Trading After-Hours/Out-of-Hours with Spread Betting


Q. I noticed that the FTSE daily is open on IG before even the UK market was open?


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I thought FTSE opens 08:00 GMT and closes 16:30GMT? The spread on IG Index before the market opens is about 6 but comes down to 2 when the market opens. So how does it work?

A: Some providers like IG Index and CapitalSpreads quote the FTSE on a 24 hour basis. During market hours the index mirrors the futures and after-hours IG Index make a price based on other futures movements (like the Hang Seng, Dow, ASX...etc) and business. The spread betting firms cover themselves by widening the spread out of hours. Often to 6 points between 16:30 and 8.00.

Note that this doesn't apply just for spread betting by the way; there are 24 hour global markets for the major indices (Globex markets). The spread betting providers will constantly adjust their prices based on the overnight movements on these 24 hour global markets. One such company that deals in 'future' contracts is Euronext (http://www.euronext.com/landing/landingInfo-1896-EN.html). The global markets for indices do shut over the weekend - and so do the spread betting providers (some stop quoting prices at 9pm on a Friday, some at 10pm and some at some point between).

So if you think the market will initially drop 1% but IG Index are already discounting this by quoting it down 1% you should stay out as you are basically dealing where it will go from there (rather than where it will head relative to last night's close).


Q. I just can't get my head around the out of hours trading on the Daily FTSE...


My real-time esignal chart shows an opening at 5279 yet the IG Daily FTSE was trading at 5259/65 at 7.59. Did the market really open at 5279 and if the FTSE is a reflection of the price of the constituent share prices just how does this out of hours trading work? I can understand the market makers pricing the shares down on opening but what 'causes' the out of hours prices to be so different from the previous day's close without the FTSE data having been available?

A: In short, although the FTSE is a 'reflection of the price of the constituent share prices', the FTSE market the spread betting companies offer is slightly different. Their spread reflects what they think the future price of the FTSE will be.

Let me give you an extreme example. FTSE closes at 5279 and then overnight, BP goes bust (run with it). Now, you think the FTSE is going to open at 5279 so you can short it and obviously the FTSE is going to drop dramatically given the news - everyone knows this, everyone expects it. But by how much? Well, a good guess is the price you see on IG index just before the open. That price trades out of hours and that price is based on trades made in light of the new news (amongst other things).

You will never have the opportunity to sell at your price of 5279 because a) the market makers will mark down the price of BP before you can trade it - and they will do this probably with a barrage of sell orders from people looking to sell. And also, the spread betting companies show a price well below your 5279. In these days of 24 hour trading, the FTSE (traded spread) price moves 24/7. The open hours really only show you a small part of the day.

So during the day the spreadbetters FTSE price is the futures price adjusted for cost of carry to give the 'cash' price. Add to this a bit of adjustment for the house position if required. Once the FTSE futures close, 5.30pm, the price is a function of other markets. I.e., roughly every 2 point down move on the Dow = 1 point down on the FTSE. If the US and Asian trading sessions have a nightmare they may well drop their opening price by 50-80 points for the previous day's close and vice versa. I.e. because that's where they think the market will go. Obviously they move round the world markets until 7am when the European indexes open and they get a good idea of what will happen in the UK. Of course they will adjust for an increase in commodities (or big corporate news, etc) which is generally positive for the FTSE whilst negative for the Dow.

Q. What happens in the FTSE during 7-8am and 8-9am, is it something to do with market makers setting prices?

A: The FTSE before 08.00 is quoted by the spread betting companies using what information they can get on pre-market order levels / on the activity in the dow and S&P over night and on the Dax index. It is a purely spread betting created market with no absolute correletion anywhere else.

Between 08.00 and 09.00 the price quoted by the spread betting companies may deviate significantly from the FTSE 100 index because it takes quite sometime for all the stocks to come on line. Sometimes even quite large FTSE 100 stocks have not uncrossed before 08.20. We quote a spread based from the Futures market which can get a little hairy over the open.

Q. 24-hour dealing not...I can't seem to place say a bet on the FTSE when both the FTSE and DOW indices are closed?


For instance I can't seem to place say a bet on the FTSE when both the FTSE and DOW are closed but I do seem to be able to place a bet on the FTSE when the FTSE is closed but the DOW is open? What about the Nikkei - am I able to place a bet on the FTSE when both the FTSE and Dow are closed but the Nikkei is open? Also, can I trade stocks when the underlying markets are closed? Basically I need clarification on when exactly (and which markets) I can trade when the underlying markets are closed.

