thks ullastp for the info!
actually i am surprised, how they are managing it with these kind of discounts! ru sure these are margin related discounts OR any other kind of discounts? can u give a practical example for that!
though s&p500 & djia & nasdaq are closely related, even a 1% deviation in their pair trading (which is common nowadays) can play havoc on shortfalls! forget the crudeoil & natgas pair which can wildly swing on inventories announcement day! why to get into sumthing when its is getting automatically squared up to only see the trade moving in ur direction!
Hi Malgohft,
Its true. I have around 3 years of experience in US market for Pairs Trading in Index Futures, but not now. Now Im here in Indian market and unable to implement the same to NIFTY FUT and SENSEX FUT because of the high correlation. As you people know if the scrips are highly correlated we wont get any divergence to enter the trade. So we have to go for other scrips like stock futures in Indian market.
But in US Markets as you know ,
Dow Jones: An index with strong & financially sound 30 stocks
S&P 500: Top 500 stocks weighted according to mkt cap.
Nasdaq 100: Technology stocks only
ES- S&P 500 Index Future
NQ- Nasdaq 100 Index Future
Here 1% or above movement is due to there sector weightage and for short term trading/investment we welcome such spread. Both in S&P 500 and Nasdaq 100, APPLE share is number 1 weightage and other stocks like GOOGLE, MICROSOFT etc. are there in top 10 in both indexes. So the divergence wont go far. It needs around 4% movement against/opposite to cut our positions automatically. And we usually average our positions when such swings (1% movement) occur.
Below is one live example:
BOT
10 ES MAR13 FUT @
1504.50 (10*50*1504.50= 752250.00) (ES lot size = 50)
SOLD
14 NQ MAR13 FUT @
2744.25 (14*20*2744.25= 768390.00) (NQ lot size = 20)
For the above Pair they charging a margin of
26,250.00 (actual investment: 1,520,640.00)
And this margin is in AFTER MARKET HOURS and @ market hours it again comes down around 20,000.00 (all prices above are in dollars)
In the case of Crude Oil, you are right when Inventory news is there some times the spread went more than 5% in my experience, but still they giving margin discount. (Checked it in Yesterday US Market time)
One reason may be the account used was a proprietary account with Huge Capital.
that's y i thought there will be some brokers in Indian market wil give the same....anyway leave it, i think so far no broker here giving any discounts.
