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Question on CME Price Banding?
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Question on CME Price Banding?

  #1 (permalink)
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Question on CME Price Banding?

Hi guys,

I'm struggling to understand how price banding works. - http://www.cmegroup.com/confluence/display/EPICSANDBOX/GCC+Price+Banding

From the above link it states the last price is the reference price during trading hours where the price band variation is formed around. I next found this document but have trouble understanding how to use the price band number to find the maximum price limit which the symbol will accept - https://www.cmegroup.com/globex/files/PriceBanding.pdf

Here's what I've tried out:

Current Price of Gold - 1100
Entered Buy Stop Limit - Stop @ 1113.0 / Limit @ 1135.4 >> Rejected
Entered Buy Stop Limit - Stop @ 1113.0 / Limit @ 1124.2 >> Accepted

In this particular case for Gold (GC) the document puts 120 under the column price banding but I am confused what it represents and how to utilize this into the calculations above. Any comments appreciated thanks!

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  #2 (permalink)
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  #3 (permalink)
Market Wizard
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Ming80 View Post
Hi guys,

I'm struggling to understand how price banding works. - GCC Price Banding - Electronic Platform Information Console - Confluence

From the above link it states the last price is the reference price during trading hours where the price band variation is formed around. I next found this document but have trouble understanding how to use the price band number to find the maximum price limit which the symbol will accept - https://www.cmegroup.com/globex/files/PriceBanding.pdf

Here's what I've tried out:

Current Price of Gold - 1100
Entered Buy Stop Limit - Stop @ 1113.0 / Limit @ 1135.4 >> Rejected
Entered Buy Stop Limit - Stop @ 1113.0 / Limit @ 1124.2 >> Accepted

In this particular case for Gold (GC) the document puts 120 under the column price banding but I am confused what it represents and how to utilize this into the calculations above. Any comments appreciated thanks!

For the current standard values of CME futures and options see http://www.cmegroup.com/confluence/download/attachments/59179354/globex%20produc...ate=1452862690000&api=v2

In case of special events, these values are modified during the session and a special announcement is made via MDP.
The sense is pretty clear: CME isn't interested in moon or stub limits which only have a chance for a fill in case of disruptive events.

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  #4 (permalink)
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Ming80 View Post
Hi guys,

I'm struggling to understand how price banding works. - GCC Price Banding - Electronic Platform Information Console - Confluence

From the above link it states the last price is the reference price during trading hours where the price band variation is formed around. I next found this document but have trouble understanding how to use the price band number to find the maximum price limit which the symbol will accept - https://www.cmegroup.com/globex/files/PriceBanding.pdf

Here's what I've tried out:

Current Price of Gold - 1100
Entered Buy Stop Limit - Stop @ 1113.0 / Limit @ 1135.4 >> Rejected
Entered Buy Stop Limit - Stop @ 1113.0 / Limit @ 1124.2 >> Accepted

In this particular case for Gold (GC) the document puts 120 under the column price banding but I am confused what it represents and how to utilize this into the calculations above. Any comments appreciated thanks!

The 120 is ticks, so $12 is the maximum between trigger and limit prices for a stop limit. Is there a reason why you would want to have such a large difference?

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  #5 (permalink)
Market Wizard
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Jolew View Post
The 120 is ticks, so $12 is the maximum between trigger and limit prices for a stop limit. Is there a reason why you would want to have such a large difference?

You can guess that pretty easily, e.g. event / news / crash trading combined with a defined protection - outside of the CME
volatility standards in this case. In case of disruptive events this kind of orders tends to create or aggravate domino effects
in the fat tails of the volatility distribution. That's why they are curbed within the normal volatility expectation with good reason.

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choke35 View Post
For the current standard values of CME futures and options see http://www.cmegroup.com/confluence/download/attachments/59179354/globex%20produc...ate=1452862690000&api=v2

In case of special events, these values are modified during the session and a special announcement is made via MDP.
The sense is pretty clear: CME isn't interested in moon or stub limits which only have a chance for a fill in case of disruptive events.

Thanks a lot Choke and Jolew,

I guess I understood it wrong when I thought it was the (last traded price + price band variation) but it should be the (trigger price + price band variation) instead.

The idea for this was to use stop limits but to give it as much breadth as possible so as not to miss orders (much like stop orders). In addition, to also measure the differences in slippage between these 2 different types of orders.

Choke, I couldn't find anything on moon or stub limits, are these the same as the 5%/7% circuit breaker price limits for e.g ES? Thanks again.

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  #7 (permalink)
Market Wizard
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Ming80 View Post
...

Choke, I couldn't find anything on moon or stub limits, are these the same as the 5%/7% circuit breaker price limits for e.g ES? Thanks again.

After the 2010 flash crash when the futures were battered and stocks were ripped e.g. more than $30 (like P&G) or even down to
<$0.10 (like Accenture) the policies were modified. Before it was quite common to place limits (sells and buys as well) that were very
far from the market and that dropped like dominoes as soon as liquidity dried up.

A - very simplified - example: When the order book fell dry and market makers were obliged to quote, but didn't want to trade, they just
widened the spread - in extreme cases down to the stub of $0.01 in the case of Accenture during the flash crash. Naturally the results
for stop losses etc were catastrophic while bargain limits with no real chance in ordinary markets got fabulous fills. (Many of these trades
were annuled later.)

The insight wasn't new that these kinds of limits were comparably low-risk options in catastrophic events, but after the flash crash it was
the first time that there was a regulatory reaction - for futures and stocks as well, and also for some role definitions of market makers,
specialists, and HFT systems.

The current circuit breakers are designed to mitigate such events. If they work as intended is in the eye of the beholder.

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