Big ED

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Big ED is a trading program originally created by Defender Capital Management, Inc to trade Eurodollar futures contracts. The program, along with its companion Maple Sugar, was sold to John J. Lothian & Company, Inc. in 2004.

The program is now inactive, but managed by John J. Lothian Managed Futures, LLC, which was created in 2011 to transition the managed futures business of John J. Lothian & Company, Inc. to a new entity.

Program Background

The trading program was designed for trading accounts capitalized at less than US$50,000. Creating a systematic trading program for ultra-small accounts is commonplace; many emerging CTAs target this market segment as the place to begin building their performance record. However, it is unusual and challenging to create a program for small accounts that effectively scales its positions to control risk, and keeps per-trade risk at a low percentage of the account's value.

Big ED's goal was exactly that: to provide a futures investment vehicle that could scale its exposure to the market trade by trade in such a way that large and small accounts alike could participate at reasonable levels of risk.

The Eurodollar market was selected for three reasons:

  • Defender had recently closed its Treasury Bond program, and wanted to create a new program to trade interest rates
  • The liquidity in the Eurodollar futures market was tremendous, suggesting that reasonable fills could be obtained whether trading a handful of contracts or hundreds at a time
  • The day to day volatility in the market was typically small enough that even small accounts were not regularly exposed to inappropriate risk when taking positions.

Program Structure

The program trades based on Defender's core philosophy of, "follow the market, don't guess the future." Trades are taken as the market appears to be reversing into a new direction.

Losses against new trades are usually taken fairly quickly, in the belief that if the market is going the wrong way, the system isn't following the market like it should. Gains are left to run for as long as the market appears to be consistently going in the trade's direction.

The net result is a system that initially behaves in a short-term manner, quickly reversing and occasionally taking small profits in congestion, and switches to a trend-following mode once a sustained move develops. This design works around a particularly irksome problem with more traditional trend-following systems: Many approaches require an extended period of market motion to prove that a trend is forming, before starting the trade. Defender found that too often, these verification periods contained the lion's share of a smaller trend, rather than presaging the arrival of a huge market move, and that by waiting until the small trend was almost over, a lost profit opportunity was combined with a loss for joining the move shortly before its reversal.

The original program was fully mechanical. However, after Defender sold the method and rules to JJLCO, the system's execution was combined with discretionary elements in a move to improve performance by interpreting its signals rather than following them blindly.

Why "Big ED"?

Jonathan Matte, president of Defender and the system's developer, sought a name for the program that had a humorous edge to make it stand out a bit from the usual dry CTA naming conventions. After rejecting a long list of names as being too risky, too edgy and just downright weird, Defender's management and marketing team finally agreed that "Big ED" was a reasonable alternative. The name plays on the contract symbol for Eurodollar and the trading liquidity in that market, and hopefully also evokes an image of some tough little scrappy guy named "Big Eddie" who bounces back for more after getting knocked down.