What could these beneficial terms consist of do you think? I'm asking because I have some hopes for this since the e-micros have been a nice addition, and this could provide products to get familiar with other commodities potentially, though no list of proposed products has been made available that I'm aware of.
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Probably nothing that would adversely effect you as a retail investor, probably more things that would hurt other liquidity providers competing with them.
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I would love to try out all these different products and I hope it becomes successful, one of the things I intrinsically like about the markets is discovering all the different behaviors between the different products, this would be a lot of fun (in theory) if it happens.
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Interesting stuff. But I'll quite certainly wait until NT Brokerage decides to offer them in their range of exchanges before looking further into this.
Not keen on being a fast adopter in this particular field
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Indeed. I initially signed up to be a member the day before I traded my first live trade, around Jan 4 2019. I was really excited about this at the time because I was about to switch from sim-trading to actually trading the ES with real money and I thought these smaller contracts sounded amazing. This was obviously before the E-Micros emerged around May 2019.
They still haven't contacted me to collect the $100.00 to be an official member and I think I was pretty early on the list. A lot of the site is a work-in-progress too. I don't see anything on their calendar about going live and the fees aren't provided yet:
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I don't know if their offer below I first saw last year is still on or not, excerpt:
"Pay once. Save every time you trade the Smalls. A one-time payment of $100 gets you:
A Lifetime Subscription. No annual or renewal fees.
50% off exchange fees. Give up less to place trades.
Reduced market data fees. See our quotes for less.
In my case, I signed up back in early January of last year because the small contracts (which hadn't been defined yet, only that they would be ~1/10 the size of the standard corresponding contracts) sounded like a great way to learn about different instruments in different asset-classes. The CME had not created the E-Micros yet so this was a novel idea to me at the time as a new trader.
To be fair, I'm feeling mixed about it now. I don't know if a composite or "global" oil or precious metals contract will have the same "feel" as CL or GC (ie. like what MES is to ES) or if I even have the same learning needs I had early last year. I think they sound interesting nonetheless and if I get the reduced-fees deal I will probably try it out.
It was never about the cheapness of the commissions/fees for me though, it was about the opportunity to learn at less overall risk. I would say some of my perspective on this has changed with time and some more trading experience. I know very little about trading interest-rate futures so maybe the S10Y would be good for that, who knows, maybe I should bite the bullet and trade /ZB or /ZN. But I always thought of these contracts more as tools for learning/experience/scaling-up and never really cared about the commissions, etc.
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SM75 \ Small Stocks 75 - Small Stocks 75 finds the most active stocks from the five major sectors - technology, industrial, energy, financial, material - and adjusts with shifts in the equity environment to give you an engaging stock market at all times. What 75 stocks? What Index?
SMGO \ Small Global Oil - Small Global Oil blends multiple crude oil benchmarks into a single index that reduces exposure to specific geography and represents a greater world of crude. What Benchmarks? What weighting?
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Thanks. Surprising that information isn't available at the exchange website! Still don't see where it says what the SPRE (Small Precious Metals) financially settles against. The weightings are well explained but what is the reference price?
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You have details for contracts if you click on the right side "Prices".
When you are on the contract site look at text under margin
"Click here for this index's components and weights". Click word "here" red text.
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Yeah I saw all that. Very interesting. I can see that the 'Small Precious Metals' is 69% Gold, 24% Silver and 7% Platinum. What I don't see is when this contract financially settles, what does it settle against? It needs a published price to settle against!
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I wonder if I sign up for the subscription and few years later this picks up I will now be considered a professional for CME - hopefully this will enable some market competition and CME fees get adjusted
I almost went ahead and paid the $100 to get signed up with The Small Exchange - but since it's so new and two of the markets.products have yet to be released ( Global Oil and the 10 Year ) I wanted to get other Traders perspective and thoughts on this new Exchange
The Intra-day and Overnight/Maintenance Margins are very appealing, especially since they would allow for Swing Trading, as well as Position sizing
Is anyone currently trading these Products?
Who did you sign up with/go through in Order to trade The Small Exchange?
What was the account minimum
I'm going to sign up soon - wanted to get others thoughts and perspective before I did so
I have the subscription but I got it for free with my TastyWorks account. I am a little disappointed that they only have 3 contracts types right now but they have at least 2 more coming (GO and 10Y as you mention) plus they keep talking about others that'll come out soon.
I haven't made any trades yet because I like to use Tradingview as a charting platform and they don't have Small Exhange Indexes or Contracts available yet.
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The Small Exchange launched a new product in December for the 10 year treasury yield.
