The first edition was published in 2006 and the second in 2012. Looking back, those dates span a particular period in the development of electronic financial markets.<\/p>\n\n\n\n
Direct market access was still relatively novel. Proprietary trading firms and trading arcades offered a route into markets for individuals who might otherwise have found professional futures trading difficult to access. Trainees learned to trade Eurodollars, Euribor, Short Sterling, government bond futures and other exchange-traded derivatives using essentially the same markets as institutional participants.<\/p>\n\n\n\n
Much of the market described in STIR Futures<\/em> has since disappeared or changed beyond recognition.<\/p>\n\n\n\n Eurodollar futures disappeared with USD LIBOR. Short Sterling followed GBP LIBOR. Dollar short-term interest-rate trading migrated to SOFR, while SONIA became the principal sterling interest-rate benchmark. The mechanics changed as well. A three-month SOFR future is ultimately determined by overnight rates compounded over a reference quarter, rather than by a single three-month LIBOR fixing.<\/p>\n\n\n\n But arguably the more significant transformation has taken place outside traditional futures markets.<\/p>\n\n\n\n For the individual trader, access to financial markets has expanded dramatically.<\/p>\n\n\n\n Equities can be traded cheaply from a mobile phone. Fractional shares have reduced the capital required to build a portfolio. Options have attracted much greater retail participation. Foreign exchange remains readily accessible. Cryptocurrencies created an entirely new speculative market, followed by their own derivatives, including perpetual futures. More recently, prediction markets have made the price of an uncertain future event itself directly tradable.<\/p>\n\n\n\n Much of this would have seemed remarkable in 2006.<\/p>\n\n\n\n Strip away the differences between SOFR futures, equities, Bitcoin and prediction markets and I think the fundamental task of a trader can still be stated quite simply:<\/p>\n\n\n\n Find a price you believe is wrong.<\/strong><\/p>\n\n\n\n Understand why you believe it is wrong.<\/strong><\/p>\n\n\n\n Work out what happens if you are wrong.<\/strong><\/p>\n\n\n\n Size the trade so you survive that possibility.<\/strong><\/p>\n\n\n\n Then repeat the process enough times to discover whether you have an edge or have simply been lucky.<\/strong><\/p>\n<\/blockquote>\n\n\n\n That description worked reasonably well for a futures trader in 2006.<\/p>\n\n\n\n Twenty years later, it works equally well for someone trading an equity, a cryptocurrency or a prediction market.<\/p>\n\n\n\n Perhaps the most striking thing, looking back over the period since the first edition of STIR Futures<\/em>, is how little of the underlying discipline has become obsolete.<\/p>\n\n\n\n The particular contracts certainly have.<\/p>\n\n\n\n Trading floors and arcades have changed.<\/p>\n\n\n\n Execution has become faster.<\/p>\n\n\n\n Algorithms now account for much of the activity that human traders once performed manually.<\/p>\n\n\n\n New asset classes have appeared.<\/p>\n\n\n\n Some markets operate around the clock.<\/p>\n\n\n\n And access has been democratised to an extent that would have seemed remarkable in 2006.<\/p>\n\n\n\n But none of this has repealed probability.<\/p>\n\n\n\n It has not abolished expected value.<\/p>\n\n\n\n It has not eliminated the effects of leverage.<\/p>\n\n\n\n It has not made position sizing unnecessary.<\/p>\n\n\n\n And it has not solved the enormously difficult problem of distinguishing skill from luck.<\/p>\n\n\n\n This is, I think, an encouraging observation rather than a pessimistic one.<\/p>\n\n\n\n A trader does not need to predict every market movement.<\/p>\n\n\n\n Nor does a trader need an opinion on every stock, cryptocurrency, economic release or political event.<\/p>\n\n\n\n The task is narrower.<\/p>\n\n\n\n Find situations where there is good reason to believe that price and value have diverged.<\/p>\n\n\n\n Understand the reason for that belief.<\/p>\n\n\n\n Quantify the consequences of being wrong.<\/p>\n\n\n\n Take an amount of risk that allows another attempt if you are wrong.<\/p>\n\n\n\n Then keep sufficiently good records, for sufficiently long, to determine whether the apparent advantage is real.<\/p>\n\n\n\n Twenty years on, how we trade has changed enormously; what it means to trade well has changed rather less.<\/p>\n","protected":false},"excerpt":{"rendered":" The first edition was published in 2006 and the second in 2012. Looking back, those dates span a particular period in the development of electronic financial markets. Direct market access was still relatively novel. Proprietary trading firms and trading arcades offered a route into markets for individuals who might otherwise have found professional futures trading […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-626","post","type-post","status-publish","format-standard","hentry","category-uncategorized"],"_links":{"self":[{"href":"https:\/\/www.stirfutures.co.uk\/index.php?rest_route=\/wp\/v2\/posts\/626","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.stirfutures.co.uk\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.stirfutures.co.uk\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.stirfutures.co.uk\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.stirfutures.co.uk\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=626"}],"version-history":[{"count":1,"href":"https:\/\/www.stirfutures.co.uk\/index.php?rest_route=\/wp\/v2\/posts\/626\/revisions"}],"predecessor-version":[{"id":628,"href":"https:\/\/www.stirfutures.co.uk\/index.php?rest_route=\/wp\/v2\/posts\/626\/revisions\/628"}],"wp:attachment":[{"href":"https:\/\/www.stirfutures.co.uk\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=626"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.stirfutures.co.uk\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=626"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.stirfutures.co.uk\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=626"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}\n