Lessons from the Pros


Just When You Thought You Knew It All…

As Futures traders we must stay on top of events that are affecting our markets. While instructing classes for Online Trading Academy I always make it perfectly clear that nobody ever knows everything about trading. Unlike some careers where you get a higher education and then sit in a corner office and collect a paycheck, this is not one of them. Trading is constantly evolving from all aspects. This makes continuing education so important to a Futures trader.

As markets become more global, technology for electronic trading changes, geo-political events occur, economic cycles change, severe weather conditions happen and of course we, ourselves change as we grow older.  These are just some of the major factors facing a Futures trader constantly and if we are not prepared to keep abreast of them we are heading for trouble.

An event occurring on November 18th, 2012 will be affecting all Stock Index Futures (both domestic and international) products on the CMEGroup Exchange. The CMEGroup has elected to extend the trading hours of these popular products.  If you trade the S&P, Nasdaq or Dow Futures you will be affected by this.  Note: The Russell 2000 will not be affected by this because it trades on the Inter-Continental Exchange (ICE).

I know some of you are international readers and would like to see time zones in GMT.  The east coast of the US has Daylight Savings Time (DST) and Eastern Standard Time (EST) during the course of the year.  During DST the East Coast is GMT -4.  During EST East Coast times are GMT -5.  By using GMT you would have to know which mode EST or DST we are in.  During the following times we will be in DST:

2 a.m. on the Second Sunday in March to 2 a.m. on the First Sunday of November

As you read this article we will be GMT -5 and EST. All times referred to will be in these time zones.

Currently the CMEGroup Stock Indexes trade from 16:30 to 16:15 (next day) Monday through Thursday.  While opening at 18:00 on Sunday evenings.  The new hours as of November 18, 2012 will be Sunday – Thursday 18:00 – 17:15 (next day) each of these sessions being an entire daily candle.  Electronic trading will halt at 16:15 and then resume at 16:30 trading until 17:15.  Electronic trading will be for 23 hours per day now.

As a trader you will see a difference in the way your daily settlement price is posted to your charts.  The CMEGroup is going to keep their 16:15 settlement time.  This means that the official settlement price for each trading day will be plotted on your daily, weekly and monthly timeframe charts, not the 17:15 last trade price.  Your intra-day charts will still show the last price of the day wherever the market is trading at 17:15.  Gap traders should be aware of this because gaps start at the official settlement price until the next session opening time, not the 17:15 last trade price.

The regular trading hours (RTH) will remain the same at 9:30 to 16:15 Monday through Friday.  This is also the pit session for the large S&P Futures contract.

Another difference will be that the official opening for each session will now be 18:00, not the 16:30 we used to have.  Even though the market will be closed longer (17:15 to 18:00) each day there is little market news at these times to cause much of a gap concern, but as we all know anything is possible.

These changes apply to all Equity Index Futures and Options contracts traded on the CMEGroup Exchange.

Another change being made is the implementation of daily price Limits for the Stock Indexes.  Just like some of the physical Commodity Futures contracts we will now have daily calculated price Limits on the Stock Indexes.  Currently we have Limits based on quarterly reviews of volatility in the Stock Indexes.  These are pending regulatory review and expected to pass by November 18,2012.  The changes are being implemented to harmonize the CMEGroup Equity Index products with the underlying markets at the United States Stock Exchanges, which will adopt daily price Limits on February 4, 2013.

The reference price for these daily Limits for the next day’s trade will be calculated based on the 16:00 Futures prices.  The CMEGroup has not disclosed what these Limit values will be as of this writing.   A Limit move is an amount the Exchange sets that allows the price to change from one day’s close either up or down by a maximum amount.  Corn for example has a 40 cent Limit per day.  An example of what a Limit move will look like is this if Corn closed at 815’0 yesterday:

Today Corn cannot trade higher than   855’0

Corn’s close yesterday =   815’0

Today Corn cannot trade lower than 775’0

Previously the Exchange had Circuit Breakers in place only to the downside for Stock Indexes.  These Circuit Breakers were designed to stop trading if the Stock Indexes traded down 10%, 15% or 20% from their previous day’s close.  The market was halted for approximately 30 minutes and then allowed to begin trade again.  There was no restriction which direction the market could trade after resuming from a Circuit Breaker halt.  Having a daily Limit will restrict how far a market is allowed to move per day and that will be the maximum amount for the entire day.  We will have to wait and see if the Regulatory Agency allows these Limit moves in place of Circuit Breakers.  Announcement should be coming soon before the November 18, 2012 deadline.

There are many changes taking affect in our Stock Index markets that could change the way you trade these markets.  Always keep up to date on market changes so you will be able to plan your trade accordingly.  Each Futures Exchange website does a great job of posting changes on their homepages that could impact your trading.  Don’t wait for somebody to call or email you with this type of information.  Be pro-active and do your homework like the professionals do.

“Nothing diminishes anxiety faster than action.”  Walter Anderson

– Don Dawson

DISCLAIMER This newsletter is written for educational purposes only. By no means do any of its contents recommend, advocate or urge the buying, selling or holding of any financial instrument whatsoever. Trading and Investing involves high levels of risk. The author expresses personal opinions and will not assume any responsibility whatsoever for the actions of the reader. The author may or may not have positions in Financial Instruments discussed in this newsletter. Future results can be dramatically different from the opinions expressed herein. Past performance does not guarantee future results. Reprints allowed for private reading only, for all else, please obtain permission.

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