STIR/Eurodollar Traders

-Hey Guys/Girls

I'm a prop trader that trades many different types of fixed income instruments (2/5/10 Yr treasuries, bund, short sterling, eurodollars, etc), and I'd like to focus on eurodollars in this discussion. Because I have spent the entirety of my trading career trading for one firm, my knowledge of how eurodollars are traded outside of my firm is limited. I am trying to gain a better understanding of how this product is traded at banks, hedge funds, other prop shops or any other institution, so that I have a more well rounded understanding of the market. Here is a list of questions off the top of my head:

1. What type of institution do you work for? (bank, fund, prop shop, independent, other?)
2. What percentage of your trading consists of ED's? (futures or options?)
3. Market maker or market taker?
4. Automated or discretionary?
5. What is your purpose when trading ED's? (Are you making directional scalps? Are you buying/selling to hedge risk for other inventory on your book? Are you executing client orders? Are you buying and holding as a 3 month spec play?)
6. How do you define your risk?
7. What software do you use?

Here is my profile:

1. Prop Shop
2. 20-25%
3. Both
4. Discretionary
5. I assume risk. I will make directional bets by scalping outright futures and spreads. I also leg spreads. I also make markets and try to get pro rata fills.
6. Typically I will risk between 1-2 ticks and will puke beyond that. I rarely carry positions over night, but when I do they are always spread off.
7. TT

I'm specifically seeking responses from people in the industry, not prospects. Thanks in advance.

-TD

 
  1. Fund
  2. 10%
  3. Taker
  4. Discretionary
  5. My purpose is to buy low/sell high or vice versa. In seriousness, most of the time it's designed to express a specific macro view or to hedge exposure elsewhere in the portfolio.
  6. Dollars per basis point, innit? These are long term trades and I may hold them for months.
  7. I have a used variety of tools, e.g. Barx, CFOX, Redi and even some homegrown platforms.
 
Best Response
Martinghoul:

1. Fund
2. 10%
3. Taker
4. Discretionary
5. My purpose is to buy low/sell high or vice versa. In seriousness, most of the time it's designed to express a specific macro view or to hedge exposure elsewhere in the portfolio.
6. Dollars per basis point, innit? These are long term trades and I may hold them for months.
7. I have a used variety of tools, e.g. Barx, CFOX, Redi and even some homegrown platforms.

What type of fund is it?

I am completely ignorant to a traders role at a fund, how does it work? Do you have your own views and your own book? Or do you have a PM who expresses a view and then relies on your discretion to execute that view in the most effective way?

How do you determine entry and exit points? Is it model based? In my case, my trades are all short term. There are 40 contract months between H5 and Z4, and my entry point is determined by analyzing the ED curve and buying/selling anything that I see which is mispriced. If a position moves against me I'm usually out fairly quickly. If you're holding your positions for months, what do you do when a position moves against you? The value of a ED contract can change substantially over months, particularly further out in the curve.

 
Paulson:

1. Prop
2. 75%+
3. Both
4. 75 auto / 25 discretionary
5. A multitude of things - base foundation is to hedge risk within book that reflects a macro outlook. Will scalp from time to time.
6. $ per bp?
7. TT. It sucks. Have never been a fan but it gets the job done.

Can you elaborate a little bit on #5? You're using ED's to hedge risk you hold from other assets (currencies/equities/etc)? What is your holding period?

How long are you willing to hold a position if it moves against you?

 
TripleDefault:
Paulson:

1. Prop
2. 75%+
3. Both
4. 75 auto / 25 discretionary
5. A multitude of things - base foundation is to hedge risk within book that reflects a macro outlook. Will scalp from time to time.
6. $ per bp?
7. TT. It sucks. Have never been a fan but it gets the job done.

Can you elaborate a little bit on #5? You're using ED's to hedge risk you hold from other assets (currencies/equities/etc)? What is your holding period?

How long are you willing to hold a position if it moves against you?

Sorry for late reply. Basically how I approach the eurodollar complex is outrights pushed into calendar spreads pushed into butterflies. So at its core the risk is holding calendar spreads (or outrights) that aren't hedged vs. another to create some form of fly. I predominantly work from three month calendar spreads which gives me a lot of optionality instead of starting with outrights. Have however been looking at FFs / Eris swaps / CFE products lately too. Don't have an opinion yet but as far but may start trading FFs soon.

As for holding period it can range from

 
  1. Bank (repo and short-rates desk)
  2. Less than 5%, maybe
  3. Taker
  4. Discretionary
  5. Mostly tactical to short term view (1-30d) on rates (e.g. around Taper tantrum when hiking cycle was pulled forward, 2014 FOMC SEP dot chart fun). Hedging term repo as needed, though most times we'll use FF futures.
  6. $/bp, mostly expressed outright or flattener/steepner; basic roll and vol considerations
  7. Bloom, spreadsheets
 

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