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Using future orderflow, to predict spot prices

  • #1
  • First Post: Edited 1:00pm Jun 19, 2010 12:18pm | Edited 1:00pm
First, how close is the correlation between future prices and spot prices?

There are no good representative orderflow for the spot market, since it is decentralized,so i figured, using future orderflow data may be the right solution. Feel free to pm me on this

I found this website http://datasuite.cmegroup.com/EFXweb/index.html

which of the future is eurusd? I only trade eurusd... is it the micro eurusd?
  • #2
  • Jun 19, 2010 12:57pm Jun 19, 2010 12:57pm
Quoting woo
First, how close is the correlation between future prices and spot prices?

There are no good represantative orderflow for the spot market, since it is decentralized,so i figured, using futures may be the right solution. Feel free to pm me on this

I found this website http://datasuite.cmegroup.com/EFXweb/index.html

which of the future is eurusd? I only trade eurusd... is it the micro eurusd?
The futures/forward price is determined by the interest differential and the time to expiry through a straightforward fomula. See for example http://en.wikipedia.org/wiki/Forward_contract.

Any deviations in the futures price from that formula would provide an opportunity for covered interest arbitrage, see http://en.wikipedia.org/wiki/Covered_interest_arbitrage.

So to answer your question - the correlation is 1, but spreads in futures/forward markets are usually a bit wider. So you don't get any significant predictive power from the futures price.

I hope that answered your queries.
  • #3
  • Jun 19, 2010 12:57pm Jun 19, 2010 12:57pm
They have almost the same price.

You have to look at the standard EuroFX - 6E, not micro.

Maybe my thread could help u to figure out how to use future data to trade, take a look.

Lubo.
If I know how, I tell You!! Few but Good!!
  • #4
  • Jun 19, 2010 1:00pm Jun 19, 2010 1:00pm
Quoting LuboLabo
They have almost the same price.

You have to look at the standard EuroFX - 6E, not micro.

Maybe my thread could help u to figure out how to use future data to trade, take a look.

Lubo.
Nice thread. That's the practical answer to woo's question. Very nice.
  • #5
  • Jun 19, 2010 1:25pm Jun 19, 2010 1:25pm
Quoting medici
The futures/forward price is determined by the interest differential and the time to expiry through a straightforward fomula. See for example http://en.wikipedia.org/wiki/Forward_contract.

but spreads in futures/forward markets are usually a bit wider. So you don't get any significant predictive power from the futures price.

I hope that answered your queries.

Ok, so the order flow wont be 100% transferable to the spot, because of the wider spread. Well,it wont be exact,because of this reason, but i think it would still be valuable information, since i know there may be lots of buy orders around 60 to 65 for instance(this range occuring because i cant be exact).

Ok so the correlation is 1.

So lets say, the future order data, tell me there are lots of buy orders at 60.

So when the 60 is hit, real money is used to buy the amount. Since it is real money, it will also affect spot prices, to the same extent as it affects future prices.(this logical analogy may be wrong, as my knowledge is quite rudimentary or nonexistent on this subject

SO from this analogy, future order data should render useful...however, im not knowledgeable at all, so im probably wrong, if you tell me im wrong, but common sense says it is useful.....
  • #6
  • Jun 19, 2010 1:36pm Jun 19, 2010 1:36pm
Quoting LuboLabo
They have almost the same price.

You have to look at the standard EuroFX - 6E, not micro.

Maybe my thread could help u to figure out how to use future data to trade, take a look.

Lubo.
I will read the thread. However, before i delve too much into this, you who are trading using this strategy, does it give an edge if used properly?
  • #7
  • Edited 2:48pm Jun 19, 2010 1:50pm | Edited 2:48pm
Quoting woo
Ok, so the order flow wont be 100% transferable to the spot, because of the wider spread. Well,it wont be exact,because of this reason, but i think it would still be valuable information, since i know there may be lots of buy orders around 60 to 65 for instance(this range occuring because i cant be exact).

Ok so the correlation is 1.

So lets say, the future order data, tell me there are lots of...
I don't use futures data at all, and it seems like LuboLabo's thread is the place to explore that, but here are some comments on using public order book data.

