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BB mixes OI rollovers with actual trades on the charts of Japanese futures!!

I know it's hard to believe that BB would show OI rollovers in the same volume bar as actual trades, which of course makes the chart useless for trading and analysis. But the salesman, and I guess the programmers too, can't seem to understand that you just can't add these two items together, any more than adding a quart of oil to your gas tank. Or maybe they just don't believe me.
So, would someone be so kind to confirm what I've said about not mixing these non-auction trades with actual trades on the charts so that I can forward it to them.

Thank you very much for your assistance.

Answers

  • markdmarkd ✭✭✭
    edited February 2015
    Hi jay6017, can you provide symbols or charts to illustrate your question?

    I can't find anything on Stockcharts for Japanese futures. Also, what is BB? Is that Bloomberg? If so, this forum probably can't help you. Thanks.
  • Thank you, markd.

    Yes, BB is Bloomberg. I used this site as it seemed to have a wide following and hoped that there would be many who understood how the futures market works, and could confirm what I just can't get BB to understand.
  • What is OI ?
  • Hi Kevo,
    OI is Open Interest.
  • Hi Jay, Not sure if I understand what you mean. When I look at NK1 or NKA Index I don't see anything out of the ordinary.. That is just by eye-balling the charts and not being a Japanese futures 'expert'. I am plotting volume and OI in 2 different panes below price....
  • Hi Julius,
    Thank you for your reply.

    Sorry I wasn't clearer. What I meant was that say someone holds 2000 contracts in the Nikkei225 March contract that is about to expire and he wants to maintain his position. So he rolls the 2000 contracts by selling them in the March contract and simultaneously buying them in the June contract. This, being a non-auction transaction, has nothing to do with normal trades done in the auction market. And, of course, has nothing to do with the supply and demand that determines the prices which are shown on the charts. However, BB combines the rollover contracts with actual trades. So if those 2000 contracts were rolled at 10:36, and there were 513 actual trades executed at 10:36, the 10:36 volume bar on a 1 minute chart would show 2513 contracts.
    Doing this shows a lack of basic market knowledge. This goes on throughout the day for at least the two weeks up to expiration, and makes the charts useless for analysis and trading.

    How BB could even dream of this mixing of apples and oranges in beyond belief. And if they do it with Japanese futures, do they do it with ES and NQ too??
  • again not being a futures 'expert' and potentially playing the devil's advocate....

    But when a roll is executed, even if done at the same time and as you call it a non-auction transaction, it does imply a buy of one contract and a sale of the other. The OI of one expiration goes down the OI of the new expiration goes up.. How can that NOT be volume. They are actual trades, one buy and one sell, that both get booked and both get cleared. On BB the root+A will give the Active contract while root+1 will give a continuous contract.

    I'm not sure if agree with 'has nothing to do with normal trades...' The holder of these futures contracts could decide NOT to roll to the new expiration month. He is effectively taking a new buy decision.

    I suppose the 'problem' only arises in the continuous contracts as in the active contract or the actual expirations 'root+month+year' only the volume and OI of those contracts will be shown. And I doubt if the rolled volume shows 'double' in the continuous contract as these are also 'rolled' into the new active contract at a set date (user definable) so I expect they will only be counted once. Depending on your personal settings for the roll date the volume may show up at different dates, that I agree with but that has nothing to do with BB but is dictated by user settings (see attached screen-shot).

    Suppose these trades would not be recorded and assuming that hypothetically all current holders of the futures contracts will decide to roll them to infinity and no new buyers or sellers will come in.... Eventually OI would drop to ZERO if these roll transactions would not be recorded while there's still a crowd out there holding the futures contracts .... and a recorded transaction means a buy or a sell and therefore impacts the volume for the traded expiration month ....