A: Both the FTSE and the DOW trade 24 hours a day. There is not a time when they are closed, regardless as to whether the futures on the FTSE and Dow are trading.

In fact with some providers like IG Index, you can take a position in the FTSE or Wall Street at any time, 24-hours a day, between Sunday night and Friday night. Others will restrict the trading times to certain time brackets - say the FTSE from 7am to 9.00pm and the Dow from 7am to 9.15pm - always best to read the provider's dealing handbook for full details.

The Nikkei usually trade the below hours.

Index ASIA NIKKEI 225 SIMEX JAPAN 00:45 03:15 04:15 07:30
Index ASIA NIKKEI 225 CME US 09:00 21:15

You cannot trade stocks when the underlying is closed.

Q. Can you let me know the implications of trading markets out-of-hours?

A: Some spread betting providers offer after-hours trading on some markets with some of the markets now being quoted round-the-clock. For instance in the case of quoting the 'FTSE' outside normal market hours the spread betting providers will be basing their quotes on the relationship between the FTSE and the closely-correlated Dow, S&P, Nasdaq and DAX.

Extended hours trading allows for more flexibility (since you can enter or exit a market anytime you like) and the ability to trade outside of normal market hours which means you can effectively trade a market when the real underlying market is closed (for instance trading the FTSE overnight). However, it is important to note that when you trade on out-of-hours prices the spread betting company is acting as a pure market maker or bookmaker essentially making up the stock index futures prices based on what the correlated markets are doing and the business on their books. Additionally, the spreads tend to be wider and maximum trade stake sizes might be reduced. The implications of trading at this time are, basis the wider spreads - orders may also be triggered when they would not have done during in-hours trading (which means that a stop loss can still be triggered out-of-hours). It should still be possible to open and amend positions during after-hours trading.

Different markets are priced differently out-of-hours. For example, indices are priced from other world indices that are in hours and also from the volume of trade that the spread betting company might see coming through from other clients.

Spread traders trading during such times are taking on a higher level of risk but some actually see it as bargain hunting, in effect speculating on the day ahead. Having said that you are probably better off not spread trading after-market hours as the spread betting providers will be quoting their own indicative pricing. In other words you have nothing to compare the price against if you believe you were erroneously stopped out. It will be the price they quote and not the market price of the index...

Q. Why don't spread betting firms allow trading on the FTSE 100 shares round-the-clock in a similar way you can do with indices?

A: The answer quite simply is that FTSE 100 firms trade on the LSE (London Stock Exchange) which isn't open on a 24-hours basis. So you can't spread bet on the movements in NEXT stock at 4 am in London as NEXT isn't trading at that time. Of course the LSE could extend its trading times but this is unlikely to happen as there isn't sufficient demand as most trading on blue chips is done by banks and investment companies that do most of their trading when the exchange is open.

Note: A number of years ago the LSE decided to move the start of trading to 8:00 am so they could match the hours in Frankfurt. There was an outburst when they told the big traders this, no one wanted to support it. Finally they got it through, but there is no possibility 24 hour trading will happen anytime soon.

Q. But I've seen one company on AIM last night - how do people go about making deals after the bell/before morning bell as it shot up 30% at about 7:55 this morning?


Saw news on Toledo last night, being AIM I couldn't buy it anyway but it does raise the question for me on how do people go about making deals after the bell/before morning bell as it shot up 30% at about 7:55 this morning.

A: An off market deal is really two people - a buyer and a seller - sitting down and doing a deal. You wouldn't need to use a broker - maybe just a solicitor to ensure the agreement is properly drawn up. It's really not a lot different from buying or selling shares in unquoted private companies - normally done through the company secretary who matches those who want to sell with those who want to buy.

Legally you can buy and sell shares at any time of day you wish and any day of the week. If you want to trade on the market - obviously this has to be done when the market is open...but you don't have to use the market. The market only exists because it's convenient for buyers to have access to large numbers of potential sellers and vice versa.

Shares are assets - and when you sell them and when you buy them is up to you and the other party. If you want to buy or sell at midnight on Christmas Eve it's perfectly legal to do so - all you need is a willing buyer and a willing seller.

Q. IG Index - why do they quote after hours spreads based on the closing price, rather than the bid/offer?


I'm asking due to some of the small spreads on the less liquid shares - I don't see who would find this useful?]

A: IG Index do not make out-of-hour spreads on shares. The spread that is evident is merely an indication of where the share was trading at the close of business. However, they are not tradable during out of hours.


 ...Continues here - Pricing of Rolling Bets Out-of-Hours...


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