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SPREAD TRADING AND MACROECONOMIC FACTORS
The strategy of spread trading is based on searching price convergences and divergences for similar instruments. Prices of financial instruments may react simultaneously on the same economic factor, but the speed and sensitivity of the reaction may differ.
Portfolio Quoting Method becomes indispensable to identify such patterns in deep histories. To implement the strategy, it is enough to build a chart that will display relative changes in prices, their speed and degree of sensitivity to common economic factors.
The relative performance of Japanese stocks compared with US stocks can be easily analyzed by applying the Personal Composite Instrument (PCI) technology based on PQM Method. To get access to PCI technology just download the NetTradeX trading platform and open a demo or real account. After installing the NetTradeX platform, let us create a simple PCI composed of the NIKKEI and the SP500 - the CFDs on the Japanese and the US stock market indices Nikkei 225 and SP500, as the Base and Quote assets respectively. The straightforward steps for PCI creation are described at the webpage “How to create synthetic instrument ”.
Currently, the world's main stock indices move roughly identically. The S&P500, DJI and Nasdaq 100 have fallen by about 8.5% since the beginning of 2016. The German stock index DAX in dollar value has dropped by 9.4% and the British FTSE 100 almost did by the same way. Since the beginning of this year the 7% decline of the French CAC 40 index was the smallest, while the Japanese Nikkei 225 recorded the biggest loss – 10.7%. All the changes are in dollar value and they take into account the dynamics of the national currencies.
Good afternoon, dear investors. In this overview we would like to introduce an instrument of spread trading, composed on the basis of two agricultural commodity futures, using the PQM model. First of all, we wish to draw your attention to the main trends in beef/soybean demand and supply.
According to the USDA estimates, at the moment the livestock amounts to 1.03 billion. India accounts for 37% of the world livestock (379,7 billion). Among the world cattle breeding leaders we should mention Brazil (208 million), China (104,2 million), the European Union (88 million) and the USA (87.7 million).
Good afternoon, dear investors. In this review we continue to acquaint you with the opportunities of using the synthetic instrument ( technically - personal composite instrument PCI), based on the PQM model in NetTradeX trading terminal. We want to offer you a synthetic instrument composed of two "Commodity CFD" section components: C-COFFEE, C-COCOA. Let us take a look at the basic supply and demand trends for these two agricultural products.
Today we want to bring to your attention another synthetic instrument, implemented in NetTradeX trading terminal. This time let us use trading instruments of ''Commodities'' section. We take two agricultural futures: frozen cattle and wheat, creating the following type of PCI: Wheat/F-cattle. This means that we will have wheat in the base part and frozen cattle in the quoted part. We will study the basic tendencies in the dynamics of demand and supply for both products.
In the previous review , we introduced you to the capabilities of the NetTradeX terminal for creation of synthetic instruments through Portfolio Quothing Method PQM. As an example, we used the shares of Google and Apple companies.
We offer NetTradeX trading terminal capabilities for creating synthetic instruments through PQM method. Let us examine spread trading between two stocks. At first, it is necessary to analyze the financial status of the companies and their prospects.
Eurozone consists of nearly two dozens of countries, each having its own economic characteristics. The sovereign debt crisis that erupted in the region has brought down stock markets of all countries. But the reaction could not be quantitatively the same everywhere. In this article we will try to investigate the behavior of the major German index DE30 and the major French index FR40, to compare their dynamics in order to determine the relative pace of recovery of each of them in the last several years.
Financial markets have cyclical nature, with investment capital flowing from gold and silver to "paper" assets and vice versa. Worldwide, investors prefer to keep their funds in the form of precious metals when the state of the economy is poor, during crises, wars and defaults, when there is no trust to the stock market. During conventional economic stability, investors prefer securities to precious metals and invest in the stock market. The USA is currently considered one of the largest holders of gold reserves among separate countries, and the American stock market is the largest in the world. Let’s consider the interrelation between these markets. In order to understand the market of precious metals, discover its main differences from other instruments popular in the world financial markets we will turn to the weekly chart of DJI (Dow Jones Industrial Average index) against a basket composed of equal shares of gold and silver.
Recently, the technology of pair trading has become greatly popular among traders. Pair trading, also known as statistical arbitrage or spread trading is a strategy which allows the trader to use anomalies, as well as fairly strong differences between prices of two stocks or baskets while maintaining neutrality of the market. The basis of the strategy is to identify correlated stocks and use moments when prices converge or diverge. Pair trading helps smooth price fluctuations and increases the predictability of the market. In other words, it creates a clearer, more predictable range for traders to trade. The task of the trader is to identify the timing of abnormal correlation.