    Hope i'm not talking too much bs :smile:
  • Hi Julius,
    As you say. the contracts are sold in the current month and bought in the next
    by the holder. However, rather than this being a trade done within the DOM between traders, it's actually just an administrative transfer to the following month within the holders account. And these contracts are not shown in the bids/offers in the DOM as are normal trades. They are executed separately by the exchange. And in the data feed from the exchange, these rollovers, calender spreads, and cross trades are flagged in order to identify them from actual trades done in the action market. Being flagged, the vendors can program their systems to where the prices and volume are not shown on the charts. Interactive Data (eSignal), CQG, IB etc do not show such data on their charts as they know that it has nothing to do with the auction trades that determine the contract's price. Likewise, no such data would be shown in the continuous contract that you mentioned.

    I hope the above explanation is clearer than before. I haven't used much English for a very long time!! In short, the price and volume data on the charts should only be that which has been created by supply and demand. Adding data such as rollovers distorts the charts and proper analysis and trading cannot be done. OI EOD totals can be shown on the charts, and are done so using a line chart. But OI must NEVER be added to actual trades done in the action market. That would be mixing apples and oranges.

    If still not clear, or if you disagree. please let me know.

    Thank you.

  • is it not simply a matter of setting WHAT you actually would like to see??

    In BB the amber boxes on top have a drop down that allows you to choose what you want plotted.

    if i use "aggregated vol and oi" i get the first screen which shows a spike in vol and oi prior to a roll. when I use "vol and oi" i get the screen in the lower part of the screenshot showing significantly lower volumes...

    would that not be what you are looking to achieve ??
  • Hi Julius,
    Thank you for your reply.

    What you showed in the screenshot is is a daily chart, which would be used to show OI, as OI figures are the end of day totals. That, however, is not the problem. The problem is with intraday (1 minute charts etc.) charts on which rollover data is included with normal trades in the volume bars at the time of execution during the trading day. Please refer to my explanation of March 10 above. That means that a trader would see incorrect volume figures on the intraday charts. As the March contract's last trading day was last Thursday, I don't imagine you could check the expired contract's 1 minute charts to see if the actual trades can be shown excluding the rollovers.
  • markdmarkd ✭✭✭
    edited March 2015
    Hi Jay, if you have the time, could you explain in a little more detail for a non-commodity trader why a rollover is not an auction trade? If I am holding an expiring contract, and I want to roll into the next one, how many transactions are there, and who is on the other side? I would have thought some one has to buy my expiring contract and some one else (or maybe the same person) has to sell me the current contract. Are there no bids and asks in that process? Is there an exchange rule that if I declare I am rolling over, I get the current value for my expiring contract and automatically pay the same price for my new, current contract? Does the exchange act on the other side of my trade somehow? Thanks in advance for your patience.
  • Hi markd,
    Ok, as you know. you have trades that are done on the floor of the exchange, in the pits, and by internet trading. This is the auction market where traders create the supply and demand that determines prices. And the number of contracts that are traded at X price is the volume that is shown by bars at the bottom of the chart.

    Now, let's say you bought a March contract in ES and still hold it, but it is going to expire in a few days. You think ES will continue its advance, and want to maintain your position. However, if you do nothing, your broker will sell the contract when it expires. So, to maintain your position in ES, you tell your broker to roll the contract to the next month.The broker this by selling the March contract and buying the June contract. So, the March Open Interest (all contracts that have not been closed) is reduced by 1, and the June OI is increased by one. As this is done within your account, you are the seller and buyer. This transaction is done on the books rather than through the auction market mentioned in the first paragraph. So it has nothing to do with the supply and demand that determines prices, and therefore it must not be added to the volume for actual trades that are done in the auction market and shown as a total on the charts. If a rollover for 1000 contracts was done at 09:13, and there were actual trades of 300 contracts, the 09:13 volume bar on a 1 minute chart would show 1300 contracts. So a trader would be seeing faulty data on his chart, making the chart useless for trading, analysis and back testing.

