S&P CNX Nifty CSI#742 "NFI"

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AFJ Garner
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S&P CNX Nifty CSI#742 "NFI"

Post by AFJ Garner » Tue Apr 25, 2006 10:18 am

In the interests of possible diversification I recently took a look at the above contract.

I should add that many years ago, the Indian domestic equity market had a horrendous reputation for settlement difficulties - and for this reason I have only ever dealt in foreign depository receipts for Indian related securities. I have no idea whether the domestic equity situation has improved (they used to settle via huge mounds of physical scrip) or whether the futures market there is efficient and easy to deal in.

The first difficulty as far as backtesting is concerned, for anything Indian, is the Forex data. CSI#3308 is said (in the Factsheet) to go back to 1973; it does not. It begins in Jan 2002 but no matter - you can always go and get the data from the relevant Fed site if you need to go back further.

The second problem as regards the S&P CNX Nifty is that CSI would appear to have got the big point value wrong. CSI has it at 200 INR.

The information on the NSI website is far from helpful, so I e-mailed the relevant department and they told me, categorically, that the BPV is 100 INR. That makes it a very low value contract to trade and I therefore question whether, over the long term, such trading will prove profitable.

Let me put it this way: I tested it on an ultra long term TF system which went long on 4th Jan 2005 at 1924.20 and exited on 24th April 2006 at 3556.50. That is an increase of a whopping 84.8%. And yet only yields a profit of USD 2,475 after monthly rollovers and $75 comm and slippage.

Well, even in exotic emerging markets you do not get moves of that magnitude every year. And on this particular contract it seems to me that the big moves are never going to make up for the losses.

If anyone can put me right, I would be grateful!

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Post by RedRock » Tue Apr 25, 2006 3:38 pm

Cant help with the BPV. But atta boy for exploring the more 'exotic' contracts. I am curious if those lower value contracts may become valid on a shorter holding term system not subject to years of contract rolls. Little nips of the larger move so to say. Or would the increased transaction costs of more frequent trades offset the rollover elimination. I suspect it may be the same result or worse. But, just a thought..

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Post by TrendMonkey » Tue Apr 25, 2006 5:19 pm

That is an increase of a whopping 84.8%. And yet only yields a profit of USD 2,475
For those of us unfamiliar with the details of this contract, and out of curiosity, can you put these in the same context? I mean, if 84.8% equals $2,500 USD then the rollover cost looks pretty good...

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Post by AFJ Garner » Tue Apr 25, 2006 6:11 pm

I guess what I am saying is that an 84% increase in the value of a stock market index is an enormous gain in just over 14 months...........and you would expect to profit handsomely. In points, the increase was 1,632.30

The index level is similar to that of the DJ Euro Stoxx and the DJ Stoxx. But the S&P CNX Nifty has a bpv of 100 rupees or USD 2.22. By contrast each of the other indices I have just mentioned has a bpv of Euro 10 or USD 12.4.

An increase of 1,632.30 in the DJ Stoxx or DJ Euro Stoxx over the past 14 months would have yielded USD gains of over USD20,000 per contract (ignoring costs).

My only real point is that like Western Barley or (I seem to recall) Libor there are various contracts which just won't be worth trading (in my estimation) because of contract size relative to volatility.

There again, for some ultra long term TF systems, some contracts are realistically likely to be too big until the account value reaches many millions- eg the big JGB and the Dax.

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Post by Forum Mgmnt » Tue May 09, 2006 11:15 am

Several posts that followed were split into a new topic:

Futures Market Data Pitfalls - Newbies Beware

as they were of more general interest than the topic here might imply.

- Forum Mgmnt[/url]

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