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Futures Market Structure

  • #1
  • First Post: Jan 14, 2011 2:56pm Jan 14, 2011 2:56pm
Futures market is centralized hence more transparent than FX. It has true volume and Level II data so I'm thinking of trying it out. So I have a lot of questions regarding its structure, for example, is there a market maker in futures or is it just traders making market? Is there a good read on the subject? Thanks
  • #2
  • Jan 14, 2011 4:55pm Jan 14, 2011 4:55pm
Quoting seagreen
Futures market is centralized hence more transparent than FX. It has true volume and Level II data so I'm thinking of trying it out. So I have a lot of questions regarding its structure, for example, is there a market maker in futures or is it just traders making market? Is there a good read on the subject? Thanks
I'd consult google on this one. You'll learn what you are asking much more efficiently that by relying on forum members to tell you what you can easily learn via a google search.
  • #3
  • Jan 14, 2011 5:33pm Jan 14, 2011 5:33pm
Quoting Scotty B
I'd consult google on this one. You'll learn what you are asking much more efficiently that by relying on forum members to tell you what you can easily learn via a google search.
Well, yes I agree. To be honest I just wanted to get a reference to good books. Amazon didn't show much.
  • #4
  • Jan 14, 2011 6:46pm Jan 14, 2011 6:46pm
Quoting seagreen
Futures market is centralized hence more transparent than FX. It has true volume and Level II data so I'm thinking of trying it out. So I have a lot of questions regarding its structure, for example, is there a market maker in futures or is it just traders making market? Is there a good read on the subject? Thanks
You can't have a market without a market maker. But the market makers are members of the exchanges anf they are only "trading against you" in the sense that all other traders are doing so, as well.

Futures are cheaper and easier to trade. The only thing spot has going for it is the scalability of trade size, thus its attraction for the poorly-capitalized.

jmo...
"If The Fool persists in his Folly he will become wise." - William Blake
  • #5
  • Jan 14, 2011 7:01pm Jan 14, 2011 7:01pm
Quoting The Fool
You can't have a market without a market maker. But the market makers are members of the exchanges anf they are only "trading against you" in the sense that all other traders are doing so, as well.

Futures are cheaper and easier to trade. The only thing spot has going for it is the scalability of trade size, thus its attraction for the poorly-capitalized.

jmo...
Ok, that I understand. How about the bots responsible for spot and futures correlation (arbitratration)? Do they take a big part of the futures market and do they trade with market or limit orders?
  • #6
  • Jan 14, 2011 7:08pm Jan 14, 2011 7:08pm
Quoting seagreen
Ok, that I understand. How about the bots responsible for spot and futures correlation (arbitratration)? Do they take a big part of the futures market and do they trade with market or limit orders?
if there's an arb potential there i have been unable to detect it in any exploitable way, but I am a mere mortal. If you want to get away from the bot-ridden aspect of electronic trading, get out of the largest most liquid markets in both spot and futures - i.e., get out of E/U, ES, etc... and try some the other smaller but still liquid contracts. NQ for instance. One of the cool things about futures is the diversity of markets. Change is good.
"If The Fool persists in his Folly he will become wise." - William Blake
  • #7
  • Jan 15, 2011 4:55am Jan 15, 2011 4:55am
Quoting The Fool
if there's an arb potential there i have been unable to detect it in any exploitable way, but I am a mere mortal. If you want to get away from the bot-ridden aspect of electronic trading, get out of the largest most liquid markets in both spot and futures - i.e., get out of E/U, ES, etc... and try some the other smaller but still liquid contracts. NQ for instance. One of the cool things about futures is the diversity of markets. Change is good.
No, I wasn't interested in futures arbitration. The reason why I mentioned it was that currency futures trading volume is much smaller compared to spot, so in order to bring the two markets together there needs to be a substantial amount of arb bots trading. If this activity is done through market orders it will look like real people trading but will lack the human nature (fear and greed) and hence the whole "true futures data" will not be so useful as it first seems.
For example, I know marketdelta is providing a lot of traded volume info. Can it be used as an indicator of net traders position, like showing if the traders were more long or short in a set price range?
  • #8
  • Jan 15, 2011 1:43pm Jan 15, 2011 1:43pm
Quoting seagreen
No, I wasn't interested in futures arbitration. The reason why I mentioned it was that currency futures trading volume is much smaller compared to spot, so in order to bring the two markets together there needs to be a substantial amount of arb bots trading. If this activity is done through market orders it will look like real people trading but will lack the human nature (fear and greed) and hence the whole "true futures data"
Is this true? Are the futures E/U rates a "derivative" of the spot rates, so to speak?
"If The Fool persists in his Folly he will become wise." - William Blake
  • #9
  • Jan 15, 2011 2:19pm Jan 15, 2011 2:19pm
Quoting The Fool
Is this true? Are the futures E/U rates a "derivative" of the spot rates, so to speak?
Honestly I dont know. I think they both influence each other but since spot is significanly larger than futures market it should influence more. Anyway, I need to go get marketdelta and see for myself.
  • #10
  • Jan 16, 2011 12:38am Jan 16, 2011 12:38am
Quoting seagreen
Futures market is centralized hence more transparent than FX. It has true volume and Level II data so I'm thinking of trying it out. So I have a lot of questions regarding its structure, for example, is there a market maker in futures or is it just traders making market? Is there a good read on the subject? Thanks

