One of the best kept secrets in trading is that of reduced margin spreads. Can not name a trading method that provides more security and greater return on margin carries a margin small margin, while also being one of the least time forms of commerce. Have you ever wondered why many of the larger spreads most powerful traders trade? I will show why!
What is a narrow range roll?
Due to the perceived lower volatility, exchanges grant reduced margins on certain types of spreads. Spreads are to be provided in one or more contracts in a market and short in one or more contracts of the market, but in different months, an expansion Intramarket or be long in one or more contracts of a contract market to short and one or more of a different market, and in the same or different months and a differential Intermarché.
DIFFERENTIAL distortions
There are some distortions on trade in the voices that need to be clarified. If you take them out of the way, I can show trade has expanded advantages over other forms of commerce.
It is said that spreads do not move as much as the absolute future. I agree 100% with that statement. However, the trend spreads more often than the absolute future, the trend much more dramatically than the absolute future, and the trend for longer periods of time that the future of the total. For these reasons it can make much more money with spreads than the overall winner.
The second distortion on trade of propagation is the following: ". You have to pay double commissions when trading spreads" Yes! You have to pay two fees for each extension you enter in the market. So what? We are negotiating two contracts instead of one. To pay two commissions, since they are negotiating two separate contracts, one in one place and another in a totally different place. The payment of two commissions for two separate operations is not unfair. Let me tell you what is wrong, the payment of a commission to turn an option expires worthless. Why not hear people complaining about? You pay for a ride, and get only half a lap. It makes perfect sense, right?
SPREAD TRADE BENEFITS
There are many advantages to differential low margin trading, which I hope will not run out of space here before I can tell them all. Let's start with the return at the margin, ie the performance.
Performance: As I write this, the scope for trade a position of total soybean futures is $ 1,050, while trade dissemination of soybeans requires only $ 250, only 23% at most. If soybean futures move a point, that move is worth $ 50. If an extension of soybeans move a point, that move is worth $ 50. That means either a 5 point favorable move in soybean futures or a 5 point favorable move in an area of soybean trader wins $ 250. However, the difference in performance margin is extraordinary: In the future return is $ 250 / $ 1.050 = 23.8%. For diffusion, the refund is $ 250 / $ 250 = 100%. Think about it!
Leverage: This brings us to the next benefit of the spread trade with the same amount of margin, it could have negotiated 4 soy spreads instead of a soybean futures. How's that for influence? Instead of $ 250 on a five-point move that could have made $ 1,000. Narrowing of scope to offer a much more efficient use of your money to spare.
Trend: Earlier I said that spreads tend to trend much more dramatically than futures contracts altogether. Not only that, but the trend more often than the future of the total. I have not space here to display dozens of strong trend that extends normally present in the markets, so we'll have to settle for a recent one. You'll have to take my word that this type of trend often occurs when trading spreads.
Opportunities: Because the spreads tend to trend more often and more dramatically than total futures contracts, offer more opportunities to make money, and do so without the interference and noise caused by the continuous market, resellers, and engines the market. It extends to avoid "noise" in the markets. There are numerous opportunities to reduce spread margin, enough to keep almost any merchant busy. And the lack of interference by market makers and shakers who leads one of the most important advantages of the margins of negotiation, either to reduce the margin or total margin.
Invisibility: One of the main problems with any type of negotiation in the winner, either forward or actions, is to stop running. Inside information is love when you can see its end. Even if your entry or exit takes place mentally, they know where you are. They are well aware that people place their orders. That's why traders love Fibonacci and Gann. They know exactly where people place their orders. The same is true for anyone who uses one of the indicators most commonly known. Insiders fade moving average crossovers, and so-called overbought and oversold, regardless of whether the indicator is used to show one of these conditions. They know that prices have reached the outer limits of the Bollinger Bands, and of course knows the location of support and resistance, etc, but spreads have no idea of the location of their orders. You are always in one market and short the other. His position is invisible to those inside. They can not run your stop, as it has one. You can not put a stop order on the market when trading spreads! His starting point is totally mental, which exists solely in his head. In this regard, trade media is a purer form of negotiation. It's the closest in trade for a level playing field. Could this be why we almost never hear about spread trading?
Liquidity: The attempt to trade in "thin" illiquid markets is one of the surest ways to stop running and serious encounter strange price movements. However, apart from occasional problems with filling, spread trading is not suffering from a lack of liquidity, which in itself creates more business opportunities. I would never consider taking an open position in beef. Feeders are a thin market, liquidity is usually best left to professional interests. However, a small margin (beef cattle) - (live animals) spread is something I'm looking all the time. Some of the moves in this shot in particular is amazing. They are worth hundreds or even thousands of dollars for the extension, several times a year. They are highly seasonal in nature due to the light and the cycles of growth in cattle. The same is true of the spread of livestock and food against the lean hogs. These margins are seasonal, which leads to great advantage by spread trading - seasonality.
