Hello I am wondering if it is possible to trade many contracts in illiquid markets, particularly in futures. Using market orders I mean, no limit orders. I have an RJ'O Brien demo account and seem to be able to trade in illiquid markets, but before I go live I would like to have an idea of this is possible or not. Sometimes of course the bid-ask spreads are wide, as to be expected in illiquid markets. That's not an issue for me.
Define "large size" Personally, trading off a 1M TF, I would venture to say that the most would be 10 ES contracts using market orders --- more than that and I would expect 1 point worth of slippage.
Demo accounts will give you the illusion that trading thin markets generates zero slippage, but the minute you start trading with a real account things change dramatically. Stay away from markets with no liquidity, you will get crushed in the long run, especially with large orders. In the futures market anything above 200 contracts is classified as a large order and must be reported to the CFTC by the way.
I am getting slippage with the RJO demo though, they are one of the largest brokerages out there I believe. But mainly what I'm asking, is if it's possible to add to winners on illiquid contracts in the live market. As in my demo I get an unrealized profit, that is not necessarily actual profit, just the difference between Bid/Ask and last price. Which gives buying power.
Can you add to a winning position? Of course, but on illiquid contracts (like Canola, Bitcoin or Brazilian Real futures, for instance) the market can suddenly reverse on you for almost no reason and next thing you know you have margin calls left and right! Stick with extremely liquid futures contracts, e-mini S&P500, 10-year notes, T-Bond, crude oil, gold, soybean, corn, stuff like that. Unless you know something that we don't, like that Orange Juice report that ruined the Duke brothers.... hahahaha
Thanks for the info Tradex. Any market with a good potential setup interests me, therthe I take an interest in illiquid futures is that they can have quite good volatility. Here is a screenshot of December 22 Gold I currently have open in my demo.
Obviously you can't daytrade large size on an illiquid instrument, simply because you can't have any fills at your desired pricepoints. What will get you is the settlement price each day. That will move up and down like gangbusters, depending on the action in the book. If you wish to try some illiquid fills, try an equity index future one contract month forward. For example, ES December. It is kinda' illiquid, but still gets some action.
Of course they have "good" volatility... because they are illiquid! But it does not mean that the trader can consistently profit from them, just because they are volatile, far from it.