A Basic Question: Pit & Electronic

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p_banerjee
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A Basic Question: Pit & Electronic

Post by p_banerjee » Fri Aug 20, 2004 12:50 pm

Hi,
I am new to trading futures in the US market. I have a very basic question:

Now suppose the CBOT has a contract both on the pit & on the Connect (the electronic platform) or alternatively, the CME has a contract both on the pit & on the Globex. If I go Long a contract of the commodity X on the pit and I go Short a contract of the commodity X on the electronic platform, will my positions be cancelled off ?

More specifically, which of the following are true
(a) I have 0 positions in the example above
(b) I have 1 long position in the pit based contract and 1 short position in the electronically traded contract

Thanks.

TC
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Post by TC » Fri Aug 20, 2004 1:51 pm

p_banerjee

Not sure why you would want to trade the same instrument in two different markets at the same time but I would always close out my trades in the SAME market.

However, if the electronic platform trades outside of pit hours and you wanted to close a pit-originated position then you could offset your liability by taking the opposite trade in the electronic market. Any minor price differences between the two markets are quickly arbitraged away when both markets trade so even though you continue to hold two active contracts, your trading risk is effectively eliminated.

Check with your broker about margin requirements to ensure you dont end up depositing twice the margin to trade this way.

In any event, if I had to offset a pit position in another market I would close out both positions when pit trading resumed.

richard
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Post by richard » Fri Aug 20, 2004 1:53 pm

On CBOT, there are e-contracts on e-cbot for the pit traded ones, but for the ag futures they are thinly traded compared to the pit-traded versions.

edited to add some more:

Why even trade pit futures? Fills are poor, there are often delays in reporting fills, stops are routinely overshot, slippage is dreadful.

BUT...I find I can make money with trading pit futures. For some reason there is better trending and volatility than with electronic futures, that makes up for the problems. I have been making money trading pit futures so I continue.

Perhaps next week or next month I will sing a different tune.

toho
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re: A Basic Question: Pit & Electronic

Post by toho » Sat Aug 21, 2004 9:33 am

Yes, you can normally offset a pit-traded contract with the corresponding e-traded one. (although you can't offset full-size S&Ps with e-minis).

pbanerjee
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Post by pbanerjee » Sun Aug 22, 2004 7:08 am

Basically some of charts of agricultural futures look interesting. I think since not too many institutions or even the large CTAs trade in agriculture they still exhibit traditional textbook Technical Analysis patterns. Sadly, the liquidity is low in many of them - particularly in products like Lumber or Milk - some of them can give really good diversification.

Anyway, thanks. I had asked the question from curiosity point of view.

cwebbwash
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Re: pit vs. electronic offset

Post by cwebbwash » Wed Sep 01, 2004 11:17 am

If your trade is placed in the same month, they will offset each other. One reason you may want to do this is if you executed to open a position on the electronic session and that exchange went down, you can offset in the pit without being stuck with the position.

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Post by pbanerjee » Wed Sep 01, 2004 11:25 am

thanks. thats exactly the reason why i asked the question ...

Jake Carriker
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Post by Jake Carriker » Wed Sep 01, 2004 4:58 pm

You might want to check the exchange websites and search on the term "fungible" . Fungibility determines whether contracts that are traded on different platforms (electronic vs. pits) or exchanges may offset one another. When contracts are fungible with others, liquidity tends to improve in both markets as arbitrage strategists ply thier trade.

Lack of fungibility has kept the US exchanges from trading in some very liquid world markets. That is starting to change with the greater acceptance of foreign exchanges by the US exchanges. You can stay abreast by reading the futures industry and futures trading magazines if you like to keep up with that sort of thing.

I think you could find that offsetting positions in the pit vs. electronic markets is not problematic most of the time. Most of the side by side pit and electronic market places trade fully fungible contracts. They need to be in order to draw liquidity into the recently introduced (in most cases) electronic markets.

Hope that helps,
Jake

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Never - you can attempt to arb these markets and you won't

Post by TradingCoach » Wed Sep 08, 2004 8:01 pm

Never - you can attempt to arb these markets and you won't be the only one, only that there is no point doing that. I rather arb different contract months or futures - like corn versus weat.

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Re: pit vs. electronic offset

Post by TradingCoach » Wed Sep 08, 2004 8:02 pm

I do not think so. The sizes are different, that maybe so if you trade a ratio of matching the size diff.
cwebbwash wrote:If your trade is placed in the same month, they will offset each other. One reason you may want to do this is if you executed to open a position on the electronic session and that exchange went down, you can offset in the pit without being stuck with the position.

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