Successful Traders “Jump Around Where It’s Hot”
- As groups and individuals diversify across products, regions and time zones, professional trading firms are evolving. Speakers at a recent FOW conference tell us what that looks like in the derivatives marketplace today.
Traders are doing more “extreme things” to make money, as agility trumps the race-to-zero in moving between products and asset classes, said panellists at a recent FOW conference.
“The successful guys seem to be able to jump around to where it’s hot,” said Mark Phelps, Global Head of Sales at GH Financials. The clearing provider connects to some 30 exchanges, representing thousands of products. “If you’ve got the energy to look around, you may find something that is doing 30, 40 thousand (lots) a day.”
...commodities is a random walk.
He pointed to the Euronext Milling Wheat contract as a case in point. “We did 40,000 lots a day over the last three months on average. It’s things like that traders should go out there and try and find because it’s an opportunity that other people aren’t looking at.”
Out of Singapore, Phelps said that at least one firm was making “a disproportionate amount of money” on the out-of-hours session on Eurodollar futures, for example.
This, when traders are moving out because the Fed rate hike failed to meet market expectations of surging volumes, he added. ICE Gilt futures, on the other hand, posted a record month for GHF in January. “Maybe this Brexit Brexit Brexit stands for British Exit, or in reference to the United Kingdom’s decision to formally leave the European Union (EU) as declared in a June 23, 2016 referendum. In a more immediate sense, a tight vote and unexpected result helped drive British pound (GBP) to lows that had not been seen in decades.The day following the referendum, former Prime Minister David Cameron resigned from office where he was replaced by Theresa May, who later resigned from office on June 7th, 2019. Active Prime Minis Brexit stands for British Exit, or in reference to the United Kingdom’s decision to formally leave the European Union (EU) as declared in a June 23, 2016 referendum. In a more immediate sense, a tight vote and unexpected result helped drive British pound (GBP) to lows that had not been seen in decades.The day following the referendum, former Prime Minister David Cameron resigned from office where he was replaced by Theresa May, who later resigned from office on June 7th, 2019. Active Prime Minis Read this Term talk, there’s going to be more volume there.”
The Euribor-Schatz ‘Ted Spread’ meanwhile is in vogue on the back of negative rates, and Phelps is seeing “a few more people dipping their toes back in that”.
From L-R: Mark Phelps, GHF; Irene Perdomo, Devet Capital; Steve Woodyatt, Object Trading
In terms of new products, Phelps said Eurex’s VSTOXX is getting a lot of interest from VIX traders in the US. “That’s one of the few products that seems to be coming to life, and really catching the market’s attention.”
Steve Woodyatt, CEO of Object Trading, a trading tech firm, said that clients are moving further out regionally.
Some examples are: tin and metals contracts in Hong Kong and Shanghai; Japan Exchange Group bringing its Mothers index futures on-line; and notably, the DGCX for its rupee contract, which recently transacted more than 30% of global rupee.
Compare that to 10% in Singapore and single digit percentages via the CME, Woodyatt added.
Irene Perdomo, Principal and Founding Partner at systematic trading firm Devet Capital, said that commodities are also back in fashion but for the wrong reasons. “Commodities are very low, and people think they are going to go up...but until commodities are not zero, they can go down.”
Even if speculators are right directionally, they have to be right, at the right time - specifically, before the roll of the contract. “The contango of the curve is so high, that you are going to lose about four or five percent if you need to roll the contract,” she said.
...applying the market data program to all of the market segments, is not appropriate.
“I personally don’t believe in taking a directional view in commodities, not in the short term. If you want to take direction or view in three years’ time, and you have big pockets for the margin consumption – perfect. But otherwise commodities is a random walk,” Perdomo added.
In the systematic world more generally, however, she sees a surge in interest in alternative liquid strategies, or trying to find new sources of "whatever Liquidity Liquidity The term liquidity refers to the process, speed, and ease of which a given asset or security can be converted into cash. Notably, liquidity surmises a retention in market price, with the most liquid assets representing cash.The most liquid asset of all is cash itself.· In economics, liquidity is defined by how efficiently and quickly an asset can be converted into usable cash without materially affecting its market price. · Nothing is more liquid than cash, while other assets represent The term liquidity refers to the process, speed, and ease of which a given asset or security can be converted into cash. Notably, liquidity surmises a retention in market price, with the most liquid assets representing cash.The most liquid asset of all is cash itself.· In economics, liquidity is defined by how efficiently and quickly an asset can be converted into usable cash without materially affecting its market price. · Nothing is more liquid than cash, while other assets represent Read this Term", not limited to any particular asset class.
Woodyatt puts it this way: “What used to be perhaps more of a race- to-zero-latency, it’s no longer that. It’s now breadth and depth of access and agility to move around across different platforms, different asset classes, and combine those in a systematic way that makes people profitable.”
Doing that comes with major caveats, in particular the cost of market data, which led to a heated debate as being too costly. It’s not so much that exchanges shouldn’t charge for data, said GHF’s Phelps, but it's “a bit rich” to charge sometimes crippling fees for data that trading firms themselves create.
It’s a very complex business decision...
“I don’t think there’s anyone in the audience that has a problem with the exchanges trying to derive revenues from market data, the point about this is applying the market data program to all of the market segments, is not appropriate. These guys are creating this data and they are the most price sensitive,” said GHF’s Phelps.
Object Trading's Woodyatt said that becoming an agile multi-asset class prop trader is not an overnight decision: “It’s a very complex business decision, and people are fundamentally looking at their business strategy, as well as their systematic and discretionary strategies that they trade to maintain profitability and return on their investment.”
