|
PureBytes Links
Trading Reference Links
|
>The investing public will want to buy them and will pay up to do so
John, first won't the "investing" public be better off in equity mutual
funds? I still haven't seen a convincing argument from you that these
"funds" are anything other than an attempt by the CBOT (and in my opinion, a
poor attempt at that) to move volume back to the pits.
You have really created a substantial argument FOR these funds other than to
say that people will want to trade them because they are liquid. And you
don't think the managers of these funds will be able to create funds that
will consistently go up over the life of each contract, which to me seems
like the only possible appeal these funds could have.
An analogy to these X-funds would be to say "Let's create a new ETF family
on the AmEx that is composed of randomly selected stocks and the ETF only
lasts for 2 weeks at a time." Let's put MSFT, DD, PG, and WMT into an ETF
that has a lifespan of 2 weeks and see what happens. Who would go for that?
It's hard enough to make money trading just ONE of those names. And if the
ETF's do have a tendancy to go up, that will get arbed out.
Here are my arguments why I think these funds will be stillborn:
1) Mechanical traders will not trade these because it will be nearly
impossible to backtest against these things because a) the components are
selected using different methods which may vary over time, and b) the
underlying components are all going to have different behavior over time.
2) Discretionary traders will not trade them because it is difficult to get
one market at a time right. The number of traders who trade spreads is
substantially less than the number of people who trade a single vehicle and
those who do trade spreads are trading RELATED markets for the most part.
Those few who do trade Wheat against the Euro are doing so for commercial
hedging purposes and need something that lasts a little longer than 2 weeks.
3) The "investing" public won't trade these because they don't want to have
to call their broker and roll every 2 weeks or face a delivery notice for
$100,000 worth of wheat, 5-year notes, copper, and yen.
4) The "investing" public will not be able to take advantage of these
vehicles which "go up" in value over their 2 week life span because if the
contracts do show a tendancy to go up every contract, that "upness" will get
arbed out by the pit traders. And I agree with you that it is unlikely that
the managers will even be able to create funds every 2 weeks that will go
up.
5) They are traded in the pits. Everyone is going electronic. Sure the
pits can absorb volume. But the electronic markets are getting better at
doing this. And I would argue that a computer would be far better at
arb'ing an X-fund vs it's constituent contracts than any human 24/7 and no
coffee breaks.
Can you refute these arguments?
John, I respect you for your enthusiasm for the futures markets and for
publishing a free newsletter which has substantial content. But I honestly
think you are getting snowed by marketing hype on this one. Either that or
you are trying to snow us and based on my observations of your posts over
time, I don't believe that is your modus operandi. If you want to help the
CBOT find some volume for the pits, why not try to find some contracts that
people will truly have reason to trade. Personally, I don't see whats in
the pits for anyone outside the CBOT, but it seems to me that finding
contracts that have some application to the real world is the way to go.
I honestly respect you, John but I think your enthusiam for these things is
coming from the pit traders and not from the utility of this concept. Why
don't you create a brainstorming forum to toss around some ideas for some
real meat and potatoes? Like Enron did with weather and energy. Sure Enron
is gone, but energy trading lives on and this country is and will be better
for it. Here's some starter ideas: inflation, unemployment, insurance risk,
business risk, shipping, fresh water, pollution, professional sports, taxes.
There! 5 minutes and I've come up with 9 ideas that are all mo betta than
the X-funds!
And if all else fails, if the CBOT wants to really get some volume in the
pits, answer this question: why do some people prefer electronic trading?
1) No rape. (or atleast less rape, and since it's electronic it's over
really fast)
2) Instant fills.
3) More visibility.
4) Narrow spreads.
5) Level playing field.
You want volume? Put these things in the pits and try to hold back the
volume.
"To Serve Man": Some people think it's a cookbook. Some people think it's a
get rich quick primer. Why are you running for office, John?
Kent
----- Original Message -----
From: <I4Lothian@xxxxxxx>
To: <realtraders@xxxxxxxxxxxxxxx>
Sent: Sunday, January 27, 2002 12:43 AM
Subject: Re: [RT] CBOT X-Funds and Short Tie Syndrome
In a message dated 1/26/02 1:58:14 AM Central Standard Time,
nwinski@xxxxxxxxxxxxxxx writes:
<< Perhaps due to being hypotized by your new tie, did you forget to give
a
basic description of what the X-Fund and O-Fund vehicles are? Your note is
the first I have heard of this.
Thanks,
Norman >>
Norman:
The X-Funds are a new narrow based index product from the CBOT. The concept
was originated by Peter Steidlmeyer of the Market Profile fame. An X-Fund
consists of a basket of four liquid futures contracts selected by an X-Fund
manager selected by the CBOT. The X-Funds will lauch on Feb.1 and will cash
settle every two weeks. Thus, it is a very short duration professionally
selected portfolio that the CBOT and the contract designers expect will go
up
over time. The investing public will want to buy them and will pay up to do
so and the locals making a market will arbitrage off their trades in the
liquid underlying markets. Thus, X-Funds borrow liquidity from the
component
contracts.
There is margin savings and fee savings from trading X-Funds versus trading
the four component contracts. The tick size is $100.
I decided I wanted to compare the CBOT's selected fund managers to a group
of
public traders and/or brokers, thus creating Shadow X-Fund Managers. I
asked
for volunteers on the Omega List, thus we have renamed the Shadow X-Fund
Managers as O-Fund Managers just to avoid any confusion.
The first O-Funds showed impressive results, with two traders showing
impressive gains, though keep in mind this is just an exercise and
hypothetical trading. I am participating by randomly selecting components.
I am showing the daily results of the O-Funds in my daily free futures and
securities industry email newsletter. The O-Funds is simply an exercise to
learn about the dynamics of this new contract that has garnered a lot of
enthusiasm among CBOT members.
Regards,
John J. Lothian
President
Electronic Trading Division
The Price Futures Group, Inc.
Futures trading involves significant financial risk.
Hypothetical performance results have many inherent limitations, some of
which are described below. No representations are being made that nay
account will or is
likely to achieve profits or losses similar to those shown. In fact, there
are frequently sharp differences between hypothetical performance results
and
the actual results
subsequently achieved by any particular trading program. One of the
limitations of hypothetical performance results is that they are generally
prepared with the benefit
of hindsight. In addition, hypothetical trading does not involve financial
risk, and no hypothetical trading record can completely account for the
impact of financial risk in
actual trading. For example, the ability to withstand losses or to adhere a
particular trading program in spite of trading losses are material points
which can adversely
affect actual trading results. There are numerous other factors related to
the markets in general or to the implementation of any specific trading
program which cannot
be fully accounted for in the preparation of hypothetical performance
results
and all of which can adversely affect actual trading results.
------------------------ Yahoo! Groups Sponsor ---------------------~-->
Access Your PC from Anywhere
Check Email & Transfer files - Free Download
http://us.click.yahoo.com/1njxPB/wakDAA/cosFAA/zMEolB/TM
---------------------------------------------------------------------~->
To unsubscribe from this group, send an email to:
realtraders-unsubscribe@xxxxxxxxxxxxxxx
Your use of Yahoo! Groups is subject to http://docs.yahoo.com/info/terms/
|