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System Spotlight: Eurex Trading Systems
August 25, 2008
Attain clients are constantly searching the world for more systems, better performance, more diversification — and enlist Attain to assist them in finding investments that deliver such. We are happy to report continued progress assisting clients in such searches with the introduction of over 70 different systems which day trade European futures markets.
While day trading systems are among the most popular types of systems because they are easy to understand and don't have overnight risk because they are out by the end of the day - the grand majority of day trading systems are concentrated on US stock index futures, and the S&P 500/ e-mini S&P futures in particular. This concentration leaves day trading systems with one problem - no way to diversify amongst multiple markets.
We've tested day trading systems on all types of different markets - from Gold to Crude Oil to Treasury Bonds, but for one reason or another (usually because of too much slippage in these less liquid markets) day trading systems don't perform well on these traditional markets.
European Futures Exchange - Eurex
Enter the very liquid futures markets of the Eurex Exchange. Eurex was the world’s leading futures and options exchange until the merger of the CME and CBOT, with trading volume at Eurex on pace to exceed 2.25 billion contracts in 2008, which is about 1 Billion more than they did just three years ago.
Eurex is an all electronic exchange where all trades are matched and executed digitally, and is generally credited with forcing the staid Chicago futures’ exchanges (CME and CBOT) with modernizing their products and going electronic in order to compete.
With its all electronic trading, record volumes and very liquid markets - Eurex futures markets are the easy answer for Attain in its search for different markets to day trade on. And the star of the Eurex exchange as far as day trading systems are concerned is the Dax Futures and Euro Stoxx 50 markets.
Dax futures are derivatives on the Dax stock index (the German “market”), and can be thought of as the German equivalent of S&P 500 futures, with the Dax being a broad index of European blue chip stocks on the German Bourse (stock exchange).
EuroStoxx 50 futures are more like the European version of the Dow futures, with the Euro Stoxx index tracking a select group of 50 stocks, much like the Dow tracks just 30 stocks.
From a future market perspective, Dax futures are best thought of as the European equivalent of the S&P 500, while the Euro Stoxx trade similarly to e-mini futures. Dax Futures are valued at 25 Euros per point (approx. $37.50) and begin trading at 12:50 am CST — well before most of us get out of bed. And they do about 150,000 to 250,000 contracts per day - meaning plenty of volume and liquidity. The Euro Stoxx50 futures contract is based off of the Dow Jones Euro Stoxx50 index of European blue-chip companies from 12 Eurozone countries. The Euro Stoxx 50 futures are value at 10 Euros per point ($14.75) and current trading hours are 12:50 A.M. CST to 3:00 P.M. CST. The volume competes with that of the e-mini S&P 500 contract for top stock index contract, with over 1.2 Million contracts changing hands per day. Wow!
With the Dax index value right around 6290 - one Dax futures contract represents control of about 157,250 Euros worth of stock, or about $235,875. Compare that with one S&P 500 futures contract, which controls about $318,750 worth of stock and you can see that 1 Dax is roughly the equivalent of 1 S&P 500 futures (75% of it). For the Euro Stoxx at its recent price of 3250, one E-Stoxx 50 controls about 32,500 Euros in stock, or $48,750. Compare that with an e-mini S&P 500 futures contract which controls about $63,000 – and you can see that the e-stoxx is a slightly smaller contract. That comes in handy for investors looking to get their feet wet and start a system with a lower minimum investment.
For more on Eurex, visit their website at www.eurexchange.com.
To bring access to the Eurex market without manning a 24 hour desk or building direct server connections to Europe (which would suffer from poor latency anyway), Attain has partnered with a firm named Trading Motion. They are one of the leading futures brokerages in Spain with over 7,000 clients, and Attain employs them to seek out and execute trading systems working on the Dax and other Eurex markets. Similar to Attain, TradingMotion has built a futures brokerage firm with a strong focus on automated trading systems, and is constantly working with different 3rd party developers whose expertise and focus is on Eurex traded markets.
Through our strategic execution partnership with TradingMotion, clients of Attain have had exclusive access to a range of systems designed specifically for the European markets via their existing Attain account. The initial list of 18 systems we gained access to in 2006 has now been expanded by about 70 more, however. These systems are only available to US clients through Attain at this time.
One of the advantages of working with TradingMotion is their unique system execution methods, where all systems are auto-executed for client's accounts using server based execution with a direct link to Eurex. What does that mean? Well, for one thing there is no TradeStation or other type of platform that must get a price feed, create a chart, then spit out an order which is then transferred to the exchange for execution.
TradingMotion loads the programming code of each trading system onto their servers, and runs through the code in real time as price data feeds in. There is no processing power wasted in building charts, displaying indicators, and generating orders. Because TradingMotion has a direct link to Eurex - the logic and price feed are tied in together - meaning the system's orders are at Eurex and executed at nearly the exact same time the logic computed whether to buy and sell and at what price.
