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Spread Trading Futures
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Spread Trading Futures

  #1 (permalink)
Elite Member
Lubbock TX
 
Futures Experience: Intermediate
Platform: NinjaTrader
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MWinfrey's Avatar
 
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Spread Trading Futures

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?

Thanks,
Mike Winfrey

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  #2 (permalink)
Quick Summary
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  #3 (permalink)
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Mike,
FWIW, your fellow Texan Joe Ross has a free spread newsletter.
Been meaning to look into it myself as well, just not gotten around to it.
Here's the latest, but earlier issues are also available:
Joe Ross' Spread Trading Newsletter presented by Andy Jordan

Also, might want to search futures.io (formerly BMT), as I think there's been some thread on this before.

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  #4 (permalink)
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I've looked at spreads trading before, note that if you are trading the same instrument and charting the last price, it may look like the spread is larger than it really is at any particular time because the next fill will occur at the bid/ask, not the last price reflected on your charts. When you run a replay you will see they were temporary blips that closed before you could have actually placed a trade. In other words, you aren't going to be a millionaire, sorry.

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  #5 (permalink)
Market Wizard
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I agree . It's difficult to trade the spread on the same instrument/ different months (intra commodity)
It could be better to look at other spreads that are inter commodity market such as:
-Crack Spreads (Oil Vs. Unleaded Gas) called crack because you crack the crude oil into finer components.
-Corn/What Spread
-10 Year Note/30 Year Bond, 2 Year Note/5 Year Note), etc

In my opinion, these are more fundamental in nature than technical although I have seen technical applied to this as well.
Spreads could act as speculative and have the risk as an out right position.
Same risk management and stops should be applied as an outright.

Some of the spreads are recognized spreads by the exchange and could be traded as one future instrument, namely the future just shows the difference between the two instruments.

Make sure you understand if you are long or short the spread.

PM with any questions about optimusfutures (800) 771-6748 (561) 367 8686. THERE IS A SUBSTANTIAL RISK OF LOSS IN FUTURES TRADING.

Last edited by mattz; September 13th, 2011 at 12:48 AM.
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Don't forget about SPAN, margins can be substantially lower on spreads.

A few books to get started:

https://www.traderspress.com/detail.php?PKey=526 (very superficial)

Amazon.com: Futures Spread Trading: The Complete Guide (9780934380485): Courtney Smith: Books

Amazon.com: The Encyclopedia of Commodity and Financial Spreads (Wiley Trading) (9780471716006): Steve Moore, Jerry Toepke, Nick Colley: Books

Websites worth checking out:

Welcome to Moore Research Center

Home

You should also have a look at the Education section on the CME website.

Attached Thumbnails
Spread Trading Futures-futuresspreadsoncmeglobex.pdf  

Last edited by Lornz; September 13th, 2011 at 07:06 AM.
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  #7 (permalink)
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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

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  #8 (permalink)
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Mike,

I have traded spreads on the Dailies, both inter & intra-market and I would not rule out either. In my case it was mainly seasonals and Moore Research are good support for this. I used to chart the spreads in TradeStation.

However, perhaps your original thought was intraday & intramarket spreads ? I have not found much useful information for this & I have looked around a great deal. If I decide to have another crack at it (no pun intended), I will most likley spend $6500 with this guy (never met or talked to him, only email correpsondence) : SpreadProfessor - Home , which is a big investment !

Remember also that forex trading is a form of spread trading. If you are interested in spread trading equities, there is a good, slightly old thread on Elite about this software : Trading Software for Stock & Forex Traders | Strategy, Systems & Signals Included (link is on their site somewhere).

Good luck with your enquiry.

J.

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  #9 (permalink)
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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?

Thanks,
Mike Winfrey

my take... lower margin only if the FCM supports and understands spread trading for non-exchange traded spreads... Velocity for example will not save you on the margin as it wont recognize a custom spread and will be based on the outrights..

less slippage? I guess that is all relevant, a leg could get hung if not executed properly...

less stressful? hmm... depends, you will still loose money, so they are not a risk free trading method by any means... and you will need capital to setup spreads the proper way.. we are not talking here about trading 1 contract... but rather 20-30 contracts at a time easily...

for some training, take a look at the following seminar from IBKR..

https://interactivebrokers.webex.com/interactivebrokers/lsr.php?AT=pb&SP=EC&rID=50396252&rKey=7f7a51374d703f21


and you should read this book..


Amazon.com: Intermarket Trading Strategies (Wiley Trading) (9780470758106): Markos Katsanos: Books


and also, please note that you will need a spreading platform... so XTrader or CQGIC are your only choices, and IMO, CQGIC is the better one.. but that could be a religious war... all I care about is making sure my legs dont get hung.. and CQGIC seems to be doing that so far... which is why I am switching to it full time..

yes @Lornz, you are right... CQGIC is the right thing to use for trading, regardless of cost.. if one wants to make $$$ trading...

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  #10 (permalink)
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Welcome to the "light side", @sysot1t! I'm sure you'll find it quite pleasant here....

Thanks for reminding me of Katsanos' book, I have it here somewhere...

This is also an interesting book:
Amazon.com: Pairs Trading: Quantitative Methods and Analysis (Wiley Finance) (0723812603541): Ganapathy Vidyamurthy: Books

If you have any tips for good sources on StatArb, send me a PM. Like, e.g., a pdf of Stephen Smith's book?


Last edited by Lornz; September 16th, 2011 at 11:01 AM.
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