    OI can be shown on a chart. But it is an EOD total usually shown as a line as can bee seen in this link.
    http://www.barchart.com/education/std_studies.php?what=std_oi#study
  • I'm still not sure about all this... I tend to be in @markd 's camp.

    I think your statement "As this is done within your account, you are the seller and buyer." is where the reasoning gets a bit off track. In my opinion although it happens in one account you are NOT the buyer and the seller... of the same contract !!! You are the seller of the, soon, expiring contract and thus by default someone else is the buyer and vv you are the buyer of a new contract and someone else is the seller of that contract.

    In reality 4 transactions are taking place. The fact that futures-brokers can do these roll-trades in one-trade does not mean there are no 'real' buyers and sellers. As far as my knowledge goes the spread for the roll is not a static thing but can change from day-to-day and intraday. This means that there's def market forces at work also in the rolls...
  • Hi Julius,
    I shot through that part of my answer as my main concern is the showing of the data on the charts. I guess I should have said that you are both a seller and buyer.

    The OSE executes rollovers, block trades etc. within their J-NET trading system which is separate from the auction market to avoid market impact. I would imagine that the same is true for all exchanges. The following is from OSM's site.

    How to Use
    Since non-auction trading for cash and futures / options contracts can be made simultaneously, the following types of strategies and transactions are available.
    EFP (Exchange for Physical) Trading ("Exchange" of baskets of cash and futures contracts.)
    Strategies for large block trades of options (strangle, calendar spread, etc.)
    Strategies by combining large block trades of futures and options (a strategy for hedging futures by options, arbitrage trades using futures and options, etc.)
    In addition to the above strategies and usage, investors are able to form various strategies because cash and derivative positions can be established or adjusted simultaneously, while avoiding market impact.
  • Hi Julius,
    I forgot to mention that eSignal, CQG and IB do not show rollover prices and volume on their charts as they recognize that it would ruin the charts for trading, analysis and backtesting. Why in the world BB can't see this is a real mystery. As BB includes this non-auction data for Japanese futures, I wonder if they do so for all futures worldwide?
  • markdmarkd ✭✭✭
    edited March 2015
    So I found the OSE site. Apparently, they call rollovers "strategy trades", which as you said are executed on "J-Net", which is NOT the same as the "regular" exchange. When you want to do a rollover, J-Net looks at each contract, determines prices of the most recent transaction, and you receive that price for your expiring contract, and you pay that price for the current contract. So J-Net is essentially an intermediary, apparently sponsored by the exchange.

    I can see why the exchange would want to do this. If it didn't, sellers of the current contract would see you coming and there would be price distortions in the current contract whenever the previous contract came toward expiration.

    So, I can see your point - it's not an auction trade - it doesn't affect the bid and ask of the current contract because the exchange doesn't go into the market to execute the rollover. It doesn't hit a bid or offer- just the opposite - they just observe the current market and set their transaction prices by what the market has just done. But the rollover transaction is accounted for with end of day open interest.

    So call Bloomberg and tell them I said you are right.
  • Thank you very much, markd.

    It's so hard to believe that who is said to be the Rolls Royce of market data vendors can't get this right.

    Thanks again.
  • ok I'd say we need an expert opinion on this. I happen to be in Bloomberg's office in New York next week and I am seeing the guy that is in charge of all graphics on the system, not sure if that means he's also in charge of the data that power the graphs but my guess is he will know who to talk to if it isn't him. I'll ask him for the rationale behind their approach .... t.b.c.
  • Hi Julius,

    Great, I'll be interesting to hear what he has to say.
  • markdmarkd ✭✭✭
    edited March 2015
    That's very generous, Julius. Thanks! I'll be waiting to hear, too. I think Jay has a point. If you see volume pop by 2000 contracts, but price doesn't move, that implies a depth to the market that isn't necessarily there. If you rely on volume as part of your analysis to enter or exit a trade, you couldn't use BB charts around rollover time to see what prices are attracting volume. The rollover transaction is different - it's not price sensitive as much as time sensitive, and because it's non-auction you aren't looking at depth of market when you do it, as you would if you were opening or closing a transaction.