Seasonality: while seasonality is not always carried out as planned, ie, the seasonality may be early, late, or not, but when it's happening, you can see. It is obvious that a seasonal trade is working as expected. Seasonality is not subject to the whims of man. Seasonality is one of the strongest reasons for the commercial extensions. Crops are planted within a specified period of time. Calves and piglets are born according to the cycle of birth and growth according to their growth cycle. Even the future based on financial instruments are seasonal, and many offer reduced margin spreads.
Backwardation, seasonality comes along with the enormous benefits that can be made when you go into backwardation underlying. This is true for any agricultural product, and any other financial instrument. I have not space here to explain backwardation, but when it happens, it is commonplace, the differential between the front and back months greatly expands, which offers wonderful opportunities for profit for the dealer spread. As if that were not enough, the same opportunity is available at the end of the period of backwardation and the relationship between the months before and after return to normal.
Odds: If we eliminate the offices in the winner in you also make a market whipsawed to the side and may gain or lose a little, the real chance of winning on any trade is 50%. If you are long and prices move down, you lose. Conversely, if you are short and prices rise, you lose. No matter how accurate the selection of trade, the conclusion is that your chances of being right once you enter a trade is one of two. However, when entering an area that are not primarily concerned with the direction of prices. Their main concern is with the direction of propagation.
With an extension you can make money when the two parties of the spread moves up, the legs move down when the legs move sideways, but one more for the other, or better yet, when the is long leg is moving and the leg is cut down moves! As long as the leg is much better than moving the leg is missing, you have a winning trade. There is only one situation where you can lose with a difference, and that will be completely wrong on both legs. Thus, with an extension that can win even if you were wrong about the direction of price movement, as long as you're very wrong. The figure gives an idea of what I'm talking about. Two months of this trade in natural gas moves down, but the difference was growing and ascend.
There are opportunities in trade media, including requiring full margin differential. You can trade spreads with stock indexes, sector funds, and future actions. Did you know that can daytrade stock index spreads? These are topics for another day and another time.
Unfortunately, whether by accident or by design, much of the truth of the spread of trade has been lost in recent years. There are many aspects to it that I have played here. In addition, there are some wonderful and inexpensive tools that make a delicious spread trade. Spread trading is one of the most relaxed trade. Rarely takes more than 1-2 hours of your time each day and more often than not, we're talking only a few minutes a day to find and trade the wonderful opportunities that are available in reduced margin spreads.
What is a narrow range roll?
Due to the perceived lower volatility, exchanges grant reduced margins on certain types of spreads. Spreads are to be provided in one or more contracts in a market and short in one or more contracts of the market, but in different months, an expansion Intramarket or be long in one or more contracts of a contract market to short and one or more of a different market, and in the same or different months and a differential Intermarché.
DIFFERENTIAL distortions
There are some distortions on trade in the voices that need to be clarified. If you take them out of the way, I can show trade has expanded advantages over other forms of commerce.
It is said that spreads do not move as much as the absolute future. I agree 100% with that statement. However, the trend spreads more often than the absolute future, the trend much more dramatically than the absolute future, and the trend for longer periods of time that the future of the total. For these reasons it can make much more money with spreads than the overall winner.
The second distortion on trade of propagation is the following: ". You have to pay double commissions when trading spreads" Yes! You have to pay two fees for each extension you enter in the market. So what? We are negotiating two contracts instead of one. To pay two commissions, since they are negotiating two separate contracts, one in one place and another in a totally different place. The payment of two commissions for two separate operations is not unfair. Let me tell you what is wrong, the payment of a commission to turn an option expires worthless. Why not hear people complaining about? You pay for a ride, and get only half a lap. It makes perfect sense, right?
SPREAD TRADE BENEFITS
There are many advantages to differential low margin trading, which I hope will not run out of space here before I can tell them all. Let's start with the return at the margin, ie the performance.
Performance: As I write this, the scope for trade a position of total soybean futures is $ 1,050, while trade dissemination of soybeans requires only $ 250, only 23% at most. If soybean futures move a point, that move is worth $ 50. If an extension of soybeans move a point, that move is worth $ 50. That means either a 5 point favorable move in soybean futures or a 5 point favorable move in an area of soybean trader wins $ 250. However, the difference in performance margin is extraordinary: In the future return is $ 250 / $ 1.050 = 23.8%. For diffusion, the refund is $ 250 / $ 250 = 100%. Think about it!
Leverage: This brings us to the next benefit of the spread trade with the same amount of margin, it could have negotiated 4 soy spreads instead of a soybean futures. How's that for influence? Instead of $ 250 on a five-point move that could have made $ 1,000. Narrowing of scope to offer a much more efficient use of your money to spare.
