A: First it is important to understand that CMC Markets (we review CMC here) is a market maker and as such sets the applicable price - this means that their "price does not necessarily have to mirror the underlying market perfectly. They act as a marketmaker and as such set the applicable price." (Quote from their Helpdesk).
When it comes to the Indices (DOW, S&P, FTSE 100 and DAX), CMC do not spike their prices to take out stops. It is not a practical tactic to employ as this means that trades in the opposite direction will benefit from it and as such it will not yield any financial reward to the Company. Secondly, if you check the quotes of other spread betting firms you will find that give or take a point or two, they are the same. I would suggest that if that is the case it would involve massive collusion for them to be in line at all times. There is a tendency for people to blame others for their misfortune or errors and that is usually the case when people complain about the spread betting firms.
When it comes to the individual share prices, CMC definitely keep their prices in line with the actual share prices on the LSE allowing for their spreads. This has been the case for the last few years and I very much doubt if they are going to alter a profitable strategy.
Most traders are going to lose money even if they were offered zero spreads for various reasons, one only has to look at the overall performance of the so called 'Professionals' to realize that the only people that make money in the markets are those that do something different from the masses.
Personally I think CMC are one of the better spread betting firms, but I still would not leave stops in their system during out-of-hours in what is to all intent and purpose a synthetic market.
One additional tip with CMC is always watch the US markets when the FTSE has closed, they will move their price on a set ratio basis and only adjust it before the market open in the morning. Once you get good at it you will find it very profitable.
Finally, if CMC realise that they have a position on their books that has the potential to cost them a tidy sum of money they hedge or lay off part of the liability. This is very easy to do in today's financial markets and can still end up being very profitable for the Company.
CMC DOES have advantages for traders and you'll find that the tightest spreads are with CMC for equities. Unlike the others, who offer a fixed additional spread, CMC's spread depends on the liquidity at the time. Their worst spread is worse that all the others, but 95% of their spreads are far tighter than the others.
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A: The CMC Helpdesk were very helpful in replying to my emails:
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.
Therefore:
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 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) Where does the extra man come from? don't ask me ;) |
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)?
A: Spreads do vary, but which company is cheapest depends on the particular market you want to take a position on.
The difference in spreads is more significant if you are trading actively, e.g., intra-day betting on indices and share prices, where spreads could form a significant proportion of gross gains. In this situation, it might be worthwhile open several accounts with different companies and for each bet choosing the one with the cheapest spread.
If you are taking longer term positions, which in the context of spread betting I would personally define as a month or longer, the cost of the spread becomes less significant and it probably wouldn't be worth the hassle of opening multiple accounts. This is how I spread bet, and personally I currently use mostly Capital Spreads.
A: Perhaps naively, I asked the staff at IG Index whether betting on shares didn’t leave them at the mercy of investors armed with inside information. ‘Sometimes we do get caught out’, replied a senior figure, ‘but most of the time clients trading on information generally know less than they think they do.’
I guess that’s a clear way of saying that markets are broadly efficient and that share prices tend to be quite accurate. So if you do decide to trade on information, make sure it’s good information, not old news already discounted in the price.
Rather than reacting to stories, perhaps a more sensible approach is to go back to basics and study the businesses themselves. In fact quite a number of firms listed amongst the top 350 companies in London are household names which we often interact with. Sometimes we work for these companies or do business with them, or our family or friends do.
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Capital Spreads
now not only offer 1 tick FTSE Spreads... they are now also offering a range of small cap and AIM stocks & if you want to set up an account with them via me they offer you a £70 bonus after 2 trades – and I’d get £20 too! I quite like these win win things ...so click here if you want to open your account. |
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