Seasonal spread trading: Difference between revisions
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'''Seasonal spread traders''' are |
'''Seasonal spread traders''' are [[spread traders]] that take advantage of [[seasonal]] patterns by holding [[Long (finance)|long]] and [[Short (finance)|short]] positions in [[futures contract]]s simultaneously in the same or a related [[commodity markets]] based on seasonal patterns. These are traded on [[futures exchange]]s such as the [[Chicago Mercantile Exchange]], the New York Mercantile Exchange, or the [[London Metal Exchange]] among others. |
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Traders may use a combination of [[fundamental analysis]], [[Technical analysis|technical]], and historical factors in their analysis. [[Speculators]] hope to profit from the relative changes in price between the initial and offsetting positions. Contracts may be spread against different months or different markets |
The spread is the difference between the simultaneous values of these futures contracts. Traders may use a combination of [[fundamental analysis]], [[Technical analysis|technical]], and historical factors in their analysis. [[Speculators]] hope to profit from the relative changes in price between the initial and offsetting positions. Contracts may be spread against different months or different markets using a [[calendar effect]]. |
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[[Position Trader|Position traders]] may hold positions with less [[risk]] using spreads as one position somewhat offsets the other position and the return is the difference between the two. |
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== Analysis == |
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A critical point for this type of trading to work is the quality of the seasonal pattern and whether the trader can advantage of the pattern. Economists say that according to the [[efficient-market hypothesis]] such effects may exists but that these anomalies should be already incorporated in the price. |
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Traders are concerned with whether the changes in the difference between the sides of the spread are moving in their favor or not. In order to find the information on seasonal spread, many traders use algorithms retrieving past commodity [[volatility (finance)|volatility]] and performance.<ref>{{Cite web|title=Alpha4Charts - Spread Trading Algorithm|url=https://charts.alpha4all.com/|access-date=2021-03-05|website=charts.alpha4all.com}}</ref> |
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Important sources for seasonal traders are institutional reports, such as the [[Commitments of Traders|COT report]], which shows the positions held on commodities by the major market players.<ref>{{Cite web|title=COT: il report che segue i trader istituzionali - Alpha4all.it|url=https://alpha4all.it/cot-report-cosa-e/|access-date=2021-09-20|language=en-US}}</ref> |
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Effects that may have existed in the past may no longer be true, for example, there was a very good seasonal pattern in gold in the 80s and 90s that no longer exists. The reason is a different demand behavior of gold buyers. Despite the fact that seasonal patterns can change, investing and trading based on seasonal patterns is still popular in the financial industry. Financial institutions have used professional software for this purpose, such as Seasonal Analysis Tools.<ref>{{cite web | url=https://www.stockmarketonline.com/seasonality-tools-features-list | title=Saisonale Analyse Tools | access-date=2023-01-31|language=en-US}}</ref> |
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== See also == |
== See also == |
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* [[ |
* [[Calendar effect]] |
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* [[Jesse Livermore]] |
* [[Jesse Livermore]] |
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* [[Speculation]] |
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* [[Sell in May and go away ]] |
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== |
==References== |
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{{Reflist}} |
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==External links== |
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*[http://www.pitnews.com/futuresspreadtraining.htm Futures Spread Trading] by Steven A. Mitchell |
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*[http://www.seasonalgo.com/seasonality Seasonality at futures market] by SeasonAlgo |
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*[http://www.seasonalgo.com/futures-spread-trading Detailed description for futures spread trading] by SeasonAlgo |
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{{Stockexchange-stub}} |
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[[Category:Derivatives (finance)]] |
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Latest revision as of 04:43, 27 June 2024
 | This article includes a list of general references, but it lacks sufficient corresponding inline citations. (September 2015) |
Seasonal spread traders are spread traders that take advantage of seasonal patterns by holding long and short positions in futures contracts simultaneously in the same or a related commodity markets based on seasonal patterns. These are traded on futures exchanges such as the Chicago Mercantile Exchange, the New York Mercantile Exchange, or the London Metal Exchange among others.
The spread is the difference between the simultaneous values of these futures contracts. Traders may use a combination of fundamental analysis, technical, and historical factors in their analysis. Speculators hope to profit from the relative changes in price between the initial and offsetting positions. Contracts may be spread against different months or different markets using a calendar effect.
Position traders may hold positions with less risk using spreads as one position somewhat offsets the other position and the return is the difference between the two.
Analysis
[edit]A critical point for this type of trading to work is the quality of the seasonal pattern and whether the trader can advantage of the pattern. Economists say that according to the efficient-market hypothesis such effects may exists but that these anomalies should be already incorporated in the price.
Traders are concerned with whether the changes in the difference between the sides of the spread are moving in their favor or not. In order to find the information on seasonal spread, many traders use algorithms retrieving past commodity volatility and performance.[1]
Important sources for seasonal traders are institutional reports, such as the COT report, which shows the positions held on commodities by the major market players.[2]
Lower margin deposits required by commodity exchanges to trade spreads means positions can be leverage up. Spreads may behave smoother than the underlying futures contracts.
Effects that may have existed in the past may no longer be true, for example, there was a very good seasonal pattern in gold in the 80s and 90s that no longer exists. The reason is a different demand behavior of gold buyers. Despite the fact that seasonal patterns can change, investing and trading based on seasonal patterns is still popular in the financial industry. Financial institutions have used professional software for this purpose, such as Seasonal Analysis Tools.[3]
See also
[edit]References
[edit]- ^ "Alpha4Charts - Spread Trading Algorithm". charts.alpha4all.com. Retrieved 2021-03-05.
- ^ "COT: il report che segue i trader istituzionali - Alpha4all.it". Retrieved 2021-09-20.
- ^ "Saisonale Analyse Tools". Retrieved 2023-01-31.
External links
[edit]- Reminiscences of a Stock Operator by Edwin Lefèvre (best-selling biography of Jesse Livermore) multiple reissues, last in 2004 (ISBN 0-471-67876-7)
- Futures Spread Trading by Steven A. Mitchell
- Seasonality at futures market by SeasonAlgo
- Detailed description for futures spread trading by SeasonAlgo