Thursday, November 16, 2006

A Few Insights From the Futures Trading Summit

It's been a great Futures Trading Summit so far. I'm writing from Las Vegas after day one of the two-day event. Here are a few tidbits of interest:

* From Yra Harris, currency trader and analyst: We didn't see an antiwar election; we saw an anti-globalization election. This dynamic greatly affected races in Ohio, Michigan, and Pennsylvania--areas in which the electorate perceives a loss of jobs due to globalization. This could easily lead to a greater push for protectionism, which would be fatal to global markets.

* Also from Yra: Europe is suffering from the Yen carry trade, which exploits low Japanese rates and high European rates by borrowing Yen and buying the Euro. Watch for a shift in reserves, whereby Europe decides to add Yen in greater proportion to its mix. That would boost the Yen and wipe out the carry trade, carrying many markets with it.

* Dominic Chirichella, energy trader/analyst: China now accounts for 12% of energy consumption, second only to the U.S. If per capita energy consumption in China reached U.S. levels, China would require all the world's oil production for its needs. This will keep a bid under energy for as long as China is expanding.

* Braden Janowski, automated systems developer and trader: The goal of most automated trading systems is to place a "tax" on all your trades. When you enter positions at the market, you get a price that is out of line vis a vis correlated markets, providing a spreading opportunity for the black boxes. Over many trades, this tax adds up.

* Philip Klapwijk, metals analyst: Silver has followed gold, supported by the great success of the silver ETF. But the fundamentals for silver are worse than for gold, due to lower industrial demand. Fundamentally, silver is a $6-7 metal.

Of course, there have been many trading ideas/patterns provided as well, and more will come today. Good people, good show. I'll post some highlights from today late in the day tomorrow.

4 comments:

Brandon Wilhite said...

Dr. Brett,

Just a comment/question on the statement about Europe and yen carry trades. 1) In my perception the Euro is not the currency of choice for yen carries...not even close 2) His statements would imply that Eurozone wanted the Euro to get weaker (sounds right) did he touch on this?

BW

cpptrader said...

Hello Dr. Steenbarger,

I am not sure I understand Braden Janowski's comments correctly. Is he referring to software that you purchase imposing a "tax" comparable to how "no commission" forex brokers do (by adding a few pips to the spread) - or is he referring to order entry on systems one develops? Or am I missing this completely.

I have been actively working on switching to fully automated trading (monitored, of course) and cannot seem to figure out how to apply what he is saying to my trading activities. Would you mind shedding some light?

Thanks,

Matthew

Brett Steenbarger, Ph.D. said...

Hey BW,

This is really my bad. I took his observation out of context. He certainly did acknowledge that much of the carry trade is with the very high yielding currencies around the world. Because of liquidity, however, it's also affecting Europe and keeping the Euro strong--which makes exports less competitive world wide. So yes, in that context, there is a concern about a strong Euro and its impact upon global competitiveness.

Brett

Brett Steenbarger, Ph.D. said...

Hi Matthew,

Thanks for the opportunity to clarify.

Every index instrument has synthetic equivalents and can be evaluated relative to those equivalents to see if it's trading at fair value. The ES, for example, has equivalents in the SPY ETF, in the SP futures, and in the basket of cash stocks.

The trader who buys or sells at the market will often get a fill that is worse than the equivalent price he/she could have gotten in the synthetic alternatives. This enables the spreader to turn around and execute the opposite trade in the synthetic to capture the small difference.

That small difference is the "tax". It's an execution tick given up by the retail trader, captured by the black box.

Brett