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Great question! Let me clarify and say that I was never really introduced to it, I just gave it a brief whirl.
If you can trade exchange traded spreads it's the way to go. For example, I have recently traded VIX futures calendar spreads. It's much easier than trying to leg in.
I have recently contemplated putting on some NQ/RTY spreads due to the relative strength of NQ, but ultimately these relationships do fluctuate and I find it easier on my tiny brain to just trade outrights in general.
Really though, a trade like this is ideal in a time like this if you're willing to let it work a few days, IMO. But I just haven't been inclined to give it a look, but perhaps I will now, thanks for the bump here!
Which broker can allow access to exchange spreads ? Or who are the brokers that would recognize spreads and reduce the margin as per SPAN. I want to trade yield curve spreads and commodity spread but not sure if any retail broker can understand it. I am with AMP and IBKR now.
Ex If I want to trade NOB spread 5 ZN - 2 ZB... This is 7 contracts to leg it and can be a huge margin if not treated from the broker as spread.. also how can I trade the symbol NOB to reduce the accuracy requirements and timing of legging .. This is not a clear area in the retail .. any recommendation of brokers who allow or recognize spreading or tools or platforms are appreciated. I use Sierra Chart and IBKR TWS..
Trading: Primarily Energy but also a little Equities, Fixed Income, Metals, U308 and Crypto.
Frequency: Many times daily
Duration: Never
Posts: 5,059 since Dec 2013
Thanks Given: 4,410
Thanks Received: 10,226
I would have thought the ability to trade 'exchange listed spreads' was more a software related issue rather than a 'broker issue'. For example with Tradestation if you use their main Tradestation software, you have no access to exchange listed spreads but if you use their Futures Plus software (which is now just rebranded/white labeled TT but even prior to that it was the same) you do have access to them.
Margin requirements will be broker specific. All the bigger FCMs offer this, but I'd be speculating on others, I would be surprised if either AMP and IBKR didn't offer spread offsets though.
I am really glad this thread is being discussed, and remains current, and not stale by a few years old and no commentary since.
I first came across pairs trading by a Canadian trader who specialized in equity trading. At the time, the objective was to increase actual trading volume because the prop shop benefitted from the commissions and not whether or not you win or lose. The scenario shares many threads to these funded trader shops in their practices not being inline with one's profitability or capability or learning curve.
I am very impressed to see that the concept of pairs trading has been applied to futures index trading, although spread trading has existed for almost ever.
my biggest question is whether this applied spread concept works best towards the highest volume emini / emicro futures or relies more heavily on symmetry and co-relation, such as when the ES and NQ trade in tandem and the YM trades opposed to their trend?
I know Infinity Futures understand SPAN margin and can calculate risk correctly. When I was with them in 2017, a BUB spread (ZB - UB) was approximately $1700 to put on.
It seems that most charting packages do not plot spreads accurately.
For those with experience, what trading platform charts spreads best.
Thanks in advance.
I have seen NQ/ES spread trades go a good % against me. Instead of taking a loss I wait a few days and the
the spread will revert and I can almost break even or with a small gain.
My favorite part is how the great spread traders lol all seem to be trading outrights whenever they can but they are clueless to trading an actual market with real moves and almost zero slippage and fees.
Efficient market theory took most of the spreaders. The same struggles in outright follow you to the pairs! I also enjoy how pairs trading firms are only around for 4 or 5 years and end up having subpar returns overall. The trade was taken by machines years ago anyway just not my thing
IN THOSE TREASURY SPREADS YOU WILL BE LUCKY TO GET MORE THAN A COUPLE DOLLARS THATS 2 BUCKS PER TRADE. THATS IT!
Trading: Primarily Energy but also a little Equities, Fixed Income, Metals, U308 and Crypto.
Frequency: Many times daily
Duration: Never
Posts: 5,059 since Dec 2013
Thanks Given: 4,410
Thanks Received: 10,226
Electronic Markets and Computers made spread trading a lot more difficult. A lot of the easy trades are taken by computers before anybody ever sees them.