every exchange has its own rules. Unless you dont know what your doing and just spitting out market orders left and right, then its best to get on the web site of the exchange and read up its order processing rules. I have been trading futures for years (not FX), and it made a big difference once you know exactly what rules they use for order-queuing, stops etc.

Also, a big caution is to consider that although demo futures display the real order book, your demo orders arn't obviously actually in the order queue... instead a proprietary algorithm attempts to simulate real market typical-fills which determines when your order gets filled. If your going to be scalping 2-5 ticks at a time, therefore, there may be large discrepancies between demo and real accounts - just like FX.

The final thing is - dont take the level II/order book too seriously. If you have watched it for more than 5 minutes you would already know that its next to useless for new traders. Thats not to say its useless, but it definitely isn't as straightforward as it looks and takes a lot of time to develop an intuition for it. The T&S window might be more practical to start with.
  • #11
  • Jan 16, 2011 12:48am Jan 16, 2011 12:48am
Quoting seagreen
Ok, that I understand. How about the bots responsible for spot and futures correlation (arbitratration)? Do they take a big part of the futures market and do they trade with market or limit orders?
Yes they dominate most futures markets. Though they don't necessarily focus on spot/future arb. They employ many different HF strategies. Bots are the main reason that the order book has lost its usefulness over the years, and has made it a lot harder for individual participants.

Most participants (both individuals and firms) use limit or stop orders.
  • #12
  • Jan 16, 2011 12:53am Jan 16, 2011 12:53am
Quoting The Fool
Is this true? Are the futures E/U rates a "derivative" of the spot rates, so to speak?
A lot of studies have looked at this. Yes, it is possible for futures to lead spot. Other times it is the other way around. The 'flash crash' was an example where ES futures clearly led the broader market.
  • #13
  • Jan 16, 2011 4:22am Jan 16, 2011 4:22am
Quoting seagreen
Well, yes I agree. To be honest I just wanted to get a reference to good books. Amazon didn't show much.
I slightly disagree with you...Amazon do show some good books to start with:

A Complete Guide to the Futures Markets: Fundamental Analysis, Technical Analysis, Trading, Spreads, and Options

http://www.amazon.com/Complete-Guide...5180243&sr=8-8


Understanding Futures Markets

http://www.amazon.com/Understanding-...5180243&sr=8-1


Fundamentals of Futures and Options Markets (7th Edition)

http://www.amazon.com/Fundamentals-F...5180243&sr=8-3


Regards,

Nader
  • #14
  • Jan 16, 2011 7:25am Jan 16, 2011 7:25am
Quoting narafa
I slightly disagree with you...Amazon do show some good books to start with:

A Complete Guide to the Futures Markets: Fundamental Analysis, Technical Analysis, Trading, Spreads, and Options

http://www.amazon.com/Complete-Guide...5180243&sr=8-8


Understanding Futures Markets

http://www.amazon.com/Understanding-...5180243&sr=8-1


[b][font=Verdana][size=2]Fundamentals...
Thanks for the links. Have you read all these books?
  • #15
  • Last Post: Jan 16, 2011 8:09am Jan 16, 2011 8:09am
Quoting seagreen
No, I wasn't interested in futures arbitration. The reason why I mentioned it was that currency futures trading volume is much smaller compared to spot, so in order to bring the two markets together there needs to be a substantial amount of arb bots trading. If this activity is done through market orders it will look like real people trading but will lack the human nature (fear and greed) and hence the whole "true futures data" will not be so useful as it first seems....
There are bots like on every other markets, there are no market maker in the proper term like on stock exchanges. Turnover of exchange-traded foreign exchange futures and options have grown rapidly in recent years, reaching $166 billion in April 2010 (double the turnover recorded in April 2007). Exchange-traded currency derivatives represent 4% of OTC foreign exchange turnover (Wikipedia Citation).
Anyway the futures data is really useful, cos provides the volume (based on contracts traded). You can track the net market orders thru the cumulative delta indicator (Ask Vol - Bid Vol).
If I know how, I tell You!! Few but Good!!
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