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Spread Trading Futures
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Created: by MWinfrey Attachments:2

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Spread Trading Futures

  #11 (permalink)
Elite Member
Lubbock TX
Futures Experience: Intermediate
Platform: NinjaTrader
Broker/Data: Stage 5 Trading
Favorite Futures: CL
MWinfrey's Avatar
Posts: 1,879 since Jul 2009
Thanks: 1,449 given, 3,310 received

Is anyone using the Index indicator found at https://futures.io/download/ninjatrader-7/indicators/889-download.html

If so, how are you using it and can you give an example.

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  #12 (permalink)
10 out of 10
Sacramento, CA
Futures Experience: None
Platform: None
Broker/Data: OX and DeCarley
Favorite Futures: Futures options
eudamonia's Avatar
Posts: 310 since Jul 2010
Thanks: 303 given, 425 received

@sysot1t You mentioned that some FCMs won't accept non-exchange traded spreads such as Velocity. Which brokers other than IB (not a huge fan) would let you build your own spreads (mostly interested in EOD type stuff)?

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  #13 (permalink)
Membership Permanently Revoked
Futures Experience: Intermediate
Posts: 1,176 since Nov 2009
Thanks: 221 given, 847 received

eudamonia View Post
@sysot1t You mentioned that some FCMs won't accept non-exchange traded spreads such as Velocity. Which brokers other than IB (not a huge fan) would let you build your own spreads (mostly interested in EOD type stuff)?

I get credit (margin wise) from crossland, and that can also be done with advantage... what it comes down to is the FCM has to recognize the position... what I ended up doing with crossland is that I have an account only for that, and I dont do anything else other than that in there...

btw, I think if you were a "pro" Velocity would do it.. after all, I see guys trading power and options on the LB and those products are not even offered to their retail clientele... so I imagine they can, they just rather dont do it for the little guys with under $100K..

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  #14 (permalink)
Just a boy
Auckland, New Zealand
Futures Experience: Beginner
Platform: Sierra Chart
Broker/Data: AMP/CQG
Favorite Futures: Whatever moves in my timezone
Posts: 1,808 since Sep 2009
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Pairs Trading

MWinfrey View Post
Thank you all for your comments. Good stuff. These notes get me further in a few minutes than I was in all the "research" I did online.

I'm seeing several things that I will look at based on your comments. I'm summarizing them below for me and if I continue this effort, I will modify as time goes on.

I searched futures.io (formerly BMT) prior to posting and there isn't much here or at least I didn't find much which is why I started this thread.

1. most disappointed that I won't make millions because that's what ALL the websites claim. Do you mean they are blowing a bunch of hot air? That's rhetorical...guess that should be a sign for me to increase the number of riding lessons I give and forget about spread trading. lol
2. will look at inter commodity as opposed to intra commodity.
3. be aware of bid/ask as opposed to last
4. look for exchange recognized spreads
5. make sure i understand if I'm short or long the spread
6. review the pdf at https://futures.io/index-futures-trading/13505-spread-trading-futures.html#post153363


Sometimes called 'Pairs Trading' - try searching that.

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  #15 (permalink)
Market Wizard
Philly, Pa
Futures Experience: Master
Platform: NinjaTrader
Favorite Futures: ES, ZB
tigertrader's Avatar
Posts: 5,948 since Jul 2010
Thanks: 6,314 given, 31,931 received
Forum Reputation: Legendary

MWinfrey View Post
I'm trying to understand spread trading futures and not getting very far. I understand the different definitions of spread trading and am focusing on intramarket spread trading. I understand that means to trade the same market but different contracts. My research tells me this form of trading is cheaper, less susceptible to slippage, and a lot less stressful. May be other advantages as well. However, I haven't for a spread trading futures for dummies that explains with simple words and nice pictures how you do it. Also at this point I'm cheap and don't want to spend money on it if I don't have to. Can anyone offer any specific examples and further, can anyone recommend a "for dummies" kind of book that I can download?

Mike Winfrey

Just like trading out-rights, you first have to consider what your trading strategy is going to be. Are you going to be trading with the trend, or are you going to be using a mean reversion strategy. In other words, if you are trading with the trend, you are going to be buying the stronger month and selling the weaker month, or buying the stronger contact, and selling the weaker contract.

In a normal "carrying charge" market, if you are buying the front month and selling the deferred month, you are putting on a bull spread and you are expecting the spread to come in. If you are selling the front month and buying the deferred month, then you are putting on a bear spread, and expecting it to widen. If you are trading with the trend, you will most likely be buying the spread when the market is trending up, and selling the spread, when the market is going lower. If the market pulls back in an up-trending market, and the spread widens, you would want to buy the spread, expecting it to resume it's narrowing trend. Conversely, if the market market was in a downtrend trend, you would look for the spread to narrow on a market pullback, and put on a bear spread, expecting it to widen, when the market resumed it's trend.

In a mean reversion strategy, you are looking for spreads that widen too far or come in too much. In this case you will be fading the spread, instead of trading with the spread; selling the strong leg and buying the weak leg. When a spread comes in too far or gets too cheap, you will want to sell the spread, expecting it to revert back to it’s mean, and when a spread goes out too far, you will want to buy the spread, hoping that it narrows and reverts back to it’s mean.

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pointed out, most platforms, do not provide spread trading functionality. This means you have to leg your spreads on, and you have to leg your spreads off. Most likely, giving up the edge on both legs of the spread when you put it on, and when you take it off. One of the advantages to trading spreads on the floor, was that you could get an edge on at least one leg of the spread if not both. When it came time to cover the spread, you could either leg out of the spread getting the edge on one or both legs, or get out with the edge, against the spread paper. Another consideration, and perhaps the most important, is you are unable to physically place stop orders, so trade management has to be done manually.

In my opinion, the disadvantages to trading spreads makes it less than an optimal strategy, if not a prohibitive one, when done electronically. It is far easier to trade out-rights, and if you put on a spread and it is profitable, then most likely, it would have been more profitable if it had been an outright position.

The one possible exception is trading calendar spreads in the grains, when they are at full carry. Although, it doesn’t happen often, it’s the time when you want load up. Spreads will not trade past the cost of full carry, so you can put on bull spreads, and not have to worry about the spread going out on you.This was an extremely profitable, almost risk free strategy, that I utilized when I was in the bean pit.

Last edited by tigertrader; October 24th, 2011 at 11:19 PM.
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  #16 (permalink)
Elite Member
Futures Experience: Advanced
Platform: NinjaTrader
Favorite Futures: 6E,TF, CL
Merlin997's Avatar
Posts: 14 since May 2011
Thanks: 26 given, 2 received

Is anybody traiding Commodities Spreads with NinjaTrader? Do you use the Index indicator found at https://futures.io/download/ninjatrader-7/indicators/889-download.html ?

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  #17 (permalink)
Elite Member
Mumbai, India
Futures Experience: Intermediate
Platform: MT4, NT7,eSignal
Broker/Data: AMP/CQG
Favorite Futures: Index,currencies
indiantrader's Avatar
Posts: 105 since Jul 2010
Thanks: 314 given, 134 received

Found this indicator that charts spread as candlesticks and can be used as an input to other indicators.

Links and Downloads Manager - NinjaTrader Support Forum

A spread trading DOM also available as a commercial strategy here.

spread trader

Would like to know if anybody is using Ninjatrader to chart the spreads and what tools they are using.

Attached Files
Register to download File Type: cs SpreadCandlesticks.cs (16.4 KB, 85 views)
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