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Earl:
Both the new eCBOT matching engine and Globex have the ability to
use different algorithms than pure FIFO. A/c/e did not have
anything but FIFO, which to some CBOT traders who were used to the
pro rata algorith of Project A was always a sore point. This is one
major reason the CBOT picked Liffe Connect, the ability to be
flexible with algorithms and spreading functionality across products
with different needs.
There is a list of of the markets at the CBOT and what alorithms
they use at http://www.cbot.com/cbot/docs/42429.pdf.
Mostly the CBOT is using the pro rata for lower volume contracts.
OneChicago also has a market maker alorithm.
At the CME, the list of alorithms and price bands can be found
here:http://www.cme.com/files/PriceBanding02.pdf.
Also, a description of each of the alorithms is listed here:
http://www.cme.com/get/abtglx/matalgorit965.html.
There are some new products that will be coming online in the grains
in the coming months, or so I am told. FOW reported this week that
the CBOT is signing up KCBT, MGE and Winnepeg to list their
contracts on eCBOT. This would probably only be night time, like
the CBOT, who knows. It would be up to each exchange. And this is
just the tip of the iceberg for that deal. There is more there that
will be announced.
The London Clearing House is working on clearing U.S. products,
which is largely expected to be the Liffe's Eurodollars. But the
IPE/Intercontinental Exchange may well lauch a U.S. futures contract
as well.
Don't expect to see more electronic trading out of Comex in the
metals anytime soon. The CBOT's mini metals continue to show some
life, but are still best for longer term time frames.
Hope this helps.
Regards,
John J. Lothian
Disclosure: Futures trading involves financial risk, lots of it!
--- In realtraders@xxxxxxxxxxxxxxx, "EarlA" <earl.a@xxxx> wrote:
> Interesting article, John, thank you for sharing it!
>
> Which of the electronic systems are not pure first in and first
out (FIFO) at price? I seem to remember that the old A/C/E used a
modified FIFO based on order size while Globex was pure FIFO.
>
> I think that the automated scalping systems effectively means that
a small trader is at a disadvantage trying to scalp ticks. My view
is that the small trader should not try to compete with these
systems but must work with a longer horizon.
>
> Do you see any momentum toward electronic trading in the ag,
energy, and metal markets? I recall that the electronic grain
futures never made it. I've noticed the gold and silver emini but
have no idea how well they trade or if the b/a spreads are in line.
I looked at the gas and crude emini, however trading is limited to
the front month which is useless for energy investing and hedging.
>
> Earl
> ----- Original Message -----
> From: John J. Lothian
> To: realtraders@xxxxxxxxxxxxxxx
> Sent: Friday, March 12, 2004 8:56 PM
> Subject: [RT] The Playing Field is leveler, but the Game is
Played
>
>
> The following is an essay I wrote for my newsletter today:
>
> There are certain tenets of electronic trading that are often
> recited by brokers, traders and exchanges. One of them is that
> electronic trading levels the playing field for all traders.
You no
> longer have to be over six foot tall, a Type A personality with
an
> above average dose of testosterone and standing in a trading pit
to
> have access to the best prices and quantities, they say. Now
anyone
> in front of a keyboard has equal access to the market, they
claim.
>
> While that is correct theoretically, in practice not every
trader is
> created equal. Some traders are just plain faster to the market
due
> to computer power, bandwidth or automated price injection models
> they are using. They utilize the latest technology and
bandwidth to
> pump orders in and out of the markets faster than most humans
can
> respond. They have sophisticated algorithms that calculate
their
> bids and offers on multiple systems all at the same time. A
market
> maker in the Mini Dow, who I mentioned in my last FutureSource
> Fastbreak commentary, can run up to 10 different trading
systems,
> each with distinct algorithms, all at the same time.
>
> The market maker's orders in and out of the Mini Dow are
typically
> logged/timed at about .25 of a second. His automated option
model
> scans the market for juicy opportunities and snaps them up
without
> him even having to touch a mouse or toggle a switch. His option
> model will also automatically hedge his option deltas in the
futures
> as well. There is still a human override factor used when his
> market making software get the wrong way in a market, but most
of
> the trading is automated.
>
> The market-making firm has developed its own front end trading
> software, after trying systems from various vendors, to give
them a
> competitive advantage. They have built stripped down software
that
> gives them just the functionality and speed they need.
>
> What these electronic market makers are doing is providing
> tremendous liquidity to the markets and interlinking pools of
> liquidity as never before. They lean on the deep pools of
liquidity
> with high correlations and translate that liquidity into other
> markets. For example, the Mini Dow market maker might lay off a
> trade he takes in the Mini Dows in the Emini S&Ps because the
> relationship is out of line relative to his correlations.
