve2222 View Post
Just for my education ....

How does one become a liquidity provider? What does that mean? What sort of volume do they have to do? Why does he pay $0 commission?

I am not sure of how it works with the CME, but I would guess that for the most liquid futures contract in the world, the ES, there are no market makers designated by the CME for this contract (why would there be, since it is liquid enough?). But, maybe they do have designated MMs, I'm just not sure of the CME's structure for this.

A market maker is a trader or a firm who quotes both sides of a market. Their primary purpose is to provide liquidity. This means that there are sufficient firm quotes to fill orders from customers. So, firms can register as market makers for a stock and are designated to provide liquidity, and will sell stock to, and buy stock from, other firms and customers. This allows for a less volatile market, one that will invite customers to participate, knowing that a market actually exists, which might not otherwise without a liquidity provider such as a MM. Imagine a farmer's market where only 2 or 3 farmers brought tomatoes to the market. There would be less inventory, potential supply/demand issues, and much less price competition, than if 20 farmers were buying and selling tomatoes. With 20 farmers selling and buying tomatoes, you don't worry about supply issues if there are a large influx of customers, you don't worry about price collusion, and you get a better idea of what a fair price is for tomatoes, compared to having only 2 farmers there.

On a system like NASDAQ, market makers are used and compete with each other, and this serves to increase liquidity and tighten spreads. In return, a designated MM may pay little or no fees, because they are under obligation to have firm quotes (they cannot back away) and must generally offer a minimum quote during normal trading hours. They benefit by capturing the spread because they are entering a 2-sided quote (as opposed to a trader who is directional and is either bidding a market up or offering it down). Note that the NYSE does not have competing MMs but rather has a single specialist for each stock that fulfills duties similar to a MM.

In this light, I suppose it can be said that anyone can act as a market maker or liquidity provider by doing what a designated market maker does, but without the designation, benefits, or obligations.

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steve2222 View Post
@trendwaves

Just for my education ....

How does one become a liquidity provider? What does that mean? What sort of volume do they have to do? Why does he pay $0 commission?
Is he based in Australia like you?

Thanks

I am not a lawyer or a licensed broker, but in simple laymens terms this is my understanding. CME classifies specific 'entities' that qualify for a designation under rule 106. For example a hedge fund that meets the prescribed qualifications has a rule 106 designation which is then used to determine the applicable fee schedule. A qualified seat lessee has a rule 106 designation, and so forth. A subset of the rule 106 designee's may then qualify for the designated liquidity provider fee schedule. For this subset that qualify, CME then uses volume per month to determine a designated liquidity provider's fee for that month, where above 15,000 contracts traded in CME Index Futures Globex products per month the CME Globex Fee is $0.

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josh View Post
I am not sure of how it works with the CME, but I would guess that for the most liquid futures contract in the world, the ES, there are no market makers designated by the CME for this contract (why would there be, since it is liquid enough?). But, maybe they do have designated MMs, I'm just not sure of the CME's structure for this.

I don't know about zero commission, but generally, the bigger you trade, the cheaper the commission per unit traded. If you have a seat on the exchange, it lowers your price per unit further. I wouldn't be surprised if the huge HFT's are at zero commish or close. It never made sense to me, seeing as they don't quite fulfill the functions of a traditional market maker, but I'm sure they have special deals cut with the exchange.

As for the original poster's question, I can tell you from personal experience that getting filled live is MUCH more difficult than getting filled on sim in the ES, especially when you are looking to do true scalping, i.e. buying the bid and selling the offer. True scalping in the ES for an individual (not a computer program) is basically impossible.

If by scalping you mean going for 1 - 3 ticks per trade with equally small losses, that can be done by an individual, but remember that at that level, it's like being a professional athlete and you will have to train like one. If you're having an off day, you have a cold, whatever, you can't trade. In other words, you will require discipline on a level you may not understand yet. I say "may" because I don't know you.

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When I traded spreads with a prop firm we behaved like Market Makers. We were always bid / ask the spread between two markets, we accumulated positions and wound out of them based on a mean reversion strategy. The commissions were very low, I think we paid .20Eur / side, and that was based on the volume we were doing and the deal we made with the clearing house. I traded thousands of contracts per day. We considered ourselves to be Liquidity Providers but most often I felt like a liquidity taker going home with massive positions every day. I think I was responsible for 1% of the FTSE volume for a period of 6 months or so.... No thanks.

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  #17 (permalink)
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The problem I think with scalping for ticks is the Risk/Reward. Your max profit is clearly capped at 1 tick, but it's very hard to keep your risk at 1 tick. If you're long and the market goes offered below your price, you would have to pay 2 ticks if you wanted to exit the trade immediately. Meaning you need 3 full winners (accounting for retail commission rates) to get back to even.

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WolfieWolf View Post
When I traded spreads with a prop firm we behaved like Market Makers. We were always bid / ask the spread between two markets, we accumulated positions and wound out of them based on a mean reversion strategy. The commissions were very low, I think we paid .20Eur / side, and that was based on the volume we were doing and the deal we made with the clearing house. I traded thousands of contracts per day. We considered ourselves to be Liquidity Providers but most often I felt like a liquidity taker going home with massive positions every day. I think I was responsible for 1% of the FTSE volume for a period of 6 months or so.... No thanks.

How much did you make yourself on an average good day if you don't mind me asking?

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Itchymoku View Post
How much did you make yourself on an average good day if you don't mind me asking?

Sorry mate I'm under NDA not to discuss the particulars.

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  #20 (permalink)
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It may be possible to make money as a retail trader scalping the spread on the ES, but I've never seen it done successfully.

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jeheald View Post
It may be possible to make money as a retail trader scalping the spread on the ES, but I've never seen it done successfully.

I agree with you on that jeherald. Mathematically trading the ES spread just doesn't make much sense. In a practical sense, 3 ticks minimum, 4 or even 5 ticks gives some breathing room with a more realistic stop loss.

Anyone that wants to learn a proven method to scalp 4 ticks in the ES, I would suggest reading these two excellent trading journals here on futures.io (formerly BMT)...




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FYI traders at prop firms doing volume will have c. 40c RTs on ES. Most use some form of averaging.

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Another problem with this strategy is in a fast moving market, you won't even get fill confirmations until you're > 20 ticks offside.

You could try exploring your strategy on a thinner market where queue position isn't so important

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jadynb View Post
Another problem with this strategy is in a fast moving market, you won't even get fill confirmations until you're > 20 ticks offside.

You could try exploring your strategy on a thinner market where queue position isn't so important

Not sure what market your even talking about. With a good broker/order routing service fill confirmations for the ES are on the order of milliseconds. ES and "fast moving market" should never appear in the same sentence

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