Strategies · Library · Commodities
§9.2Liquidity
Trading based on hedging pressure
Weekly regulator reports show how long hedgers and speculators are in each commodity. Split by speculators, then pick by hedgers; buy one end, sell the other, hold about six months.
- Asset class
- Commodities
- Held for
- Months
- Data
- Needs data ARCANE lacks
- Symphony
- Cannot be built as a symphony
The rule
- Signal
- Long share of contracts held by each group.
- Entry and exit
- Hold six months then reform.
- Sizing
- Zero-cost long-short.
How it fails
- Report lag
- Few markets
- Short leg
Data it needs
- weekly positioning reports
- futures prices
No positioning data.
How ARCANE uses it
Not usable without positioning data.
Needs positioning data and shorts.
Filed under the liquidity card
Thinly traded assets pay a premium for being hard to sell. Hold them for it in calm markets; when trading thins across the market, cut size and move to the most liquid way to hold the view.
A paper plan from this card holds 21 to 252 days, stops at 2× the expected move and uses at most 50% of your risk budget. The card
Source: Kakushadze and Serur (2018), 151 Trading Strategies, §9.2, p. 91 of the SSRN version. Described in our words. Liquidity is ARCANE’s filing, not the book’s.