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Alex
I think your generalization that 'liquidity is a function of spread'
ignores both depth of market and my point about rough markets.
If you are trading single contracts, or minimum round lots, you can
ignore the depth of market.
You should never ignore the 'rough market' problem...
Regards
DanG
Alex Bell wrote:
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
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