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First the disclosure. I am a futures broker and big propoent of Single Stock Futures. SSFs are not for everyone.
That being said, there is great potential in SSFs and potentially even more in the future if we can get a few things changed. Clearly, SSFs have not been the big success that so many, including myself, expected them to be. However, neither were lots of other successful products at first, including equity options and Eurodollars.
SSFs at this point are a Market Maker driven market. The MMs have automated price injection models the make markets in SSF based on the price of the underlying stocks. The MMs are making markets in several SSFs all at the same time. It is kind of like ice fishing, setting up lines over holes all over the lake. When line gets tripped, then the fisherman takes a look. Same thing pretty much with SSFs.
There are other ways to get the attention of the MMs, and that is to request a quote from the exchange. If you have quantity to move, you can ask the exchange for an RFQ to get you more size shown or even a tighter market. There is a $100 million CTA that regularly trades SSFs and they have no problem trading 2 to 3 thousand contracts all at one price.
Even though the MMs are making wider markets, there are also cost savings with SSFs that you need to take into consideration. You are not paying for the margin on SSFs, which is 20%, not 50%. Your open trade equity is usable for other markets. Thus, you don't need to sell your stock to utilize the gains from a big winner.
SSFs have a place for some traders. There are things you can do with SSFs that you can't do, or can't do as well or as easily, with SSFs. For example, we have been tracking the trade of Coke versus Pepsi. If you want to do this trade, it is easier to do with SSF on a single trading platform and no up tick rule to contend with.
To me SSFs are extremely liquid, though the volumes may or the bid offer may not reflect it. The MMs have the huge equity markets, options, ETFs or futures to lay risk off into and that is exactly what they do. There is no cash market for a futures contract that is so easily accessed.
SSF may not be for everyone, but don't dismiss them for the volume they are doing. They can do as much volume as almost any individual trader would want to do.
Regards,
John J. Lothian
Disclosure: John J. Lothian is the President of the Electronic Trading Division of The Price Futures Group, Inc., an Introducing Broker.
In a message dated 5/24/2004 5:52:09 AM Central Standard Time, carlvan@xxxxxxxxx writes:
For some time now, I have been day-trading stocks on NYSE and Nasdaq. Recently, I received an invitation from my broker to attend an online conference to trade SSF on NQLX and Chicago ONE exchanges.But when I checked the live quotes, I was disappointed: while it looks interesting because you have no uptick rule with SSF, I was hurt when I discovered the bid-ask spread: an ashaming 5 to 7 pts, while the same spread on the underlying stock is only 1 pt !!!Has anyone some experience with Signle Stock Future trading, am I missing something, is this really interesting compared to real stock trading ?Thank you for your comments
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