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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.
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