Basic Information for Commodity Newbies: Slippage, Filter, TFs, etc.

pannet1

pannet1

Well-Known Member
#11
#11
hi marimuthu,

if someone is buying one (apr) contract and selling another (may) contract, lets say for example CRUDEM, will the rates converge / diverge on expiry (of apr contract).

at this moment APR CRUDEM is trading at 3421 and MAY CRUDEM at 3461. In two days time will 3421 tend to rise towards 3461 (or) vice versa.

why this is important for me. Its because I lock my profit and loss in APR contract in MAY. In other words, I tend to place my buy order in APR and sell order in MAY. Thats why.
 
Happy_Singh

Happy_Singh

Happy
#12
#12
pannet1 said:
hi marimuthu,

if someone is buying one (apr) contract and selling another (may) contract, lets say for example CRUDEM, will the rates converge / diverge on expiry (of apr contract).

at this moment APR CRUDEM is trading at 3421 and MAY CRUDEM at 3461. In two days time will 3421 tend to rise towards 3461 (or) vice versa.

why this is important for me. Its because I lock my profit and loss in APR contract in MAY. In other words, I tend to place my buy order in APR and sell order in MAY. Thats why.
Click to expand...
It's called Forwardization Charges . . . or Badla

Normally it will be maximum near expiry . . .
but depends on many factors, basically how the market is positioned,
the badla is maximum when trend is perceived to be very bullish
and the long positions are competing to shift to the next expiry


Why it is so ?

Through Buying of a Future Contract we control 100 barrels of Crude Oil
we actually don't pay for it, except for a small margin,

theoretically the premium to spot is the compensation the Hedger gets for financing our long position
(the Hedger is Short on futures / Long on Spot, so he has paid for 100 barrels of crude oil which we are controlling :D)

So when shifting to next expiry, the current futures and spot rates converge
where as the premium on next expiry will reflect how the market is positioned

Hope have not confused you further :)

Happy :)
 
pannet1

pannet1

Well-Known Member
#13
#13
Happy_Singh said:
It's called Forwardization Charges . . . or Badla

Normally it will be maximum near expiry . . .
but depends on many factors, basically how the market is positioned,
the badla is maximum when trend is perceived to be very bullish
and the long positions are competing to shift to the next expiry


Why it is so ?

Through Buying of a Future Contract we control 100 barrels of Crude Oil
we actually don't pay for it, except for a small margin,

theoretically the premium to spot is the compensation the Hedger gets for financing our long position
(the Hedger is Short on futures / Long on Spot, so he has paid for 100 barrels of crude oil which we are controlling :D)

So when shifting to next expiry, the current futures and spot rates converge
where as the premium on next expiry will reflect how the market is positioned

Hope have not confused you further :)

Happy :)
Click to expand...
I am somewhat getting what you are saying.

So if May future is trading at 100+ points than spot and June Futures is trading at 200+ points than Spot, can we blindly buy May future and sell June Futures. I know there is no easy money but does this badla work.

Is there a risk that at the end of May month, May future that we bought reduce in price and June future we bought increase in price :D so we suffer loss in both the contracts.
 
Happy_Singh

Happy_Singh

Happy
#14
#14
pannet1 said:
I am somewhat getting what you are saying.

So if May future is trading at 100+ points than spot and June Futures is trading at 200+ points than Spot, can we blindly buy May future and sell June Futures. I know there is no easy money but does this badla work.

Is there a risk that at the end of May month, May future that we bought reduce in price and June future we bought increase in price :D so we suffer loss in both the contracts.
Click to expand...
No not a valid trade.

On expiry the current month premium is zero, where as the next month will be carrying premium (Forwardization charges).

So the trade if any is a perpetual short on Futures . . .
always rolling it to next expiry at a higher value . . . .
thus collecting about 800 points annually . . . .

The only problem with above is how to hedge the position . . .
Buying a few 100 barrels of crude oil on the spot market not possible for us :D

Something similar can be attempted with other easily available commodities
say Silver or Gold, but the ease of implementation also reflects in reduction of premium available.

All this is more in the realm financing rather than trading, means for HNIs :thumb:

Happy :)
 
R

rdev1

New Member
#15
#15
marimuthu13 said:
based on my experience, below are filter for various commodities..

aluminium, copper, zinc and lead- 10 paise..
gold - 5 rs, and silver - 10 rs

moreover i dont know why are you so much interested in filter points??

better use limit order if u r pull back trader, or SL-L if u r brakeout trader...so that u need not to worry about slipagges..

for SL , better to use SL-M always, dont try your hand in SL-L while putting SL order..
Click to expand...
Thanks marimuthu for the valuable information again.

Sorry for the late reply. I was away.

I always worry about filter as a matter of habit from years of trading and backtesting I guess. In Equity and Index Futures we need to use it. Have been doing it for many years now :) as going without filter leads to many unnecessary trades and whips. Since I have no idea about commodities, I had to ask.

I am neither of the above traders you mentioned. My trades will require SL-L for entries and I agree based on experience that SL-M is the only option for stop loss.

Thanks again.

Regards,

RDev
 
xitija

xitija

Well-Known Member
#17
#17
marimuthu13 said:
based on my experience, below are filter for various commodities..

aluminium, copper, zinc and lead- 10 paise..
gold - 5 rs, and silver - 10 rs

moreover i dont know why are you so much interested in filter points??

better use limit order if u r pull back trader, or SL-L if u r brakeout trader...so that u need not to worry about slipagges..

for SL , better to use SL-M always, dont try your hand in SL-L while putting SL order..
Click to expand...
Hi Marimuthu,SL-L orders remain pending sometimes trading EQ or BNF.
So,If I use SL-L to get fill 20 lots Crude,will they get filled easily?

How much points difference do you keep between price and trigger price in Crude SL-L order?
 
M

marimuthu13

Well-Known Member
#18
#18
xitija said:
Hi Marimuthu,SL-L orders remain pending sometimes trading EQ or BNF.
So,If I use SL-L to get fill 20 lots Crude,will they get filled easily?

How much points difference do you keep between price and trigger price in Crude SL-L order?
Click to expand...
Hi,
I always use LIMIT order to get into trade. But during inventory day trade, i keep SL-L without filter..meaning i want to buy above 3204, then put 3204 in both price and trigger price..
 
You must log in or register to reply here.
Thread starter Similar threads Forum Replies Date
kajalnigam Basic Strategies for Stock Trading Introductions 10
P Commodity Trading - basic information Introductions 4
N Need basic information about trading Introductions 0
B basic information about share market Beginners Guide 3
R Hello - New to group. Need some basic information Introductions 1

Similar threads