Trend: Earlier I said that spreads tend to trend much more dramatically than futures contracts altogether. Not only that, but the trend more often than the future of the total. I have not space here to display dozens of strong trend that extends normally present in the markets, so we'll have to settle for a recent one. You'll have to take my word that this type of trend often occurs when trading spreads.
Opportunities: Because the spreads tend to trend more often and more dramatically than total futures contracts, offer more opportunities to make money, and do so without the interference and noise caused by the continuous market, resellers, and engines the market. It extends to avoid "noise" in the markets. There are numerous opportunities to reduce spread margin, enough to keep almost any merchant busy. And the lack of interference by market makers and shakers who leads one of the most important advantages of the margins of negotiation, either to reduce the margin or total margin.
Invisibility: One of the main problems with any type of negotiation in the winner, either forward or actions, is to stop running. Inside information is love when you can see its end. Even if your entry or exit takes place mentally, they know where you are. They are well aware that people place their orders. That's why traders love Fibonacci and Gann. They know exactly where people place their orders. The same is true for anyone who uses one of the indicators most commonly known. Insiders fade moving average crossovers, and so-called overbought and oversold, regardless of whether the indicator is used to show one of these conditions. They know that prices have reached the outer limits of the Bollinger Bands, and of course knows the location of support and resistance, etc, but spreads have no idea of the location of their orders. You are always in one market and short the other. His position is invisible to those inside. They can not run your stop, as it has one. You can not put a stop order on the market when trading spreads! His starting point is totally mental, which exists solely in his head. In this regard, trade media is a purer form of negotiation. It's the closest in trade for a level playing field. Could this be why we almost never hear about spread trading?
Liquidity: The attempt to trade in "thin" illiquid markets is one of the surest ways to stop running and serious encounter strange price movements. However, apart from occasional problems with filling, spread trading is not suffering from a lack of liquidity, which in itself creates more business opportunities. I would never consider taking an open position in beef. Feeders are a thin market, liquidity is usually best left to professional interests. However, a small margin (beef cattle) - (live animals) spread is something I'm looking all the time. Some of the moves in this shot in particular is amazing. They are worth hundreds or even thousands of dollars for the extension, several times a year. They are highly seasonal in nature due to the light and the cycles of growth in cattle. The same is true of the spread of livestock and food against the lean hogs. These margins are seasonal, which leads to great advantage by spread trading - seasonality.
Seasonality: while seasonality is not always carried out as planned, ie, the seasonality may be early, late, or not, but when it's happening, you can see. It is obvious that a seasonal trade is working as expected. Seasonality is not subject to the whims of man. Seasonality is one of the strongest reasons for the commercial extensions. Crops are planted within a specified period of time. Calves and piglets are born according to the cycle of birth and growth according to their growth cycle. Even the future based on financial instruments are seasonal, and many offer reduced margin spreads.
Backwardation, seasonality comes along with the enormous benefits that can be made when you go into backwardation underlying. This is true for any agricultural product, and any other financial instrument. I have not space here to explain backwardation, but when it happens, it is commonplace, the differential between the front and back months greatly expands, which offers wonderful opportunities for profit for the dealer spread. As if that were not enough, the same opportunity is available at the end of the period of backwardation and the relationship between the months before and after return to normal.
Odds: If we eliminate the offices in the winner in you also make a market whipsawed to the side and may gain or lose a little, the real chance of winning on any trade is 50%. If you are long and prices move down, you lose. Conversely, if you are short and prices rise, you lose. No matter how accurate the selection of trade, the conclusion is that your chances of being right once you enter a trade is one of two. However, when entering an area that are not primarily concerned with the direction of prices. Their main concern is with the direction of propagation.
With an extension you can make money when the two parties of the spread moves up, the legs move down when the legs move sideways, but one more for the other, or better yet, when the is long leg is moving and the leg is cut down moves! As long as the leg is much better than moving the leg is missing, you have a winning trade. There is only one situation where you can lose with a difference, and that will be completely wrong on both legs. Thus, with an extension that can win even if you were wrong about the direction of price movement, as long as you're very wrong. The figure gives an idea of what I'm talking about. Two months of this trade in natural gas moves down, but the difference was growing and ascend.
There are opportunities in trade media, including requiring full margin differential. You can trade spreads with stock indexes, sector funds, and future actions. Did you know that can daytrade stock index spreads? These are topics for another day and another time.
Unfortunately, whether by accident or by design, much of the truth of the spread of trade has been lost in recent years. There are many aspects to it that I have played here. In addition, there are some wonderful and inexpensive tools that make a delicious spread trade. Spread trading is one of the most relaxed trade. Rarely takes more than 1-2 hours of your time each day and more often than not, we're talking only a few minutes a day to find and trade the wonderful opportunities that are available in reduced margin spreads.
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