Trading the Eurodollar

Andy Waldock  |

trading Eurodollars is that they are typically the most liquid contracts in the world but tend to have small ranges. Therefore, the key to profiting from the strategy is to trade multiple contracts. Given that the risk from the current price of 99.745 to the stop price of 99.730 is only $37.50 the multiple contract scenario can be viewed in the proper portfolio risk context.

The methodology is very simple. We look for short-term reversals in line with commercial bias, in this case long; to buy into the same positions commercial traders are carrying. Yesterday, the market traded below the support that had been building at 99.74 only to reverse and close at the day’s high of 99.745. This created a bounce in our proprietary short-term trigger. The buy signal is in line with the overwhelmingly positive commercial momentum. Thus, the commercial buy signal is complete.

Finally, we always trade with protective stops working in the market. This accomplishes two things. First of all, it allows us to quantify the risk on the trade which, in turn allows us to calculate the proper number of contracts to trade to achieve the desired portfolio leverage and risk levels. Secondly, it ensures that whether shots are fired in the Crimean peninsula or the Fed makes a surprise announcement, we’re covered. On the profit side, I’m looking for something above the recent highs, possibly towards 99.80 or more if things heat up geopolitically.  

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