TH, In your experience, can an edge be gained by trading against (scaling into a position perhaps?) against a wider than "normal" deviation as it gets very close to expiry ... or is that being a bit unrealistic?
There are instos who arb the futures vs cash. However, since you can't actually trade the cash index, you need to buy/sell the underlying constituents. So to do such a strategy you will need co-located HFT bots executing basket orders at low latencies with low commission. It's not a strategy that can be used by retails.
Thanks for the explanation SKC,
I guess from a retailers point of view, trading Futures successfully is being able to recognise when a deviation from the present "real value" has been reached (based on a given time frame), and then trading that "out of sync" position in the right direction? .....
Simple !!
Not always. The futures will drag the Index along most of the time. So if the futures move somewhere its more than likely that equities will follow the futs rather than the futs roll back towards the equities .
Remember us futures traders are smarter than the silly slow old equities boys.:
lol.
also CanoZ I liked your explanation about the futures/index relation but you said something in there about hedging. forget that imo best to assume everyone is a punter at all times.
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As an aside I can't stress how good this guy's video and website are. Highly recommend for anyone even thinking about the futures game.
http://www.youtube.com/watch?v=EYMIPmgRb_M
Remember us futures traders are smarter than the silly slow old equities boys.:
Not always. The futures will drag the Index along most of the time. So if the futures move somewhere its more than likely that equities will follow the futs rather than the futs roll back towards the equities .
Not always. The futures will drag the Index along most of the time. So if the futures move somewhere its more than likely that equities will follow the futs rather than the futs roll back towards the equities .
Remember us futures traders are smarter than the silly slow old equities boys.:
The index won, futures popped...
i wonder how much pain the arb bots/arb firms can handle. like if the spread continues to widen do they have a puke point or is it just a case of do more?
No because it will come back at some point. When the contract expires it will be the same.
yeah i hear you on that but surely theres some kind of holding/margin cost involved which in theory if it got beyond a certain point they would have to liquidate?
yeah i hear you on that but surely theres some kind of holding/margin cost involved which in theory if it got beyond a certain point they would have to liquidate?
There's no market risk in arbing the index/futures. There's only execution risk. If it diverge further you'd put more on, as long as you have enough margin.
The holding cost is relevant but only before you open the trade. After you've put on the spread, you'd always be better waiting for it to converge. Any holding cost by that time is sunk.
It would take a really stupid insto to use up all their margin and be forced to close their position when the divergence is the greatest... so it's probably happened a few times
yeah bolded is what I was getting at. hard conversation for the arb desk to say 'ignore the margin call for now we'll have the cash in 3 months'
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