Friday, December 14, 2007

Japanese Futures

During the 24 hour global trading day stock indices appear to be most influenced by the largest market currently open as well as catching up on what the US markets did the previous day. The day starts in New Zealand, a tiny market, followed by Australia - either the second or third largest Asian market depending on who you believe and an hour later Japan comes online with Korea, followed later by Shanghai, Hong Kong etc. At 7pm Eastern Australian time (3am on the US East Coast) the major European markets including London, the largest, open. US stock index futures tend to track what is happening in the largest open stock market. This is particularly clear once the London market opens. Volume on US future usually increases substantially and often volatility does too as the futures begin to track what is happening in London. The same is also true of the Australian stock index futures to some degree - once Japan opens the Japanese market has a strong influence on Australia. At the moment I am trading US futures during the time that the London stock market is open in our evening here in Australia. I can get up to date data on the FTSE index from Yahoo's website. Unfortunately though Nikkei data is delayed by 20 minutes and this is one more factor making trading Australian futures difficult (other reasons are the large size of the contract, the often think market, the staggered index open etc.). Interactive Brokers can provide data from the Osaka Futures exchange for 1200 Yen a month (USD 10.70).

You can then also trade the Japanese futures. So I am thinking of trying this out, maybe next week. It could help me trade the Australian futures but also I might actually trade in Japan. I will have to see what the market there looks like before committing to the idea, with some paper trades first. There are two contract sizes available:

Full size contract:
Value = ¥1000*Nikkei (i.e. USD135k per contract)
Initial margin = ¥750k (i.e. USD6,700)
Tick size = 10 points
Commission = ¥500

Mini contract:
Value = ¥100*Nikkei (i.e. USD13,500 per contract)
Initial margin = ¥75k (i.e. USD670)
Tick size = 5 points
Commission = ¥150

The large contract is about the same size as an Australian futures contract and the minimum tick size is equivalent to one S&P futures (ES) point. That means that you are down the equivalent of 1 point immediately (plus commission) when placing a trade. Neither of those are good for me. The small contract though is about the third of the size of a NASDAQ futures (NQ) contract and the tick is equivalent to half an ES point. ES and NQ futures tick size is 1/4 point, Australian futures tick size is one point which is the equivalent to the ES 1/4 point. The mini contract might be an attractive day trading instrument. And I could really "day-trade" as opposed to "night-trade", which is what I am doing at the moment.

BTW, the CME-Globex exchange offers Nikkei futures, but they only trade when the Japanese stock market is closed!

P.S. After a bad start to the month I am now about back to breakeven on my Interactive Brokers account. Though right this minute I'm in an ES trade that is not going well :(

P.P.S. I signed up for the data and trading permissions and already have it! Very cool. There are plenty of contracts being traded and the discrepancy between the mini and full-size spread is real - how weird.

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