Robert
Desc:
Small 10YR US Treasury Yield simplifies variables in interest rates into a single, succinct yield so that you can skip the calculations that translate yield to price.
I have been trading the small exchange for several months now and have found it to my liking. The overarching reason is because it allows me to hold a futures contract for a extended period of time (days) while reducing the risk of blowing up my account.
To put into context:
the SM75 which closely follows the Russel 2000 closed today 62.88. If the price were to go to zero the most you could lose is $6288.00. If the Russel 2K micro were to go to zero the most you can loss would be $98,200. (based on todays close). While the Micros are great products you can still end up blowing up your account in very short amount of time.
I would recommend any beginner trader to consider trading these products. Its a good way to learn trading while reducing overall risk and allowing you to have skin in the game for longer than 5 minutes at a time
Below is my results for 2020. Nearly every one of these trades I held for multiple days.
Robert
disclosure: I signed up to the Small Exchange when they first opened. As a result I receive reduced commissions for life.
nosce te ipsum
You make your own opportunities in life.
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Hi guys,
It is my pleasure to welcome Michael Gough @ The Small Exchange for our 408th webinar event, sponsored by DTN, on Thursday, January 14th @ 4:30 PM Eastern US.
I want to thank @DTN IQFeed for making this webinar possible by sponsoring it.
The title for the event is "Introducing The Small Exchange: Markets That Make Sense", and bullet points include:
The Small Exchange is making futures markets more accessible to more people with products that are small, standard, and simple. Stocks are expensive. Traditional futures are complicated. The Smalls are a new kind of product that pair the efficiency of futures with the clarity of stocks. Michael Gough will be guiding you through the Small Exchange offering and introducing its newest product - Small Treasury Yield - the first product to allow interest rate trading in yield instead of price.
- Access the exclusive efficiency of futures with products designed for the everyday investor.
- The Small Exchange offers small, standard and simple futures for the everyday investor.
- Pair the capital efficiency of futures with the clarity of stocks.
- The Small Exchange offers commodity, foreign exchange and equity index futures 10% the size of other futures.
- Futures contracts can be more capital-efficient than stocks, but their complex design and large size have kept investors from adopting them for speculative and risk management needs. The Smalls offer the best of both worlds with products that are small, standard, and simple.
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Like the idea but I'm skeptical. Futures trading can be divided into two categories hedging and speculation. I doubt anybody is hedging with these contracts so that leaves us speculation. I would divide speculative trading into three broad categories, 1/ Fundamental, 2/ Technical and 3/ Market Making/Arbitrage/HFT. While obviously you can trade the Small Stock 75 fundamentally how do you trade a 'Precious Metals Contract' that is a mixture of three differing precious metals. How does an Market Maker/Arbitrager trade a contract that small and that is also based upon three other contracts? Who does that leave? Technical traders trading against other Technical Traders?
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I have used them for delta hedging, pairs trades and speculation. Precious Metals basically moves like gold which I believe is the largest asset. The biggest issue with them right now is the liquidity.
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The small exchange is a great idea but I am wondering about the both: Liquidity and intra-day margin and maintenance margin.
S75 has a traded volume 203 ONLY - so I expect that trading actively bid/ask spreads on a market order can be huge cost. So only way is to trade on a limit such that market maker algo can fill you. How they can control the instrument follows the index without someone coming to manipulate the market... like if I pushed 10 contracts on a market order it would push the market higher with no liquidity !
On another hand, how come the intraday margin of these products are 5 times a normal micro MES ! and even the maintenance margin is so high ....
I think it is a great idea, specially for the yields SY10 but there is no liquidity at all in the market .. Only 40 contracts Yesterday,..
I hope by time they can bring more traders but till then this is somehow still not efficient for any active intra-day trading but the margins are huge to hold overnight .... Anyone traded this live ? May be my view is not right and we need someone who traded live to let us know their experience ... Hope they can tell us why such margin and why no liquidity. I will check the video once processed ...
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I was just reading some posts by Sierrachart support concerning Rithmic and I came across a sentence that makes me believe that soon small exchanges will be tradable through Sierra. Look at the picture below.
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I thought it was a good presentation. Michael Gough did an excellent job. He was extremely clear and spoke at a very even pace. The presentation covered all the relevant topics in a succinct way. I really like the way they have sized their contracts, all with $1 ticks.
