NCDEX Algo Strategy Spread Trading is a strategy in which long and short positions are created with same underline asset but different expiry dates i.e. difference between two underline Contracts is traded either Intraday or Carry Forward to next day.
There are two kind of spreads :
- Contango : When near month Price is lower than next month Price
Chana Aug Contract Rs. 4903 and Chana Sep Contract Rs. 5015
2. Backwardation : When near month Price is Higher than next month Price
Refined Soy Oil Aug Contract Rs. 1387 and Refined Soy Oil Sep Contract Rs. 1365
Factors impacting Calendar Spreads :
- Seasonality : India have two Seasons Kharif Oct to Dec and Rabi April to June when Maximum arrivals of Crop happens in Market Yards all across India
2. Cost of Carry : It Includes Warehousing Cost, Interest Cost, Insurance Cost
3. Government Policies to Control Import-Export , Duties ,Stock Limits and Taxes
Two Types of ALGO Strategies are executed in NCDEX through Greek ALGO Software :
1. Calendar Spread or Ctrl + E
(a) Long or Buying a Calendar Spread :
When a Trader Expect the difference between the Near and Next Month Contract to Increase the Trader Sell the Near Month Contract and Buy the Next Month Contract .
Trader Sells Chana Aug Contract Rs. 4903
Trader Buys Chana Sep Contract Rs. 5015
Spread Difference is Rs. 112
Now When this Difference Increases to Rs. 120 the Trader Square off Both Positions and makes a Profit of Rs. 8 which is 100 X 8 = Rs. 800 as 1 Tick is Rs.100 Profit in Chana Contract of 10 MT
(b) Short or Selling a Calendar Spread :
When a Trader Expect the Difference between the Near and Next Month to Decrease the Trader Buy the Near Month Contract and Sell the Next Month Contract.
Trader Buys Chana Aug Contract Rs. 4903
Trader Sells Chana Sep Contract Rs. 5015
Spread Difference is Rs. 112
Now When this Difference Decrease to Rs. 104 the Trader Square off Both Positions and makes a Profit of Rs. 8 which is 100 X 8 = Rs. 800 as 1 Tick is Rs.100 Profit in Chana Contract of 10 MT
2. 3 Leg Strategy Arbitrage Between Underline Near and Next Month Contract and Spread Contract or Ctrl + Q
In this the Trader Buy Near Month Contract and Sell Next Month Contract i.e. Short or Selling a Calendar Spread
and simultaneously Buying a Spread Contract
Trader Buys Chana Aug Contract Rs. 4903
Trader Sells Chana Sep Contract Rs. 5015
Spread Difference is Rs. 112 Selling Calendar Spread
Now Simultaneously keep Bidding to Buy CHANA Aug-Sep Spread Contract at -5 i.e. Rs. 107 and when Algo Gets the Price of Rs. 112 it Buys the Spread Contract Chana Aug-Sep Spread Contract at Rs.107 making a Profit of Rs. 5 which is 100 X 5 = Rs. 500 as 1 Tick is Rs.100 Profit in Chana 10 MT Contract.
The Above strategy can be used Vice versa by Long or Buying a Calendar Spread and Selling the NCDEX Spread Contract .
So Above are two ALGO Strategies executed through Greek Software Functions Ctrl + E and Ctrl + Q in NCDEX
Greek Soft : https://www.greeksoft.co.in/
NCDEX : https://ncdex.com/market-watch/live_quotes
Also Read : https://financeloaninsurance.com/best-algo-trading/