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Spread / Pairs Trading - the allure and the reality
Just an update on this. I made a neat profit on the Soybean-Corn spread so I could end of the month on a positive and also pushed the year to date into profit.
Currently in on Lean Hogs Jun-Feb16 spread.
Can you help answer these questions from other members on NexusFi?
Synthetic is when you construct the spread your self by simply long one leg, short one leg of a spread, could be calendar intra-market or inter-market. For example, many of the crack spreads are exchange traded now, where as if i wanted to construct a spread from the NK and the ES, i would have to do this by legging into them manually.
This is just an idea and a question. The MACD indicator calculates the difference between typically the 12 EMA and the
24 EMA and then uses a 9 EMA to smooth the difference. (Hope I have this correct.) Is it possible to modify the
MACD to subtract say a (Jan CL 5 unit futures moving average) from a (Mar CL 5 unit futures moving average) (Mar CL 5 unit futures moving average - Jan CL 5 unit futures moving average ) and use a smoothing moving average (probably small) to produce an indicator? (The number 5 is only used as an example.) So instead of the MACD charting a single index or other, it would chart the spread differential (using 2 futures moving averages )? This might produce a better spread chart?
These 2 are highly correlated. It would be difficult to obtain much difference between the two, but I have never
traded them. I have traded successfully the spread (ES-YM) . At IB the margin for this is aout 2k.
Trading: Primarily Energy but also a little Equities, Fixed Income, Metals and Crypto.
Frequency: Many times daily
Duration: Never
Posts: 5,049 since Dec 2013
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The ES spread is theoretically just a function of interest rates and dividends and as such should be arb-able. Hence it doesn't move very much. Also while ES itself trades in quarter points/$12.50 ticks the spread trades in twentieth's or just $2.50/tic and it's one tick wide, hundred's up. So not saying it can't be done, but I think it would be very difficult. Also front spread is basically the only thing that trades.