When it comes to limit orders made public through platforms such as CME (futures) and EBS (spot), one thing to keep in mind is that trading in some ways is a game of deception. People make things public for a reason, and there is no need to make order intentions public as that can be handled by software that triggers orders when price levels are reached.

Some people make orders public simply because they intend to buy. Others do it for other reasons, be it some form of deception or intention to protect a barrier option or any other of many reasons. And orders may be withdrawn at any moment. And by watching the order books in the systems you miss the part of the market that conceal their intentions, and you may consequently get a skewed view.

So if you want to make dependable trading decisions based on order flow, you need to have good connections in the industry. Failing that, price action on charts can give some indication of what is going on if you know how to read them.
  • #8
  • Jun 20, 2010 3:41am Jun 20, 2010 3:41am
Quoting woo
I will read the thread. However, before i delve too much into this, you who are trading using this strategy, does it give an edge if used properly?
Ja, at least for me, although recently I'm trading Futures not spot, and focus more on ES.

Lubo.
If I know how, I tell You!! Few but Good!!
  • #9
  • Jun 20, 2010 3:55am Jun 20, 2010 3:55am
Quoting medici
I don't use futures data at all, and it seems like LuboLabo's thread is the place to explore that, but here are some comments on using public order book data.

When it comes to limit orders made public through platforms such as CME (futures) and EBS (spot), one thing to keep in mind is that trading in some ways is a game of deception. People make things public for a reason, and there is no need to make order intentions public as that can be handled by software that triggers orders when price levels are reached.

Some people make orders public...
Regarding deception:

Well lets say that you bought at 50, and you see a big sell order at 60. You dont close right now, but wait till prices reach 60. If price doesnt react, it means that bulls are in control. However, if price reacts, you may second your long position and maybe get out.
  • #10
  • Jun 20, 2010 4:07am Jun 20, 2010 4:07am
Quoting LuboLabo
Ja, at least for me, although recently I'm trading Futures not spot, and focus more on ES.

Lubo.
Well another thing that im curious about is why people dont trade futures instead.

Futures, seem to be the right choice, considering these reasons:

1regulated
2 order flow data


It seems idiotic to trade the cash fx.....i guess the reasons is that the smallest contract size is 1 lot, and no broker offer mini contracts, and because it seems too complicated for the average joe...
  • #11
  • Jun 20, 2010 5:08am Jun 20, 2010 5:08am
Quoting woo
Well another thing that im curious about is why people dont trade futures instead.

Futures, seem to be the right choice, considering these reasons:

1regulated
2 order flow data


It seems idiotic to trade the cash fx.....i guess the reasons is that the smallest contract size is 1 lot, and no broker offer mini contracts, and because it seems too complicated for the average joe...
Futures usually needs a bigger account cos there's only standard lot, and this don't depend by brokers but from the exchanges.
Then on futures usually u have to pay tax on capital gain.
On the others side they are regulated and brokers are more reliable.

Lubo.

P.s. usually the movement of futures in ticks, apart currencies, is less on daily basis.
If I know how, I tell You!! Few but Good!!
  • #12
  • Jun 20, 2010 7:08am Jun 20, 2010 7:08am
Quoting LuboLabo
Futures usually needs a bigger account cos there's only standard lot, and this don't depend by brokers but from the exchanges.
Then on futures usually u have to pay tax on capital gain.
On the others side they are regulated and brokers are more reliable.

Lubo.

P.s. usually the movement of futures in ticks, apart currencies, is less on daily basis.
I see. I looked into your thread, and read alex s volume based trading strategy that you referred to in your trading.

However, im not that fascinated by looking at max volume, which is the aggregate by and sell order. Im more into looking at the time and sales and the the tape, being able to see where stop losses are located, or if there is a big by order.

Does delta market or volfix provide this kinde of information, or is it just the aggregated volume?

Because with only volume information, you wont know whether it is tp taking, stop losses, or new positions that enter the market. Of course, you can figure this out, if there is high volume on a top(indicating tp), as you referred to in your thread...


I do however think that high volume numbers, indicate:



Indicating the price going up or down, and will not likely range.

Levels where participants have opinions on the market. for instance, thinking that the market wont go more in their direction, therefore they tp take....

