Monday, February 23, 2015

#Preview TT: Charting & Analytics

Last week on Twitter, we showed how the new TT platform takes charting and analytics to new levels, with sophisticated tools for the high-performance professional trader.

TT allows you to create and access charts from virtually any computer as well as Android and iOS phones with support for a vast array of chart types, technical indicators and built-in drawing tools. You can add a chart to any workspace and customize it to your preferences to chart outrights and spreads from any TT-connected exchange. Charts are saved as part of your go-anywhere TT workspace so that when you go from the office to home or from one day to the next, you can quickly pick up where you left off.

Scroll down to see the complete preview. Then starting tomorrow, follow us on Twitter at @Trading_Tech and #PreviewTT for a look at the new automated trading features that are coming in the new TT platform.

Thursday, February 19, 2015

What's in the Basket?

The March-June 2015 CBOT Treasury bond futures roll is generating a lot of buzz. Most people are used to trading the Treasury calendar spreads 1:1, and the current roll is trading 3:2. How is this possible? The 1:1 was so easy to calculate in your head, and now they say you have to trade it 3:2?

The five-year gap

Between early 2001 and early 2006, the U.S. Treasury did not issue any Treasury bonds. Nine years later, that gap comes into play because now there is a single issuance, stranded at the front-end of the delivery basket, that would have been eligible for delivery. In December 2013, CME Group announced that it would exclude the 5-⅜ percent of February 2031 U.S. Treasury bond from the contract grade for the delivery months June 2015, September 2015 and December 2015.

So what does that have to do with the 1:1 calendar spread? The removal of the single issuance makes June’s delivery basket, on average, five years longer in maturity than March’s. More importantly, the dollar value of a basis point (DV01) for the June contract is roughly 50 percent larger than that of March’s. In other words, for every two-tick move in the March contract, the June contract will move approximately three ticks. In order to compensate for that difference in value, one should only buy two June contracts for every three March contracts that he/she sells.

Price can be very misleading

In addition to the yield of a bond, the coupon rate and time to maturity are the biggest factors that determine price and hedge ratios. While yield relationships are relatively stable, the coupon and maturity can vary greatly from instrument to instrument. Even if the proper ratio for a bond spread was 1:1 (and that’s a big if because the ratio is not static and rarely even), the price difference is just a number. A decent sized move in both contracts could easily result in the same yield spread we started with, but a wildly different price spread. When dealing with weighted spreads like the 3:2 March-June bond spread, keeping track of the weighted price differential while trying to stay properly hedged can be an arduous task. (Note the current ratio of the March-June spread is actually 305:200 at present, making this even more difficult.)

In just the last six weeks, the “properly” weighted March-June bond spread has had a price differential with a range of 3-½ bond points or 112 ticks.

The 3:2 ZBH5-ZBM5 calendar spread in price differential.

Yield is the great equalizer

For cash bonds and swaps, trading in yield is the standard. It is widely used to determine the value of fixed income instruments as well as the proper hedge ratios. Yield can be determined for any fixed income instrument of any duration. It’s the common language that allows one to compare fixed income instruments to each other and to spread those instruments against each other in simple or creatively complex ways. Therefore, let’s use yield for all fixed income instruments—including futures.

Looking at the March-June bond roll in terms of yield, the yield spread is simply the yield of the March contract minus the yield of the June contract. You don’t weight-adjust the calculation as you do when looking at the price spread. Notice that the yield spread has had a relatively small range of seven basis points (bps) or 0.07 percent over the same six-week period. Wouldn’t it be nice if you could see and trade the calendar spread in terms of this more stable yield spread?

The ZBH5-ZBM5 yield spread in basis points (bps).

So how can I trade futures in terms of yield?

For most people, trading fixed income futures and spreads in terms of yield is relatively new. Exchanges express these instruments in terms of price, and tools that properly convert price to yield for the purposes of trade execution have been sorely missing.

Trading Technologies recently addressed this need by introducing proper yield calculations in X_TRADER®. The new Yield by TT functionality allows Autospreader® users to easily value and manage complex fixed income spread trades in a single application. The trader can quote the yield spread using Autospreader, which automatically quotes and hedges each leg at the correct price to achieve the desired yield spread. MD Trader displays each leg of the calendar spread both in terms of price and yield, which makes it easier for traders to equate yield to the prices traded at exchanges. Let TT do the complex math so you can concentrate on trading.

The March-June bond yield spread displayed in Autospreader along with each leg displayed in both price and yield.

Yield is not just for the current calendar roll!

This current anomaly in U.S. Treasury futures illustrates how something that appeared to be wildly complex can actually be rather simple. Instead of looking at fixed income spreads in a complicated way, let TT do the number crunching while you concentrate on trading. Consider trading all fixed income products in their most basic terms—yield—whether you trade outright contracts, calendar spreads, TED spreads, U.S., or non-U.S. futures or securities.

Monday, February 16, 2015

#PreviewTT: Trade Anywhere with TT Mobile

Last week on Twitter, we showcased our new TT Mobile application. This high-performance, on-the-go trading app will allow users of the next-generation TT platform to view and trade the markets from any Android or iOS phone.

The response has been tremendous, but I don’t think any of us at TT are surprised.

Unlike most mobile trading apps, TT Mobile was built from the ground up for the professional trader. It extends the robust functionality of the TT desktop application to a mobile device in a form factor uniquely designed for the phone. Everythingincluding MD Trader®, charting and the “forever” Audit Trailis optimized to provide both ease of use and security. You can monitor markets, check positions, enter or modify orders, trade out or practice trading in simulation from pretty much any location.

And TT Mobile sits on the same network infrastructure as the desktop application, which means all orders route through the same high-performance co-location facilities to deliver low-latency execution.

To see more, scroll down. And keep following #PreviewTT on Twitter. Charting is up next.

Wednesday, February 11, 2015

And The Grammy Goes to...

TT received multiple awards last week in New York, including
the HFM award for "Best Trading and Execution Technology."
Well no, TT did not win anything at the Grammys. We did, however, take home both "Best Trading and Execution Technology" at the HFM U.S. Technology Awards and "Best Overall Technology" at the CTA U.S. Services Awards.

The CTA Intelligence Services Awards honor firms that have provided outstanding support and services to the North American managed futures industry, while the HFM U.S. Technology Awards recognize hedge fund technology providers that have demonstrated exceptional customer service and innovative product development.

"Given the strength of the contestants, it is quite an accomplishment for Trading Technologies to earn honors in both the HFM and CTA awards. With unique features like MultiBroker, order passing and ADL, TT's X_TRADER platform gives traders a combination of flexibility and power that makes it a top technology offering for both CTAs and hedge fund managers," said Matt Smith, head of content for CTA Intelligence. This sentiment was echoed by Chris Matthews, HFMWeek technology correspondent.

It's great to know that hedge funds and CTAs find our X_TRADER® trading solution to be so compelling, but what's coming with our next-generation TT platform is even more exciting.