Since CME recently updated its data structure for their market data dissemination I thought I’d give a little update on what this means to us traders trading with our favorite brokers. This will affect the data stream for CME, CBOT, COMEX, NYMEX, CME Europe and a few partner exchanges. First what is important to know without getting too technical is that the data change itself is merely what market data (in our case Emini S&P) is sent to your data provider and in what format. Each data provider then, in my case TradeStation, will process this data to transform it into the actual ticks of data we see show up on our charts. This all takes maybe micro-seconds mind you but is necessary for your platform to understand the information structure of the data string. One of the reasons for updating is better technology allows binary encoding that is optimized for low latency while keeping bandwidth usage low with increased flexibility of the data packet for items such as time stamp and decimal place precision. There is a lot of additional data actually transmitted real time about the markets besides the price which we all rely on as traders. This includes items such as bid, offer, trade size, opening, settlement, volume, open interest, etc. What data is available to the end user and how it is displayed is for the most part is up to the broker to define. Which brings me to “Joe, what are you talking about and why do we care?” First, it is important to know that this data switch has already taken place by the CME starting in late 2014. A lot of brokers have already begun switching their data stream to the new format, and in some cases even added or switched symbols on their platform to accommodate this change. Until now, both sets of data is still being sent by CME. I think TradeStation has already switched over its ES stream format without a peep to its traders as evidenced by the average contracts per trade shown on my charts but I'm not sure why the data shows like it does, I'd actually expect the trades size to increase.
I talked with technical support hoping to get a little inside skinny and unfortunately they were clueless, or just not saying. Somewhere around 2008-2009, CME degraded their reported data by “un-bundling” the trades. This meant that if a larger trader places a 50 lot order and accepts say 10 orders of 5 contracts each, it was now reported as 10 orders of 5 contracts instead of the 1 order of 50 contracts that it was. At the time this felt a little (okay, a lot) like the big players disguising or hiding their trades by not showing the large orders. Apparently it seems CME will be bundling these trades again with precedence going to the "aggressor." Why was this important? Around that time I focused a lot more on the average trade size than I do today, though I still do occasionally. The theory goes that by watching the trade size you can determine the difference between the professionals and the amateurs as the we can assume the amateurs trade in a lot of 1 lots which seems to be backed up by "FINDINGS REGARDING THE MARKET EVENTS OF MAY 6, 2010" report from the SEC in response to the "Flash Crash." This is a fair assumption and I have written indicators in the past to identify this real time. The problem I found was trying to identify if the professionals were buying or selling at a particular point. Since I have evolved my study of price action within market context, I now have a pretty good feel of where pros and amateurs are entering and exiting, so the trade size is a confirming factor only for me. (If you’re interested in the the way I calculate average trade size just drop me an e-mail.) Some of you may find this much more important in your trading strategy, especially if you're using information based on tick charts, so this is one of the reasons I felt compelled to have a little discussion on it. Another reason is that this is important to traders is that with something as significant as a data stream or symbol change, I think the brokers should be a little more up front about it. So from what research I’ve done, the MDP 3.0 protocol will become the default in mid-September and the old “FIX/FAST” channels will be decommissioned in October 2015.
This means it’s changing, “ready or not here we come…” As with any major changeover I expect some brokers (and their platforms) to be caught with their respective pants down which would translate in to an error of one sort or another for us individual traders. Did you see the sentence "Markets will be halted for MDP 3.0 Issues...?" Be on the lookout for glitches and please do your own due diligence to find out how this might affect your trading BEFORE your sitting in front of a crashed or frozen platform with open trades. For those of you who have been following me for a while you know;
Trader Joe's Trading Rule #3...
"There's no room for stupid mistakes..."
...and that includes errors that could have been prevented with a little diligence ahead of time.
From what I’ve been able to find, some of the brokers have pitched a fit and announced that they are not going to change to the new feed as carefully developed strategies that rely on this data are instantly rendered useless. It sound like to me that brokers have no choice as the old FIX/FAST is being decommissioned, so if the old data format is offered, it will be one assembled and distributed by the brokers themselves, probably at additional cost to the subscribers at some point. It is only a guess but if brokers are going to create, offer and maintain a separate data feed to mimic the existing data traders are used to today, someone's gonna pay...
In a nutshell, EminiEdge traders using price action and market context with time based charts are not really affected directly by this change and might even notice some performance improvements during high volume time if the MDP 3.0 performs as expected. If you’re using tick based charts things are changing so be sure to talk to your broker.
From what I’ve read some brokers have indicated as follows:
I'll update as this continues to develop...
As always, Good Trades!
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