COMMODITY SPREAD TRADING discretionary commodity trading in different and profitable way Romana Křížová CEO, TradeandFinance.eu, s.r.o. 1
What is Spread? Often used term Used in different contexts represents different facts Confusion in interpretations and use of the term Spread = difference in price between two price values Spread between BID and ASK Spreads in options trading Commodity spreads 2
Spread between BID and ASK Difference between the buying and selling price of a commodity or security contract of Corn with expiration in December 2013 BID price - $426.75 ASK price - $427 Spread between both price values is $427 $426.75 =$0.25 3
Commodity Spreads Spread is calculated from price difference between a long and short positions of futures contracts Works on seasonality basis increases winning probability enables to predict increase or decline of price difference Price difference between long and short positions is displayed on spread charts 4
Difference between Outright and Spread Outright speculation on price change of a particular commodity Spread speculation on price change between value of two trading positions Spread is a combination of two outrights = so called legs of spread 5
Spread Value Spread value = price of long position minus price of short position 14.1.2013 4.4.2013 Wheat CBOT September 13 784,75 707,5 Wheat KCBT September 13 851,25 740 Spread -66,5-32,5 6
Profit in Spread Trading Price of commodity A grows price of commodity B declines commodity A LONG position = long leg BUY for 300 commodity B SELL for 200 SHORT position = short leg 7
Profit in Spread Trading Prices of commodities A and B decline price of commodity B declines faster commodity A LONG position = long leg BUY for 300 commodity B SELL for 200 SHORT position = short leg 8
Spread chart with historical patterns Enter the LONG position in the area of seasonal LOW 9
What Commodities/Futures to Trade Grains Corn, Wheat (CBOT i KCBT), Soya, Soybean Meal, Soybean Oil Meal Live Cattle, Lean Hogs, Feeder Cattle Energy Heating Oil, Natural Gas, Gasoline, Crude Oil Currency EUR, USD, GBP, JYP, CHF Financials US Treasury Bonds, T-Notes 10Y, T-Notes 5Y Metals Gold, Silver, Copper Softs Cocoa, Coffee, Cotton, Orange Juice very carefully 10
ADVANTAGES OF COMMODITY SPREAD TRADING
Advantages of Spread Trading Lower volatility = lower SL = lower risk The lowest volatility applies to interdelivery spreads (the same commodity, different expiration months) Enables to trade with lower trading capital Low margins Seasonality Is not time consuming positions check before exchange closing hours 12
Volatility of Outright Daily price move 13
Volatility of Spread Daily price move 14
Margin - outright http://www.cmegroup.com/trading/agricultural/grain-and-oilseed/corn_performance_bonds.html 15
Margin - spread http://www.cmegroup.com/trading/agricultural/grain-and-oilseed/corn_performance_bonds.html?marginstab=intra 16
Seasonality of Commodity Spreads Spread trading is based on seasonality Seasonality is a nature of the underlying asset - commodity Easier searching for potentially winning trades Searching for trading opportunities by correlation of current year spread with seasonal tendency and historical patterns of 5, 10, 15 and 20 years The markets most correlating with long term patterns have the highest winning potential Spread position entry on seasonal HIGHs and LOWs Tool for searching and analysing the trading opportunities - SeasonAlgo 17
Seasonality of Commodity Spreads Enter the LONG position in the area of seasonal LOW 18
Advantages of Spread Trading Trading based on hedging principles Lower impact of fundamentals Strict regulation strong role of clearing centres Seasonality High liquidity Low margins Lower volatility than outrights = lower risk Suitable trading approach for beginner traders High winning rate of trades Increase of trading capital in tens of percent per year
What is Needed for Spread Trading? Trading account at a broker which enables trading COMBO spread positions on lower margin Interactive Brokers Trading account of at least $10 000 Online platform SeasonAlgo from $33/month
Spreads on TradeandFinance.eu Articles http://www.tradeandfinance.eu/en/kategorie/posts/c ommodity-spreads/ Videos http://www.tradeandfinance.eu/en/videos/?catid=ko moditni-spready
Unique know-how of TradeandFinance.eu New approach to commodity spread trading with use of the latest analytical tools Different ways of teaching commodity spread trading: based on technical analysis, or without technical analysis by optimised trading window, or combination of both approaches. Profound knowledge of SeasonAlgo TradeandFinance.eu is worlwide the only trainer authprised by the SeasonAlgo developers Unique complex training of searching, filtering, detailed analysis and optimisation of spread strategies Training in use of statistic methods and Walk Forward Analysis Unique training in use of SeasonAlgo for application of effective risk management
Spread Trading Courses Commodity Spread Trading For intermediate traders 1 training day (= 6 hours) Using the SeasonAlgo Platform Builds upon spread trading course and enhances the trading technique by teaching how to search and analyse spreads with high winning potential 1 training day (= 6 hours) Also as online course Workshop of Spread Trading with the Advanced Bactester of SeasonAlgo Practical workshop, practicing of spread trading technique, advanced functions of SeasonAlgo, working with the Advanced Bactester and Walk Forward Analysis, advanced risk management and position sizing 4 hours Individual training by individual requirements
Bonuses for Course Participants 30 days trial on all markets and 10% discount on SeasonAlgo not possible to cumulate with previously provided trials and discounts 14 days trial and 40% discount on Gecko Software - http://goo.gl/ti8ujm 31 days trial and up to 10% discount on Sierra Chart 50% discount on online course Using the SeasonAlgo Platform 24
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Commodity Spreads safer commodity trading Romana Křížová romana.krizova@tradeandfinance.eu