Traders are doing more “extreme things” to make money, as agility trumps the race-to-zero in moving between products and asset classes, said panellists at a recent FOW conference.
“The successful guys seem to be able to jump around to where it’s hot,” said Mark Phelps, Global Head of Sales at GH Financials. The clearing provider connects to some 30 exchanges, representing thousands of products. “If you’ve got the energy to look around, you may find something that is doing 30, 40 thousand (lots) a day.”
...commodities is a random walk.
He pointed to the Euronext Milling Wheat contract as a case in point. “We did 40,000 lots a day over the last three months on average. It’s things like that traders should go out there and try and find because it’s an opportunity that other people aren’t looking at.”
Out of Singapore, Phelps said that at least one firm was making “a disproportionate amount of money” on the out-of-hours session on Eurodollar futures, for example.
This, when traders are moving out because the Fed rate hike failed to meet market expectations of surging volumes, he added. ICE Gilt futures, on the other hand, posted a record month for GHF in January. “Maybe this Brexit Brexit Brexit stands for British Exit, or in reference to the United Kingdom’s decision to formally leave the European Union (EU) as declared in a June 23, 2016 referendum. In a more immediate sense, a tight vote and unexpected result helped drive British pound (GBP) to lows that had not been seen in decades.The day following the referendum, former Prime Minister David Cameron resigned from office where he was replaced by Theresa May, who later resigned from office on June 7th, 2019. Active Prime Minis Brexit stands for British Exit, or in reference to the United Kingdom’s decision to formally leave the European Union (EU) as declared in a June 23, 2016 referendum. In a more immediate sense, a tight vote and unexpected result helped drive British pound (GBP) to lows that had not been seen in decades.The day following the referendum, former Prime Minister David Cameron resigned from office where he was replaced by Theresa May, who later resigned from office on June 7th, 2019. Active Prime Minis Read this Term talk, there’s going to be more volume there.”
The Euribor-Schatz ‘Ted Spread’ meanwhile is in vogue on the back of negative rates, and Phelps is seeing “a few more people dipping their toes back in that”.
From L-R: Mark Phelps, GHF; Irene Perdomo, Devet Capital; Steve Woodyatt, Object Trading
In terms of new products, Phelps said Eurex’s VSTOXX is getting a lot of interest from VIX traders in the US. “That’s one of the few products that seems to be coming to life, and really catching the market’s attention.”
Steve Woodyatt, CEO of Object Trading, a trading tech firm, said that clients are moving further out regionally.
Some examples are: tin and metals contracts in Hong Kong and Shanghai; Japan Exchange Group bringing its Mothers index futures on-line; and notably, the DGCX for its rupee contract, which recently transacted more than 30% of global rupee.
Compare that to 10% in Singapore and single digit percentages via the CME, Woodyatt added.
Irene Perdomo, Principal and Founding Partner at systematic trading firm Devet Capital, said that commodities are also back in fashion but for the wrong reasons. “Commodities are very low, and people think they are going to go up...but until commodities are not zero, they can go down.”
Even if speculators are right directionally, they have to be right, at the right time - specifically, before the roll of the contract. “The contango of the curve is so high, that you are going to lose about four or five percent if you need to roll the contract,” she said.
...applying the market data program to all of the market segments, is not appropriate.
“I personally don’t believe in taking a directional view in commodities, not in the short term. If you want to take direction or view in three years’ time, and you have big pockets for the margin consumption – perfect. But otherwise commodities is a random walk,” Perdomo added.
In the systematic world more generally, however, she sees a surge in interest in alternative liquid strategies, or trying to find new sources of "whatever Liquidity Liquidity The term liquidity refers to the process, speed, and ease of which a given asset or security can be converted into cash. Notably, liquidity surmises a retention in market price, with the most liquid assets representing cash.The most liquid asset of all is cash itself.· In economics, liquidity is defined by how efficiently and quickly an asset can be converted into usable cash without materially affecting its market price. · Nothing is more liquid than cash, while other assets represent The term liquidity refers to the process, speed, and ease of which a given asset or security can be converted into cash. Notably, liquidity surmises a retention in market price, with the most liquid assets representing cash.The most liquid asset of all is cash itself.· In economics, liquidity is defined by how efficiently and quickly an asset can be converted into usable cash without materially affecting its market price. · Nothing is more liquid than cash, while other assets represent Read this Term", not limited to any particular asset class.
Woodyatt puts it this way: “What used to be perhaps more of a race- to-zero-latency, it’s no longer that. It’s now breadth and depth of access and agility to move around across different platforms, different asset classes, and combine those in a systematic way that makes people profitable.”
Doing that comes with major caveats, in particular the cost of market data, which led to a heated debate as being too costly. It’s not so much that exchanges shouldn’t charge for data, said GHF’s Phelps, but it's “a bit rich” to charge sometimes crippling fees for data that trading firms themselves create.
It’s a very complex business decision...
“I don’t think there’s anyone in the audience that has a problem with the exchanges trying to derive revenues from market data, the point about this is applying the market data program to all of the market segments, is not appropriate. These guys are creating this data and they are the most price sensitive,” said GHF’s Phelps.
Object Trading's Woodyatt said that becoming an agile multi-asset class prop trader is not an overnight decision: “It’s a very complex business decision, and people are fundamentally looking at their business strategy, as well as their systematic and discretionary strategies that they trade to maintain profitability and return on their investment.”