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Hello Dan,
In fact, liquidity is a function of spread. IMHO nothing remarkable
that MM's are able to maintain liquidity on QQQ future keeping spread
5-10 times wider than on its underlying market (QQQ future spread 5-10
cents vs 0-1 cent on QQQ). Such a liquidity has little demand.
Best regards,
Alex mailto:alex_bell@xxxxxxx
Tuesday, July 1, 2003, 12:47:21 PM, you wrote:
DG> John makes several good points, but I would like to add one of my own.
DG> When markets are trading smoothly, it is fine to evaluate liquidity by
DG> the volume of contracts. Markets are not always smooth, however, and a
DG> trader needs to consider how he expects a product to trade in rough
DG> markets. Will market makers still make a reasonable market when the
DG> bottom falls out? If not, will there be practical alternatives that will
DG> allow the trader to eliminate or offset risk?
DG> Frankly, the proof of the pudding is in the eating, and we haven't had a
DG> good bite of bad-market pudding since the introduction of security
DG> futures. Traders should give some thought to how to exit risk through
DG> alternative markets (eg, buying puts or shorting stock to offset a long
DG> position), and watch those markets the same way a driver watches the
DG> traffic behind him in the rear-view mirror.
DG> Regards
DG> DanG
DG> John J. Lothian wrote:
>>Earl:
>>
>>Security futures challenge our understandings of what liquidity is.
>>Most contracts are judged by number of contracts traded. However,
>>with security futures products like the QQQ ETF, and others, the
>>contracts market makers are continually making 2 sided markets. I
>>regularly see bids and offers 100 up on security futures at both
>>excchanges.
>>
>>Bill Rainer, former CFTC Chairman and CEO of OneChicago, recently
>>said that there has yet to be an order that is too large for
>>OneChicago market makers to handle. They have had 2000 and 3000 lot
>>orders all trade at the same price. I agree, and the same is true
>>for NQLX too.
>>
>>Security futures markets have the most liquid cash markets available
>>of any futures markets. These cash markets are accessible to all,
>>but the market makers have multiple avenues to lay off their trades
>>in broad based indices, cash stocks, options or other security
>>futures products.
>>
>>Thus, while we might brand low volume for a contract poor because of
>>low number of trades, that label does not really reflect the true
>>liquidity of those markets.
>>
>>Regards,
>>
>>John J. Lothian
>>
>>Disclosure: Futures trading involves significant risk. Security
>>futures are not for everyone.
>>
>>
>>--- In realtraders@xxxxxxxxxxxxxxx, "EarlA" <earl.a@xxxx> wrote:
>>
>>
>>>I see, Alex, thank you. I've not had much interest in the Single
>>>
>>>
>>Stock
>>
>>
>>>futures and was unaware of the QQQ futures contract. I would think
>>>
>>>
>>that the
>>
>>
>>>contract would have heavy headwinds going against the NQ, but at
>>>
>>>
>>1/8 the
>>
>>
>>>size of the NQ, it might appeal to those seeking a very small
>>>
>>>
>>contract. I
>>
>>
>>>would think however that, as you indicated, the liquidity would be
>>>
>>>
>>very
>>
>>
>>>poor.
>>>
>>>Earl
>>>
>>>
>>>
>>
>>
>>
>>
>>To unsubscribe from this group, send an email to:
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>>
>>
>>
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>>
>>
>>
>>
>>
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