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With the introduction of the new mini contracts at the CBOT coming up on
September 30, the Kilo Gold contract will also move to the a/c/e screen and
pit trading will cease.
To celebrate this fact the one sole broker for Kilo Gold, Midam NY Gold,
Midam Silver and Little Silver quit a week or so ago. That left brokerage
houses with orders in Kilo scrambling to find alternatives for getting their
orders filled. A couple of major houses were forced to hold their own orders
at the desk, with an eye on NY gold prices, and run the orders into the pit
while corralling an available young Midam broker to fill the orders.
Of course, once the Kilo Gold moves to the a/c/e screen, no floor brokers
will be needed. I am a little concerned though that we could see some
illiquid liquidation action in the Kilo Gold while the CBOT is wanting to
trumpet the success of the new mini contracts.
Personally, I don't have any clients in the Kilo. I do know of some exchange
members who do have positions on and have for a number of years. They wanted
the exposure to gold or held certificates for physical gold and wanted to
hedge it.
The other day when I checked there were 178 open Kilo contracts and 117 Kilo
receipts available for delivery. It is likely that a majority of the shorts
are the holders of the Kilo receipts and will simply deliver the Kilo
receipts versus their short positions. That will leave the longs holding
Kilo Gold bars no one wants. Hot Potato Gold bars essentially.
One of the other mitigating factors is that the two locals who trade Kilo
Gold, and hold some of the receipts, may have been put on liquidation only by
their clearing firms, or at least urged to work their positions down. The
does nothing to improve liquidity.
There is no problem for the Midam NY Gold or the silver contracts. The open
positions in those contracts will convert to contracts in the new CBOT mini
contracts. So the problem rest solely in the Kilo Gold.
In my daily industry news emails earlier this week I encouraged traders
holding Kilo Gold contracts interested in liquidating them prior to the
expiration of pit trading to show up on Thursday of next week with their
spread orders. The best solution for both the longs and shorts interested in
settling by liquidation rather than deliver would be to roll positions from
the Kilo Gold into the Midam NY Gold and thus have them automatically convert
to the new CBOT mini contracts.
If you have Kilo contacts open and need some help, contact your broker, or
feel free to contact me. I will be glad to help you with he mechanics.
I would like to see the new CBOT mini contracts be successful and would not
like to see the stain of an ugly illiquid liquidation in the Kilo Gold stunt
the potential for these new contracts. If you are a Kilo Gold trader I hope
you agree and will show up on Thursday with your spread order.
Regards,
John J. Lothian
Disclosure: Futures trading involves financial risk, lots of it! John J.
Lothian is the President of the Electronic Trading Division of The Price
Futures Group, Inc., an Introducing Broker.
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