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Outright or Spreads?


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Outright or Spreads?

  #31 (permalink)
 
BenG's Avatar
 BenG 
London/UK
 
Experience: Intermediate
Platform: NT7 and MT4
Trading: Dax, ES, FX, Gold and Oil but what Bund and Bobl also.
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joeyk View Post
What do spread traders mean when the say I am looking for the mean reversion?

I've found out some information about these spread traders. I know a guy who knows a guy who spread trades at a prop firm.

My friend said that one of the things his trader friend looks at is the Mean Reversion back to 0, and his mate makes around 10 trades on average a day spreading aussie 3y and 10y with ZN and ZB.

Can anyone explain what this means?

I've been looking on the internet with not much luck.

If i can figure this out, i can now put the work into it and become good at spreading.


When you're looking at the yield curve of a spread throughout the day, this changes in various ways. The idea behind mean reversion is that whatever happens the yield curve will come back to the norm. I have not much experience with ZN and ZB, currently focused on Bund, Bobl, Shatz spreads as well as Euribor and Eurodollar. It's easier to understand with Euribor or any other future with a lot of contracts, as you can take a lot of different contracts and plot the yield curve. if you tried throughout the day to follow 7 contracts or so all in the right order. You will notice that prices fluctuate over this curve. At times it flattens, other times it steepens. If the trader knows how the yield curve should generally look like (you could call this position 0), then he/she can take positions when specific contracts are out of place. Spreads all have their own characteristics, but generally they're more forgiving then outrights in my opinion. you just pay more to your broker for it. The more volatile the spread the easier it is to make more trades, the harder it is to be consistent i found. I prefer the boring stuff like Euribor all day. If I can make only 1 tick a day every day I'm happy. I'm in trading for the money not for the excitement, I can go vegas for that. I hope that helps a bit to clarify things.

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  #32 (permalink)
 zh0001ye 
singapore
 
Experience: Beginner
Platform: Ninjatrader
Posts: 9 since Sep 2010
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joeyk View Post
What do spread traders mean when the say I am looking for the mean reversion?

I've found out some information about these spread traders. I know a guy who knows a guy who spread trades at a prop firm.

My friend said that one of the things his trader friend looks at is the Mean Reversion back to 0, and his mate makes around 10 trades on average a day spreading aussie 3y and 10y with ZN and ZB.

Can anyone explain what this means?

I've been looking on the internet with not much luck.

If i can figure this out, i can now put the work into it and become good at spreading.

I was in Propex and traded 2 years there.I can say that his trader friend gave 100% correct information.These 4 products are their main products.And 10yrs traded most.

The actual complete spread is more complex rather than simple spread.They call it structure.But normally they dun enter full structure cos of heavy comms.If 3y 10y side itself can make money and just took profit from it.

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  #33 (permalink)
stanleyfutures
Beaverton, United States
 
Posts: 8 since Apr 2019
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I'm also currently seeking for the answer.. Did you have any outcome?

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  #34 (permalink)
stanleyfutures
Beaverton, United States
 
Posts: 8 since Apr 2019
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addchild View Post
No is was merely to highlight the difference.


Right now that indicator is a work in progress, displaying the difference between price and mean.


Side bar: If you are looking to trade spreads intraday, I would try and find/create spreads between more volatile instruments than govies.

If I trade calendar spreads, what is your advice on it? Is there any approach I should take?