I know a lot of people like the fact that the S10Y/10 Year Treasury is priced in Yield rather than Bond prices. I myself do, especially after having started trading Eurodollars last year (which are also priced in Yield not Bond prices, but the price is 100 minus the Yield so 99 represents 1%). The problem is bond prices do not move linearly with a change in interest rates. So if you are a big trading desk you are more interested in a product that hedges the non-linear bond price, than you are one that hedges a linear yield price. This brings me back to my question of who is going to use these products. The answer seems to be very small traders. While they may be excellent products for those very small traders, the question then becomes will there be enough small traders to get these products to the critical mass needed? Obviously a product like MES (S&P500 Micro) has been amazingly successful. But it's a derivative of another highly liquid product. There's an endless list of companies willing to make markets in MES 1 tick wider than ES. If the exchange is paying designated market makers a rebate, then those market makers are probably making the market the same as ES just to earn the rebate. Unfortunately there is no comparison for these Small Exchange Products. What are you arbing a precious metals contract that is approximately 80% gold against? If you arb it versus GC or MGC, that 20% basis risk that isn't gold will easily kill the 1 tick profit you hope to make. Hence as impressed as I was with the presentation, and with the contract size design, I unfortunately remain skeptical.
I spoke to Trading Technologies yesterday. They currently have no plans to add Small Exchange connectivity.
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I have watched the webinar about the small exchange and there are several questions that come to my mind.
First of all I understand completely the premise and the reason for this exchange to exist. Also I can see the Tom Sosnoff's philosophy behind the small exchange idea.
I have watched their taste trades channel for years, because it's very fun. However his vision is quite different from the vision of a day trader and above all from the vision of a futures day trader.
Basically he thinks that people should always have a foot in the market and make small trades just to implement their ideas about the market. The trades he takes are mostly non directional (delta neutral), basically he thinks that markets are 100% efficient and you cannot predict the direction of the market (listen to his interview on Chat with Traders). So most of his trades are based around theta decay, in options.
In my opinion the philosophy behind this exchange looks like this: you are a small investor and you hear that FED reduced the interest rates, so you have a bullish vision on commodities in general. Then you want something to gain exposure to commodities without much risk, so you buy a couple of contracts of their product which is a mix of Gold/Platinum etc... and you are exposed with a risk of a couple of hundreds bucks.
But how does this work? who moves the price of these futures? I think the only reason for these futures to move, is because there will be some big brokers acting as market makers. So who are we competing against? Will there be run for stops, resistances, supports etc?? who is moving these markets?
Now let's put Tom Sosnoff's ideas about day trading into the picture, this is what he believes (check the inverview with Chat with traders here https://www.youtube.com/watch?v=VOrTAaAhXXA:
1) there is no way to beat the market and even quantitative models are bullshit (Tom's word in ChatWithTrader interview at minutes 22 to 25)
2) forget technical analysis.... markets are random (min. 25 to 27 of Chat with traders interview)
3) you can only make money through a statistical edge based on mean reversion of volatility. ( first part of the interview)
Basically if you believe Tom's vision of the market, you should definitely not trade in the small exchange.
However as futures traders, we believe we can "beat the market" by making directional bets and Tom offers us the chance to do so by market making, and taking the other side of any of our trades as a market maker.
Just to make it clear, this is not a critique to Tom Sosnoff that I really like, it is simply my perception of how this exchange fits into the overall picture.
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I like his points very much. I don't completely agree with 3, but it's certainly one way. I'm just curious to hear @artemiso's and @SMCJB's thoughts on those bullets in particular, having not much to do especially with this thread... But because I love hearing from those two respected traders. I would ask @josh too but he's taking a break it seems.
I think, in fact, an entire thread just discussing those three bullets would be great, in order to hear from everyone else.
As someone that has followed them for daily entertainment and market engagement, the TT trading philosophy and his trading are on opposite ends. If you watch the show and pay attention to what he's doing he is constantly scalping. Its usually them talking between themselves saying to the other "oh just scalped NQ for a few". Also, the platform shows most of his trades and they are not all 45 DTE options.
Also, the small exchange is ran by a separate group with Pete (a futures guy).
Too much is being read into the TT method and the exchange.
sorry, I was not very precise in describing point 1 and 3.
Tom Sosnoff thinks that you cannot beat the market by taking purely directional trades, so let's say that my method is just going long/short NQ, GC or any other markets, according to his vision there is no way to develop an edge because market is random. Since he is a great believer in the whole option paradigma and the BlackSholes model etc... then market are efficient and you cannot beat them. (this is point 1)
However markets have the tendency to go from one state of high volatility to a state of low volatility and this creates an "asset class" (i.e. volatility) that can be traded efficiently because whenever the volatility increases then you can bet that it will contract. So you are a volatility seller. (point 3)
So if you believe in the option "world view" (I don't) there is no contradiction.