>
> For the average trader, there is no competing with this trader
on a
> speed basis. However, positioning is everything. Most of
today's
> electronic markets use a first in first out algorithm. That
means
> that if your order was in first, you get the first trade that
> matches up at that price level. Be careful of markets where
some
> market makers are given trade allocation preferences based on
> joining the best bid or offer and providing continuous two sided
> markets. You may be first, but that does not mean you get all
of an
> order filled even if you were first.
>
> Another tenet of electronic trading is that trading is that it
is
> transparent. This normally means that as an electronic trader
you
> can see the bids and offers that make up a market.
>
> Take a look at http://eaglei.cme.com:443/index.html to see the
> transparency now available to those wanting to trade the CME's
> Eurodollar contract.
>
> Even in the trading pit, where there is a transparency to who is
> bidding or offering, traders don't get to see the aggregation of
> bids and offers below and above the market. However, even with
this
> apparent transparency there are differences for traders to
> consider. For example, Eurex's trading platform offers snap
shots
> of the bids and offers in the match engine every 1 second or
less.
> What this means is that you are not seeing every bid and offer
roll
> by, but a snap shot of the book of bids and offers.
>
> The match engine at Euronext.liffe that is now being used by the
> Chicago Board of Trade and the Tokyo International Financial
Futures
> Exchange, Liffe Connect, offers dynamic streaming prices.
>
> What these streaming dynamic prices mean to sophisticated
electronic
> traders is that they can read the bid and offer size and
> strategically interact with the market based on the sizes
> displayed. For example, some traders may take a look at the
size of
> the bid or an offer before releasing a stop whose price level
has
> been elected. The trader may have his trading platform to not
send
> a stop if the order size is greater than a certain quantity.
Rather
> than just banging out the stop because the stop price is hit,
the
> streaming prices and transparent order book allows traders to
inject
> nuances like this into their trading strategies.
>
> Despite all this automation that some traders are using, it is
not
> necessary to be a successful electronic trader. It just means
you
> need to have a slightly different trading style, time frame
focus or
> skill set. The Chicago Mercantile Exchange's new Globex
Learning
> Center was built to help transition current traders from the
trading
> floor, but also to help develop the next generation of traders.
>
> For a virtual tour of the GLC, click here:
> http://www.cme.com/edu/etc/glcvirtual6466.html
>
> The traders that will train in the GLC will be able to practice
> trading in what looks like a real trading room you would find at
a
> brokerage firm, hedge fund or trading arcade. There are live
quotes
> and charts to interact with as well as new feeds blaring.
Traders
> in training will have their choice of 13 different Independent
> Software Vendors trading platforms to choose from. They will be
> able to find the system they like the best and then practice
with it
> with real time prices, but play money.
>
> Another tenet of electronic trading is that it will force
> traditional open outcry exchanges to close their trading
floors.
> Certainly the recent news that the Chicago Board of Trade had
leased
> its 1930s trading floor, at the foot of LaSalle Street, was an
> indication that beckoning future had arrived. But the CBOT was
not
> using that antiquated trading floor anymore. The now shuttered
> MidAmerica Commodity Exchange last used the 1930 trading room.
>
> There is nothing for sure about closing down the trading floors,
> despite what I might think or other commenter on the subject.
In
> fact, today's trading floors are evolving into exchange run
trading
> arcades where just as much electronic trade may originate as
open
> outcry trade. The slow migration of futures options trading to
> electronic trading in the U.S., is an indication the trading
floors
> still have a role.
>
> The evolution of the trading floor, and electronic trading, has
> never been better represented than by the new ground floor
Visitor's
> Center at the Chicago Mercantile Exchange. The new interactive,
> multi-media attraction tells the story of the CME's development
from
> a butter and egg exchange on a street corner to the U.S.'s
largest
> futures exchange today.
>
> Just last Friday the CME traded over 5 million futures contracts
for
> the first time, excluding on days when they launched their
unique
> TRAKR contracts. They traded over 2 million contracts on Globex
for
> the first time on that same day. Yesterday they traded over 2
> million on Globex again, setting another new Globex daily volume
> record.
>
> In the CME's new Visitor's Center, they have a picture of the
> exchange's trading floor from some years back when they traded
5,000
> contracts on a particular day. That was described in the photo
> legend as a particularly busy day. Yesterday, late in the day,
as
> the CME was setting a new Globex volume record with every trade,
the
> volume was growing by some 5,000 contracts per minute.
>
> What was once a busy day is now a busy minute. The playing
field is
> leveler, the trading tools are more powerful and readily
available,
> the trading is faster and the growth potential for futures
trading
> continues to be substantial.
>
> Regards,
>
> John J. Lothian
>
> Disclosure: Futures trading involves risk, lots of it!
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