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  #35 (permalink)
 jokertrader 
NYC, NY
 
Experience: Intermediate
Platform: Sierra, TT
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Trading: Spread Researcher and crypto degen
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All I will say is depending on the instrument a calendar spread is not for mean reversion it’s directional - the structure mentioned above and there are other spreads which are inherently mean reverting but still can trend for a bit before reversing


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  #36 (permalink)
emini83
Gdańsk
 
Posts: 10 since Oct 2017
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Hi, I can tell you exactly how it was when I was a calendar spread trading on a trading floor. I was trading mostly euribor, short sterling and also dax, bund and s&p. We had a matrix created with 3months, 6 months, 9 months and a 1 year spread. Two 3 months spreads created a butterfly spread or a strategy and 2 butterfly spreads created a condor spread or a strategy. I was creating a trade even for days, when I was up 1 tick I was just adding to the trade more contracts ending with a position easy 150 -200 contracts, so my goal were even 2 ticks, but with such a position it made a difference. For dax or s&p I had just 1 DOm opened with a 3 month spread, then I was able to trade almost like an outright so I could easily make 30-40 ticks a day. It doesn't change a price as quickly as an outright, but it is possible to scalp, mostly dax and german bund. For me trading calendar spreads is ok, but not always it is for scalping, but mostly as an intraday trading where you slowly build a trade and close with 2 -3 ticks, but then you stop is also very tight even 1 tick. With euribor or ZN the bid and offer can be even 200 000 contracts, so waiting for a fill can take days or minimum few hours. On a 3 month spread there it is difficult to get filled, but on a 1 year spread it is very simple, but also a move on a 1 year spread is faster. So with that said, the longer calendar spread the more volatility there is, where as a 3 month spread makes 2 ticks a day for example. If you have more questions just ask

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  #37 (permalink)
stanleyfutures
Beaverton, United States
 
Posts: 8 since Apr 2019
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emini83 View Post
Hi, I can tell you exactly how it was when I was a calendar spread trading on a trading floor. I was trading mostly euribor, short sterling and also dax, bund and s&p. We had a matrix created with 3months, 6 months, 9 months and a 1 year spread. Two 3 months spreads created a butterfly spread or a strategy and 2 butterfly spreads created a condor spread or a strategy. I was creating a trade even for days, when I was up 1 tick I was just adding to the trade more contracts ending with a position easy 150 -200 contracts, so my goal were even 2 ticks, but with such a position it made a difference. For dax or s&p I had just 1 DOm opened with a 3 month spread, then I was able to trade almost like an outright so I could easily make 30-40 ticks a day. It doesn't change a price as quickly as an outright, but it is possible to scalp, mostly dax and german bund. For me trading calendar spreads is ok, but not always it is for scalping, but mostly as an intraday trading where you slowly build a trade and close with 2 -3 ticks, but then you stop is also very tight even 1 tick. With euribor or ZN the bid and offer can be even 200 000 contracts, so waiting for a fill can take days or minimum few hours. On a 3 month spread there it is difficult to get filled, but on a 1 year spread it is very simple, but also a move on a 1 year spread is faster. So with that said, the longer calendar spread the more volatility there is, where as a 3 month spread makes 2 ticks a day for example. If you have more questions just ask

Appreciate for this information. Let's say I would like to focus on scalping/intraday the spreads market, which would you suggest for me? When you execute a trade, do you also use Technical Analysis on chart/Orderflow on DOM to define your entry?

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  #38 (permalink)
emini83
Gdańsk
 
Posts: 10 since Oct 2017
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stanleyfutures View Post
Appreciate for this information. Let's say I would like to focus on scalping/intraday the spreads market, which would you suggest for me? When you execute a trade, do you also use Technical Analysis on chart/Orderflow on DOM to define your entry?

You're welcome. For scalping intraday for me the best was dax, bund. The liquidity there was the best. I've traded a 3 month spread and I was checking an hourly and a daily chart, but mostly the tape as there is the best info you can get. Also sugar nr.11 was great for scalping and gasoil.

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  #39 (permalink)
emini83
Gdańsk
 
Posts: 10 since Oct 2017
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If I was trading calendar spreads today, then I would watch 1h chart, 15m chart and mostly DOM. Calendar spreads can be traded as a swing and also as a scalp. Depends on your style. For example I was trading euribor calendar spreads as a swing where i was holding trades even for 2 weeks until I've build a serious position with many contracts and I was trading for example FDAX and FGBL as a scalp, just like an outright.

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