#termmax If you look at fixed-income products too long, you develop a kind of inertia: first look at the yield-rate list, pick the highest one, and click. But in an order-driven structure like TermMax, this inertia is precisely what makes you most likely to miss out—because the interest rates shown on the page only represent the batch of orders that were matched in the past; they don’t mean you’ll get the same price the moment you place your order.
The FT certificate for @TermMax is essentially a zero-coupon bond: it is redeemed at par at maturity, and your return comes from the discount at which you buy it. The issue lies in that “at which you buy”—the discount you see is a trace left by someone else’s previous execution. Your actual matched discount at the time you trade depends on how much demand there is from buyers then, and how deep the order book is. Prices at those two points in time may differ by several percentage points.
That’s why, even with the same maturity bucket, different people can end up with different effective costs. In a deep market, large orders entering and exiting cause smaller slippage, and the discount you get is close to the ideal value; in a shallow market, a single order can skew the price. In this sense, what’s called a “fixed interest rate” isn’t really “the same for everyone,” but rather “the price you execute at—once it’s set, it doesn’t change.” $SPCXB
So when I evaluate a TermMax market, I don’t first dig through historical yield rates. I’ll first check whether both sides of the order book for that maturity are thick enough, whether the discount rates from recent trades have been wildly oscillating, and how much impact my own order size will have on the current price. Numbers can lie; depth won’t.
Locking in the rate on paper is easy—getting your funds into and out of the market at that price is where the truth is. $SNDKB
Would you give up a seemingly high-yield maturity because the market depth isn’t sufficient?
@TermMax