Wednesday, October 16, 2013

Some interesting stuff about Chinese futures exchanges

Here're some things I've noticed with Chinese index/commodity futures.

  • Heavy momentum effect: mostly due to difficulty around hedging since there are no trade-able options yet, and ETFs are relatively expensive and difficult to borrow for short-selling. 
  • High speculative volumes: It seems like an overwhelming majority of the funds here take the pattern-recognition (curve fitting) approach to trading. There's this belief that directional trading is the only way to make good profit.
  • Generally low understanding of exchange microstructure: This seems to apply to even many "professional" traders or money managers I've met thus far. Making the markets here quite juicy for guys like me who have an advantage with externally applied technology and trading logic around low latency trading.
Over all there seems to be a ton of inefficiencies still available on Chinese derivatives, even on the index futures thus far. As an old colleague had said of OSE products back in the 90's, "We made money all day; everything's outta line, EVERYTHING."

0 Reflections: