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A trade is like going to cinema. You pay your ticket fee and want to get something in return. If you visit the cinema, it is entertainment, if you enter a trade it is opportunity to achieve a profit - although many traders seem to pay the fee just for being entertained. Opportunity to achieve returns is linked to volatility. A volatile instrument helps you to achieve higher returns - positive or negative.
The idea is to keep trading costs low. Therefore you want to pay little in terms of commissions and slippage and benefit from higher volatility. There is a separate thread on that subject here:
I am trading ES, YM, TF and sometimes FDAX. Often I question myself, which of these is the appropriate instrument to trade. Each of them has a different character. In my opinion FDAX is very volatile, a bit like crude oil, maybe due to lower liquidity. …
When comparing ZB and ZN, the higher volatility speaks in favor of ZB, while the lower trading cost (lower spread and slippage) speaks for ZN. So I do not see much of a difference between the two instruments, also see attachement to the post as per link below:
Have added ZN, as it is highly liquid instrument. I have not added ZF, as this instrument is not in my default list, and I do not want to add more data to my database, which is already oversized.
To make things comparable I have used the average range …
Regarding TT Autospreader... x_trader pro will certainly cut down you development time but scalping intraday may be out of the question. In high liquidity spreads markets like STIRs and bonds, it will be difficult for a small trader to get fills because of lack of volatility and time pro rata matching algorithm that favors large orders. In more volatile spread markets (grains, energies) you can, and likely will get hung on your hedge order because HF Traders know exactly where autospreaders are working and will take advantage of that because they are just faster. Co-location won't be much help here if they know what you are doing.
Exchange-based spreads are good where available but you may need to pull out to a longer timeframe.
I have a Spread indicator I wrote for NT8. I didn't post because I wasn't confident that I did it correctly because I can't see the exchange traded spreads to compare with. However, the indicator seemed to help today when we saw a big run in the NOB spread. I'll try to put it up this weekend.
To Fat Tails question about why not just trade ZB, I think that misses the point of trading a spread. A spread trade has a higher probability. It's hard to say what the day to day movement will be, but we do know that we are at the start of the Fed raising rates. So we know that the yield curve should start to flatten, and we should buy the NOB. That means buy the 5/10 year and sell the 30 year.
And sure enough we saw that today. The 5 and 10 year notes made big runs to the upside, and the 30 year barely moved at all. You could have bought the NOB spread for a high probability small profit. You can also use the information to determine what product to trade.
Also while I'm at it... Dear CME, please publish the exchange traded spread ratios in an xml file instead of a PDF document...
Also with spreads, there's an exploit there. There's NOB Spread; and there's 2 outright ZB & ZN. Thus i have 2 ways to get into and out of the trade, through the NOB Spread or both outright. This helps alot when you can see a big offer on let's say ZN; but at the same time, you are able to get the ZN sell at that price through the NOB Spread, and you can scratch the ZB pretty easily. Compare to trying to get the ZN fills. Or you might scratch the ZN as the offer is thick and make a tick or 2 on the ZB outright.
However NinjaTrader doesn't show the spreadbook. Thus I can only execute through TWS (CQG & TT only links to a few Brokers that pretty much either for HNW or the commission is too much to scalp in Australia)