In my view trading options is like any other kind of trading, the fact that options strategies are more complicated to understand than futures does not mean that you will make money by simply building mean reverting strategies based on vol. contraction.
Also, I have the feeling that options trader often misunderstand a math hypothesis that was "assumed" (and never tested) to build an elegant mathematical model, with an absolute truth.
I read the work that gave the nobel price to Myron Scholes and Robert Merton for the BlackScholes model for option pricing. Ok, it's an elegant paper and an interesting math proof but honestly is far from reality.
The assumptions in the paper are "standard" assumption that have a long story in telecommunication engineering and they all come down to the fact that the genius of Claude Shannon applied telecommunications concepts to the markets.
I have observed throughout the years that many options trader have this myth of the options price model, but one reason for it is that they have really no formal math background. Tom Sosnoff is a genius but he is not a mathematician. I am not a pure mathematician either although I was doing an applied math Phd in the past... I am not an expert in BlackScholes r but I read the paper for what it is.
A great model, but very far from reality.
Quite interestingly if you build a simple market simulator and assume that price increase are gaussian distributed you can make money by simply taking random trades with risk reward above 1:1. The only condition is to have both stop and targets within the standard deviation. (I did this experiment).... so if the model was correct you could actually beat the market with directional bets. jajjaaj
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Fascinating.
But, I thought an edge would become apparent by having a stop outside standard deviation and target within? Placing stops in statistically insignificant zones means lower likelihood of being stopped out?
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yes that's correct and this is very intuitive: since your stop is outside the standard deviation, it will get reached very rarely, while your target will be filled quite often because it's inside the one standard deviation area.
The question is what happens when they are both inside? My understanding was that in the region of the one standard deviation we are basically trading within noise and there should be no edge.
But when I built the simulator (assuming my simple model is correct) I discovered that even within sigma, if your risk reward is decent, you make money.
The implication is that in this scenario "there is no such thing as noise".
Let me explain, we normally think about noise (in engineering terms) as a random process with a normal distribution, and the common belief is that since noise is "random" you should not trade it. But if you can make money trading within one sigma then it means that you can basically trade noise (of course this is a purely theoretical scenario with no commissions).
Basically if the price increments are normally distributed and you know sigma, you can trade any timeframe within sigma, even if it's very small and you will always make money.
At first I thought that this was a mistake in the simulator but then I thought about it again, and I realized that this explains the necessity of continuos changes in sigma.
Please be part of the new Thread "the war of two worlds ..." because I plan to raise the discussion about this topic, and I will share some results of my simulations.
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I think the concept of "noise" in trading is very over-rated. It has some value, because it highlights the fact that there are small fluctuations that you can and should just ignore. But one person's noise is another's major trend. (Really . ) I used to think there was such a thing as noise in an absolute sense, which I understood as meaningless random short-term variations that happened way below my chosen timeframe. Now I trade with 30-second bars (which many people would think are insanely short-term) yet find exactly the same types of trades I found on higher timeframes, that are just as exploitable (or not -- I make the same mistakes too -- they just hit me faster .) By the way, psychologically, these timeframes are much more relaxing to me than waiting for a larger bar to close. Again, I think these matters of timeframe are not absolutes, just matters of personal preference.
I would also point out that what is "one sigma," or any sigma, depends on your timeframe too. On my charts, I often plot Bollinger bands with two standard deviation widths, and they look and work exactly as the same bands work on 5-minute or 60-minute timeframes. My 2-standard deviations are microscopically small on these higher timeframes. But, given the periods I use, they work the same way. (I use 1 sigma bands often as well, to help find stronger moves. Again, what is "strong" on my chart is less than minor noise on someone else's.)
(Note: trading activity has a certain granularity. If you get down small enough, and if you go to inactive periods such as the early morning hours in US time in the ES, you will find periods where there simply are no transactions at all, if you are on a short period. But during more active periods you do not see that granularity, and you can see that price movement can be divided very far without enountering untradable "noise.")
What if there is no such thing as noise, except in a relative sense and as a pragmatic judgement about what level of detail you will pay attention to?
Bob.
When one door closes, another opens.
-- Cervantes, Don Quixote
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...
. ) I used to think there was such a thing as noise in an absolute sense, which I understood as meaningless random short-term variations that happened way below my chosen timeframe. Now I trade with 30-second bars (which many people would think are insanely short-term) yet find exactly the same types of trades I found on higher timeframes, that are just as exploitable (or not -- I make the same mistakes too -- they just hit me faster 
.) By the way, psychologically, these timeframes are much more relaxing to me than waiting for a larger bar to close. Again, I think these matters of timeframe are not absolutes, just matters of personal preference.