Pricing of Rolling Bets Out-of-Hours

Q. How do CMC calculate their rolling cash prices 1.) during market hours 2.) out-of-hours for the FTSE?


A: The CMC Helpdesk were very helpful in replying to my emails:

How CMC calculate the price they quote during market hours -:

Rolling Cash prices are calculated by applying the fair value difference to the underlying futures price of the relevant index.

Fair value is the theoretical assumption of where the futures contract should be priced given things such as the current cash index level, index dividends, days to expiration and interest rates.

The following formula is used to calculate fair value:-

Cash Index Price x (1 + (Interest rate x (days to expiry / 365)) - Dividends = Fair Value Fair Value - Cash Index Price = Fair Value Difference.


Rolling Cash price = Futures actual price - Fair Value Difference

Currently CMC is using the Dec Q contract to generate the cash price, when this expires the March Q will be used and so on.

Since the Futures actual price is more volatile than the Cash Index Price, one can expect the Rolling Cash price to diverge at times from the Cash Index Price, especially when markets open.

I realize that the formula I provided above for how CMC Markets calculates its rolling cash price is only applicable during market hours.

For the FTSE I assume the rolling cash price from 16:30 to 21:00 is based on the movement in the DOW unless something major happens in the NASDAQ. Generally speaking you can discount the S&P and NASDAQ. The Asian indices are very erratic and I have not found any real correlation in their pricing relative to these.

The main timeframe to safely extract a reasonable amount of profit tends to be between 6pm and 3am, I prefer not to wait for the London opening as one is thus exposed to the action of the big market hitters (on Tuesday evenings CMC will deduct X amount of points multiplied by your stake for ex-dividends at 10pm - this is another factor to be aware of). One important factor to consider is that this is only for those looking to obtain between 5 - 20 points per trade; definitely not for the greedy. If you are prepared to take on extra risk, it can be done with the DAX from 5pm to 9pm, the downside of this one is that if you get it wrong YOU ARE IN A WORLD OF PAIN and can find yourself out by 50 points when the market opens.

This will drive you crazy! - 12 or 13? (look at the image for few seconds)
This will drive you crazy! - 12 or 13?
(look at the image for few seconds)
Where does the extra man come from? don't ask me ;)

How CMC calculate the price they quote out-of-hours -:

I asked CMC how the FTSE out of hours price is calculated and they said:

"After the UK markets close, the changes in the UK100 price will be due to the changes in ADR prices. There are 42 ADRs, a list of which is given below.

American Depository Receipts
Amvescap 5%
Anglo American 3%
Arm Holdings 5%
Astrazeneca 3%
B Sky B 5%
Barclays 3%
BG Group 3%
BOC 5%
BP 3%
British Airways 5%
British American Tobacco 3%
BT Group 3%
Bunzl plc 5%
Cable & Wireless 5%
Cadburys Schweppes 3%
Diageo 3%
Gallaher 5%
Glaxosmithkline 3%
Hanson 5%
HSBC Holdings 3%
ICI 5%
Imperial Tobacco 3%
International Power 5%
Lloyds TSB 3%
National Grid 3%
O2 3%
Pearson 5%
Prudential 3%
Reed Elsevier Plc 5%
Reuters 5%
Rexam plc 5%
Rio Tinto 3%
Royal & Sun Alliance 5%
Scottish Power 5%
Shire Pharmaceuticals Group 5%
Smith & Nephew 5%
Tomkins 5%
Unilever 3%
United Utilities 5%
Vodafone 3%
Wolseley 5%
WPP Group Plc 5%

As you can see from charts, there will not be much activity in the UK100 price after the US markets close and you are right to think that they will follow the Asian markets and show a real effect in the case of major news coming."

Whilst CMC's reply is of some relevance, we must take it with a pinch of salt. They are not going to tell us the real way that they calculate it otherwise it would be very simple for people to make a mint after hours. How do they account for the pricing of the FTSE after the American markets have closed? By that time the ADRS have also closed so it is impossible to base the index on these prices.

Although the US markets close at 9pm (UK time) the S&P and DOW futures continue to trade and that is why the spread betting firms continue to adjust their quotes. During this time the FTSE will move directly inline with the DOW (have a look for yourself for a few days).

Once the FTSE closes the spread becomes 4 points and the DOW has a 4 point spread; so no disadvantage there. If you trade the DOW you are competing with the other market participants who have better information and deeper pockets, get it wrong and your stops get blown out of the water. On the other hand, by trading the FTSE you are trading against a computer module which does not have a human sitting there adjusting the prices every minute or so. You are simply making a value judgment in the first instance and secondly watching to see when the FTSE updates much slower than the DOW in the direction that you are following.

It is a very simple and profitable strategy to employ, without checking the exact figures I can safely say that my strike rate in this particular type of trade is in excess of 90% and I do not think that I have placed a losing one so far this year.

The reasons most people will not trade in this manner are (1) Too simple; (2) No fancy charts; (3) The foolish belief that the spread betting company will "hunt" their stops (I am not daft enough to have a stop of 5 points) and (4) A lack of imagination and ability to look for the simple things in life that nobody seems to watch.

On a different note; if you happen to trade UK shares, make a list of those that CMC trade after 4.30pm and watch their prices move relative to their closing prices and the rise/fall of the DOW. About 3 or 4 times a week they will hand you trades that can be closed for a profit at the market open the following morning. It is all a case of being patient and I am not the only one here that does this, problem is why hand out free information and in the main receive insults as reward.

They tout the advantages of using Direct Access and Futures Brokers without fully understanding what they are promoting as an alternative and the when a REFCO happens they cry that they have lost their trading capital. I am not a forex trader but I do know that in the main, CMC spreads are more or less the same as the brokers when it comes to spreads; that being the case, why on earth would you choose to pay tax on your profits by choosing the so called 'Professional Route' when their business modules are exactly the same (they act as principal)?

 ...Continues here - Systems Testing, Fair Value and More...

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