While TradingMotion is doing the execution of the systems, there still needs to be someone who develops them, and that someone is another Spanish company called AutoTradingBot Systems.
AutoTradingBot is the developer of each of the Eurex based trading systems offered at Attain. And while we may think they lack creativity with their liberal use of the Greek alphabet in naming their systems - there is actually some reasoning behind that.
You see - AutoTradingBot operates on a little different philosophy than their American systems developer counterparts, in that they believe a system may need to be updated from time to time to reflect current market conditions. Following this philosophy, they offer clients the opportunity to invest in systems that have either fixed parameters or time adjusted parameters. A fixed parameter system is one that uses the exact same logic today as it did when it was first developed; while a time adjusted parameter system is one that uses different parameters that are optimized over time.
Systems that do not adjust with current market conditions are labeled as merely the system plus a version number if not the original version (Kappa Dax, or Beta v2 Dax for example), while systems with a pair of characters separated by a slash ("/") are systems that are automatically optimized from time to time.
While many investors may not be used to this concept of time adjusted parameters, thinking it smells of optimization or curve fitting, the approach of AutoTradingBot is different than the negatively connotated optimization we see form time to time from other developers. The "BAD" type of optimization usually occurs made only when a system is in drawdown or the developer "feels" like a new input will work better in the existing market conditions (i.e. a new low volatility filter or moving from a 1 minute chart to a 5 minute chart). The reason those are "BAD" optimizations is because they are made with the aim of improving the system's performance, and that can lead to a "cat chasing the tail" atmosphere where changes have the opposite effect.
AutoTradingBot's systems are very different in this sense because they actually use time as the determining factor for when to re-optimize a strategy. So while the end goal is to definitely improve the system, the reason it is done it to keep the system in tune with the current market environment, not just for performance alone.
If you are looking at one of the time adjusted parameter systems, it is also important to note that AutoTradingBot displays any optimized system results on a walk forward basis That is, the new parameters are only reflected in the results for the time period they were active, and do not change any of the results going backwards. This is extremely important - as you are more interested in seeing how the strategy of adjusting parameters has done rather than how the most recent set of parameters has done over the past few years.
Optimization of their strategies occurs at different times and is conveyed to investors in the strategy name. For example, "Epsilon 12/12 Bund" uses 12 months of data ending December 30th to determine the trading parameters for the next 12 months and then repeats the same exercise in each of the following years for the year ahead. Another type of optimization utilized is historical optimization, in which they fix the beginning of the optimization period and continue to add new data. For example "Rho H/3 Dax" begins tracking data in January 2001 and then re-optimizes the entire data set every 3 months.
Whether looking at a systems which adjust its parameters or not, the fundamental characteristic of all AutoTradingBot's systems is simplicity. Through their research they found that using fewer parameters per system resulted in a reduced chance of over optimization. Further, all of their systems have market driven entries coupled with adaptable exit strategies designed to protect and lock in profits when markets are trending in the systems favor.
With the volatility of the European markets rising in lockstep with the US markets, there is an obvious appeal to these markets and systems from a volatility standpoint. But there is also the diversification angle to explore, as these systems operate on a totally different time frame and can catch moves that happened overnight that are never reflected in the US markets.
While we have seen mixed performance on the initial 18 systems we started utilizing through our TradingMotion partnership in 2006 – we are excited to see them “open the vault”, so to speak, and release 70+ more Eurex based systems to us as of today. These new systems, are in their words: “the ones which have been working”. And with a much different environment now (read = more volatility) than we had in 2006, it stands to reason that many of the systems which were left out back then certainly deserve a look now.
A few of the ones we recommend checking out are below:
Euro Stoxx Systems (low minimums)
View more here: http://www.attaincapital.com/system_performance/search/esx
View more here: http://www.attaincapital.com/system_performance/search/dax
- Walter Gallwas
IMPORTANT RISK DISCLOSURE
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Most grain and food futures saw moves higher last week as ideas that the recent decline might spark strong foreign interest helped lead to the advance. The grains also garnered support from worries of dry pockets in the Midwest that could reduce corn and soybean yields during a critical time for crop growth. Corn gained +9.39%, Soybeans rose +8.31% and Wheat added +4.68%. For the week in the food arena Cocoa surged +8.11%, Sugar gained +7.32%, Coffee added +5.25%, and Cotton was up +3.77%. The livestock sector again was under pressure from heavy production and anemic demand as Lean Hogs lost -2.49% and Live Cattle ended a little south of steady.
The tone in the metals was much better during the past week as investors seemed to buy in sympathy of grain and energy prices moving higher. The sector also found support from quiet activity in the currency sector after the recent surge in the Greenback kept buyers of metals on the sidelines. Precious metals were led by a +4.15% gain in the Silver with Gold not far behind gaining +4.07% for the week. The industrial metals also post gains with Copper up +4.20%, Platinum adding 3.78%, and Palladium rising +1.82%.
