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Spread
Scan Issue: May 09, 2007 - Volume 143
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Joe Ross Spread Trading Newsletter.Each week we present spread trading examples and opportunities in order to help you become a more professional spread trader.
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Today we consider an intra-market Corn spread: long March 08 Corn and short September 07 Corn (CH8 – CU7). After moving up nicely in March 07, the spread has shown some weakness in April. Together with the seasonal time window from approximately 05/15 till 08/30 and the 1-2-3 low, we can consider an entry with a possible stop around 9.
Traders may want to enter at the spread MOC today. Margin for the spread is $608 (reduced margin). Suggested risk is $250. Initial projected objective is $250, then a move higher.
On May 02 we told subscribers of our professional daily spreads & position trading newsletter, Traders Notebook,"Consider entering an inter-exchange spread KWN7 – WN7 at a spread value of -8 ¾. Margin for the spread is $816 (reduced margin). Suggested risk is $500. Initial projected objective is $500, then a move to 20 or higher. Basis is seasonal (app. 4/10 – 6/10) and a 1-2-3 low. Comment: The spread has not been behaving seasonal so far. The question is, will the spread move back up with same intensity after such a drop in April."
Here's how we suggested managing this trade:
05/02 Suggest entering MOC tomorrow 05/03.
05/03 In?For more information about our daily newsletter, visit our Spread Website to find out more about Traders Notebook
Questions or Comments? Please email us: support@spread-trading.com
Student's Question: "Andy, what account size do I need to start trading spreads?"
Andy: This is one of the “most popular” questions I answer almost every week. But without knowing the person, his/her trading abilities or financial situation, I am not able to give a precise answer. Without knowing all the details, I would say $10k is a starting point, $20k would be much better. Trading a small account means you have to risk a larger proportion of your money on each trade. When your account is larger, you can trade at least 2 lots or more and still be risking a smaller proportion of your account. When trading a small account, I suggest you stick to calendar spreads. They are less volatile, need less risk, and you will always get reduced margin. Later, when your trading account gets bigger and you are more experienced in spread trading, you can also look into inter-market spreads.
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Disclaimer:
The Commodity Futures Trading Commission has asked us to advise you that trading spreads is complex and carries a high degree of risk. While there is opportunity for incredible wealth building, there is also the risk of losing even more than you invested. Of course, that's not unlike most other businesses. But informed traders are the best traders!