If the trader himself is good, he can through year of trading experiance pinpoint whether the high volume is due to new orders, or sl or tp. For instance, say that the price has declined for a while, and suddenly there is high volume, this will either indicate: tp taking(where price retraces), or the price will continue to decline for a while. However, if the trader is good, he can look at other factors, for instance, he deem that the price is oversold, and will therefore conclude that the high volume is take profit and breakout traders., and not yet more sell orders.
  • #13
  • Sep 15, 2010 1:43pm Sep 15, 2010 1:43pm
I have been trading spot forex for the past 9 years. I have been utilizing futures feed to trade spot for eight years. From experience, using futures to trade spot can be a powerful predicting tool but it is not the holy grail. It has to be used in combination with other strategies. Since I trade with high leverage (50:1) and use most of it, I need that extra edge the futures feed provide. I definitely recommend anyone that trades spot to use futures feed.
  • #14
  • Sep 15, 2010 1:53pm Sep 15, 2010 1:53pm
Quoting woo
Well another thing that im curious about is why people don't trade futures instead.

Futures, seem to be the right choice, considering these reasons:

1regulated
2 order flow data


It seems idiotic to trade the cash fx.....i guess the reasons is that the smallest contract size is 1 lot, and no broker offer mini contracts, and because it seems too complicated for the average joe...
I have never considered trading futures, not becuase I think is too complicated, but becuase spot seems to be the right choice for me. The ease with which one can make profits seems to overwhelm any other market. I average 30-50% consistently per month. I am highly leverage( I trade at $1,000 per pip). At the stage I'm trading spot at this moment, I would never consider trading futures in the near future. By the way, regulation means nothing if you are unable to make money in the market. Just ask millions of people that have lost money in equities.
  • #15
  • Sep 16, 2010 3:02am Sep 16, 2010 3:02am
Quoting fxshark
I have been trading spot forex for the past 9 years. I have been utilizing futures feed to trade spot for eight years. From experience, using futures to trade spot can be a powerful predicting tool but it is not the holy grail. It has to be used in combination with other strategies. Since I trade with high leverage (50:1) and use most of it, I need that extra edge the futures feed provide. I definitely recommend anyone that trades spot to use futures feed.
Care to share what strategies you use to help your predict price movement by looking at futures data?

Like how can I predict whether a breakout will be fake or not?
  • #16
  • Jul 2, 2012 2:00pm Jul 2, 2012 2:00pm
Quoting fxshark
I have been trading spot forex for the past 9 years. I have been utilizing futures feed to trade spot for eight years. From experience, using futures to trade spot can be a powerful predicting tool but it is not the holy grail. It has to be used in combination with other strategies. Since I trade with high leverage (50:1) and use most of it, I need that extra edge the futures feed provide. I definitely recommend anyone that trades spot to use futures feed.
Hello I am a new forex trader, I had a look on http://www.cmegroup.com/trading/fx/g10/euro-fx.html or http://www.barchart.com/quotes/futures/E6H13and other sites, but it is a bit strange charts for me, I have no idea how to utilize it in my spot fx trading, could you recommnd me some links on some books or articles?

or is it a foolish idea to have a look on futures prices before confirm a trade on spot fx?
http://www.imf.org/external/pubs/ft/wp/2011/wp11254.pdf
  • #17
  • Last Post: Jul 2, 2012 2:14pm Jul 2, 2012 2:14pm
Quoting Xenofanes
Hello I am a new forex trader, I had a look on http://www.cmegroup.com/trading/fx/g10/euro-fx.html or http://www.barchart.com/quotes/futures/E6H13and other sites, but it is a bit strange charts for me, I have no idea how to utilize it in my spot fx trading, could you recommnd me some links on some books or articles?

or is it a foolish idea to have a look on futures prices before confirm a trade on spot fx?
http://www.imf.org/external/pubs/ft/wp/2011/wp11254.pdf
Apologize LuboLabo I didnot see your nice and impresive thread
Trading Spot using Future data

http://www.forexfactory.com/showthread.php?t=200074

everything has been already invented, again, I realized I didnot discover anything new what wouldnot have been already done before my existence...
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