The subdued activity in the U.S. Dollar and more nervousness about the credit sector spelled pressure for Stock Index futures during the past week. Weakness also stemmed from a round of economic reports that still showed the economy might be a little unstable. The small caps led the way with the Russell finishing the week -2.32% and the Mid-Cap losing -1.46%. The NASDAQ followed suit down -1.94%, Dow futures lost -1.40%, and S&P’s ended slightly lower.
With only a few short days left in the month, many of the option trading managers are showing a positive return for August with several posting returns above 2%. The top performer has been Ace Investment Strategist SIPC program which is ahead an estimated 2.93% through Friday. Congratulations are definitely in order for Ace and their team as they have continued to push on to new equity highs after a slow start to the year and difficult run over the past 18 months. The program was ahead 11.57% for the year through July and is ahead +33.89% for the past 12 months - it has averaged 41.49% since inception back in October 2001 and has incurred a maximum drawdown 28.31% (bottom was August 2007).
Other estimated option trading results for August are as follows: Cervino Diversified Options +0.59%, Cervino Diversified 2x +1.23%, Cervino COP -1.75%, Crescent Bay PSI +1.35%, Crescent Bay BVP +0.5%, Diamond Capital flat, FCI -1.84%, LJM Partners +2.72%, Summa Capital +1.93%, Zenith Index +1%, Zenith Diversified +0.99%, Zephyr Aggressive +3.47%, and Zephyr Moderate +2.68%.
In the agriculture and grain markets, the managed returns have continued to be a mixed bag. For the month to date, Chicago Capital is the only strategy ahead with an estimated gain of + 1.03%. Other estimates are as follows: NDX Abednego -1.21%, NDX Shadrach -1.85%, Rosetta -2%.
Multi-market CTA’s held steady last week with most managers remaining quiet and putting on very few new positions. Short currency trades continue to dominate across the board as managers seem to be very bullish on the US Dollar. Clarke Capital continues to lead the pack in August with very strong returns of +36.52% (approx) in their Global Basic program. The Clarke Global Magnum program has also done well with impressive returns of approximately +12.88%.
Other managers in the black this month include Robinson – Langley at +1.47% (approx), Attain Portfolio Advisors Strategic Diversification +1.30% (approx), Optimus Capital +0.84% (approx) and Dighton USA at +0.45% (approx).
Most of the remaining multi market managers and programs are very close to breakeven for the month and could push into profitability with a good run this week. Managers in this group include the Attain Portfolio Advisors Modified Program -0.19% (approx), DMH at -0.74% (approx), Hoffman Asset at -1.35% (approx), and Northside Trading at -4.12% (approx).
The continued rally in bond futures both domestic and abroad had several trading systems seeing action last week. Signum eBL, which has had an up and down year, returned to the upside by hitting a profit target on a long trade, making $3,900 on a single contract, while letting one contract remain long. On the other side of the ledger, Mesa Notes continued to hold short throughout last week, suffering some open trade losses as bonds moved higher throughout last week on concerns global economies are faltering; while Jaws US 60 lost -$393.75 on a single trade.
Elsewhere, the Compass system, which has had a great year, saw a loss of -$350 last week on a single trade, bringing it into a drawodnw of nearly 20% from its recent equity highs at the end of June. For anyone who has ever considered Compass, this is a great entry spot in our opinion – with the system still on pace for near triple digit returns for 2008.
Rounding out the system action, recent short currency and metals positions among trend followers saw those markets move against them slightly last week, while swing systems such as Tzar and Ultramini were caught on the wrong side of the sell off in equities.
IMPORTANT RISK DISCLOSURE
Futures based investments are often complex and can carry the risk of substantial losses. They are intended for sophisticated investors and are not suitable for everyone. The ability to withstand losses and to adhere to a particular trading program in spite of trading losses are material points which can adversely affect investor returns.
Past performance is not necessarily indicative of future results. The performance data for the various Commodity Trading Advisor ("CTA") and Managed Forex programs listed above are compiled from various sources, including Barclay Hedge, Attain Capital Management, LLC's ("Attain") own estimates of performance based on account managed by advisors on its books, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.
The dollar based performance data for the various trading systems listed above represent the actual profits and losses achieved on a single contract basis in client accounts, and are inclusive of a $50 per round turn commission ($30 per e-mini contracts). Except where noted, the gains/losses are for closed out trades. The actual percentage gains/losses experienced by investors will vary depending on many factors, including, but not limited to: starting account balances, market behavior, the duration and extent of investor's participation (whether or not all signals are taken) in the specified system and money management techniques. Because of this, actual percentage gains/losses experienced by investors may be materially different than the percentage gains/losses as presented on this website.
Please read carefully the CFTC required disclaimer regarding hypothetical results below.
HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN; IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING PROGRAM. ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK OF ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING PROGRAM IN SPITE OF TRADING LOSSES ARE MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL WHICH CAN ADVERSELY AFFECT TRADING RESULTS.