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Treasury Spreads - Couple of Beginner Questions

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Treasury Spreads - Couple of Beginner Questions

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  #1 (permalink)
 cdnftrstdr   is a Vendor
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I've been trading outrights for awhile and started diving into learning more about spreads. I understand from a conceptual level, but have a few questions on actually executing trades that I haven't been able to find any real info on. Lots of videos about the concept of spreads, but seeing people actually do them is hard to come buy. I'm more treasury focused just for some context, and I'm picture more of a same-day, scalping opportunity (so not calendar spreads).

First question is about brokers and margin credit. From everything I've come across that's one of the big benefits of spreading, the margins are lowered because you buy something and sell something, so its reduced risk.

Problem is, I haven't been able to find anywhere on various brokerage pages/faq about this. Are there certain brokers that do this and most that don't? Is it an automatic thing, say I was at a broker that had reduced spread margins, does it recognize hey he bought this and sold that, so the margin is less? I have accounts at Tradovate (Dorman) and NinjaTrade Brokerage (Phillips Capital), looked at their info and nothing on spreads and margin. Looked up a few others and can't find anything.

Second question - I feel like this is probably something that's available and out there I just have no idea how to find what I'm picturing. There has to be some metric that tracks the spread, let's say its between ZB and UB on an intraday basis. Something that says "hey they are out of alignment more so than usual", whatever form that takes. I know I'm not using the technical terms, yield and all. Trying to stay 10,000 foot level for now.

To put it more specific, say I'm in Ninjatrader, what would you put on your screen to track the spread between 2 products?

Appreciate any help, I've gone down this road a few times and usually can't find anything to get me to the next step. I would like to learn more about spreading though.

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  #2 (permalink)
Essen, Germany
Experience: Intermediate
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Trading: Futures Spreads and Options on Futures
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It is necessary to check with the broker's trade desk as to whether they apply SPAN margining to the spread; and if they do when in the trade lifecycle the risk management system will apply the margin relief. I asked Ninjatrader Brokerage about SPAN in the past and they said that it was possible (I'm not sure whether it applies to Dorman, Phillip or both). However, I was told that you need to specifically ask for it to be enabled on your account. Brokers that I know offer SPAN include AMP, Ironbeam and Advantage but there will be others - you just need to ask them. In contrast, somewhere like Interactive Brokers doesn't. Making the trading of something like a Treasury butterfly spread prohibitive for smaller accounts, in terms of margin impact.

Beyond the margining there is also consideration of a) can you chart the spread b) can you apply studies to that charted spread and c) can you trade the spread as a distinct instrument (or do you need to leg into it via outrights). Ninjatrader is not going serve your needs in these three areas. It is fine for trading outrights but it has no meaningful capability for trading spreads. (It has been discussed a number of times on the Ninjatrader forums e.g.: You can add a very simple spread indicator, such as this one: However, this is just plotting the difference between two data series e.g. the 10 Year Note as Leg 1 and the 30 Year Bond as Leg 2. It will then display a line chart of the spread in Panel 2 of the chart i.e. below the main data series. A key limitation of Ninjatrader is that it doesn't allow you to chart the spread as a data series in its own right. As a consequence, you can't apply an indicator over the spread itself, nor can you trade the spread as unified instrument on the DOM. If you could chart the spread as a data series then you could use a Z-score indicator to determine its current distance from the mean (

You may also want to consider whether you wish to construct the spread synthetically or you wish to trade an exchange-traded spread (there are pros and cons to each). If you want to get into spreads, other platforms handle these things more robustly e.g. one of the platform options from CQG, TT (also available from TradeStation branded as Futures Plus), CTS T4.

Unless you are on a very low commission rate/have an exchange seat then intraday scalping of Treasury spreads may be an unrealistic goal, by the time you factor in your total trade costs.

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  #3 (permalink)
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Rates curve and spread trading is very difficult for retail traders to do effectively. It requires a high level of expertise, very robust analytics, and efficient, low-cost trade execution. It is, for these reasons, almost exclusively the domain of primary dealers, fixed-income hedge funds, and sophisticated prop trading firms.

To wit, you will want a real-time picture of the cash Treasury market and on-the-run yield curves. You'll need to understand and follow various concepts such as the cash / futures basis, cheapest to deliver, DV01, convexity, etc. as these will change over time and require regular adjustment to your spread ratios. You'll of course also want a full picture of the eurodollar market implied forwards and spreads. All of these data and analytics are available on Bloomberg, but that will cost you well over $20,000 / year in subscription fees.

On the execution front, if you want to trade curves on an intraday basis your transaction costs (bid/ask spreads) on each leg of the spread, on both entry and exit of a position, will often exceed the expected or potential profit on many setups. It's definitely not the kind of market where you can just look at a chart and try to trade basic support and resistance patterns by hitting bids and lifting offers at market.

I've known a lot of professional rates spread traders over the years. Every single one of them traded on an institutional platform. I'm not saying it's impossible for the retail trader, but it will require a very substantial commitment of time and resources just to get onto the playing field.

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  #4 (permalink)
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Lots of good comments about SPAN margining and Retail vs Pro Software by @cordoba and @Schnook. Couple of thing I would add.
  1. Even if you do try and do something like this in Ninja Trader or Tradestation, the charts and spread indicators they generate will be wrong if they are based upon continuous contracts. You cannot perform division or multiplication on continuous contracts as every time there is a rollover the data all changes.
  2. Without access to exchange traded spreads this is completely impossible and I know many retail focused brokers do not have this functionality. The exchange not only lists calendar spreads but also a lot of inter commodity spreads that have ratios based upon DV01 and are not 1:1.
    List of Pre-defined spreads on Interest Rate futures. Traded on CME Globex.

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  #5 (permalink)
 cdnftrstdr   is a Vendor
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Thanks everyone for the feedback and information, much appreciated. Sounds like it's probably a road too tough to travel which is unfortunate, but good to know early on. I'll dig into the resources everyone provided none the less to learn more.

Thanks again!

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  #6 (permalink)
 BA 21 
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cdnftrstdr View Post
Thanks everyone for the feedback and information, much appreciated. Sounds like it's probably a road too tough to travel which is unfortunate, but good to know early on. I'll dig into the resources everyone provided none the less to learn more.

Thanks again!

It's not a tough endeavor. But there is some leg work involved. Savvy retail traders have been doing treasury spreads for a while. A former floor trader turned me on to treasury spreads and butterflies in 2016. I traded them for a couple of years before taking a break. Once I get set up on CTS and Advantage, I will resume trading them.

Previously, for charting, I used Thinkorswim, because I have been with TD Ameritrade well before trading futures, since 2003-ish.

However, for trade execution, used Infinity Futures, because they are open to calculating margin offsets. In 2018, the margin to put on a ZB-UB (1:1) was approximately, $1700.

The ZB butterfly (ZN-ZB-UB) ratio was tricky to figure out, and required some rounding up or down, because the numbers are never whole numbers. Once, the ratios are estimated, graphing it is just as easy as graphing the ZB-UB spread.

Real time tracking of P/L was painful on Infinity Futures (Sierra Charts). I had to track this myself using the Sierra Charts native spread. Without the spreadsheet, I had to wait until end of day to learn my P/L.

If anyone is thinking about day trading treasury spreads, as someone mentioned earlier, he might want to use a platform like CTS T4, and go with an FCM like Advantage that is amenable to calculating margin offsets.

Again, it's not a tough road to travel, in my opinion.

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