    Great question, Jay! I learned something.
  • Hi Julius,

    Sorry, I forgot that I had the attached screenshots, which would have saved a lot of explanation.

    As you can see in T&S there were 500 contracts rolled at 12:13:51 at the price of 17964. And as this contract is traded in increments of 5 yen, it would be impossible to execute at that price in the auction market. It could only be done, as a strategy trade, through J-NET in increments of 1 yen. Also, you can see that those 500 contracts were shown on the tick chart. This is just one isolated case during a dull period, so the 500 contracts really stick out. But that is not usually the case , During more active trading you could mistake those 500 contracts for actual trades on top of say 300 actual trades which would then show an 800 contract volume bar.

    Being from the old school, I trade based on price and volume only (no indicators). And in the case of the Nikkei Mini, there is a rollover every month, as there is with many other futures contracts. So this is a major problem.

    Hope the attached helps you next week at BB.
  • The CO next to the price is the flag the the exchange attaches to non-auction trades. So it is very easy for vendors to adjust their programs so that such trades are not shown on the charts.
  • markdmarkd ✭✭✭
    So I wonder if @Julius_RRG had any luck with this in New York.
  • Hi @markd and @jay6017 . I did bring the subject on but I am afraid there are simply a few different "thought streams" on this with not one being THE right one ... Some reasoned along my lines.. a trade is a trade and even though not executed in (virtual) open outcry it still takes someone else on the other side of the trade agreeing on the price, hence it should be included in the volumes. Analogy was given with block-trades in the stock market.. All the time block-trades are executed on an agreed upon price by two investors and these are then fed through the exchange system at a later stage AND included into the volume for that day.
    Others are more on your (jay) side saying there should at least be more "choice" for users to decide whether they would like to include such roll-over volumes into the volume of that day (intraday) ....
    I am afraid I did not get a definite answer about what's right or wrong here .....
  • markdmarkd ✭✭✭
    edited April 2015
    Thanks for taking it up and reporting back, Julius. Very generous use of your time. I think I'm still on Jay's side - the block trade analogy is not really on point - that's a negotiated trade, so it is in effect an auction trade. The rollover is not negotiated - the price is decided by a rule regardless of market conditions, not a difference of opinion about the future value of the contract. So it's a service more than an auction market transaction. Also, it's a price that non-rollover playerscan't necessarily get if the depth of market is not there, so it misrepresents the state of the auction market to report it during the day with other auction transactions. But thanks again for taking this up with BB. Much appreciated.
  • You're welcom @markd ! however i disagree with your statement that the price of a rollover is not negotiated .. I think it is !! But anyway, we can drag this discussion on for hours without a definite answer :) Maybe next time when StockCharts host a conference in Seattle :smiley:
  • Hi Julius,

    Thank you very much for taking the time to discuss this with BB.

    You and markd may be interested to hear that I recently spoke to Reuters after finding that they too are showing rollover data combined with normal trades on their charts. However, they admitted that they failed to adjust their program after the Tokyo and Osaka exchanges upgraded their computer systems. With the upgrade the flag in the data feed that identifies rollovers, block trades and the like was changed. So their programs no longer filtered the data. They were glad that I pointed this out to them and just told me that they are in the process of adjusting their programs to filter the data.

    What I still find hard to believe is that the exchanges did the upgrade 3 or 4 years ago, and I'm the only person in the whole wide world to have noticed the mistake!! I guess there just aren't that many true day traders who use BB or Reuters. That would be understandable though as neither is really designed for active traders.

    Anyway, with all of our postings we really didn't solve all of the world's problems, did we? But maybe from now on we'll be a little more alert regarding the data we view!!

    Thank both of you again for your time and comments.

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