A: You can generally get in depth data from anyone of the data suppliers...bloomberg/reuters/telerate/tenfore/digital look...etc. But it is not 'cheap'. There may be delayed data you can access for free, I would suggest that you look around the threads on T2W or advfn. I am sure that there will be extensive discussion over this very subject.
Level II data is often used by momentum traders in less liquid stocks but much activity is now hidden by traders (as they do not want others to know what they are doing until they do it). Currency level II would be pretty useless as there is generally huge volume both sides (except over economic figure releases).
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.
|
|
|
|
|
|
A: Colour changes are only used on Level 2 for SEAQ (i.e. market-maker only) stocks. On SETS/MM (i.e. hybrid market-maker/order book) stocks and pure SETS stocks, black is always used. (Except on old Level 2, where unchanged prices on SEAQ and SETS/MM stocks are in green - much better contrast IMO, which is why I always use old Level 2).
In other words you only get what you're seeing with SETS (and SETS/MM) traded stocks for some reason. If you look at purely MM-driven stocks you only see the red/blue changes. Most of my trading is in MM-only-driven stocks so not sure why they use black elsewhere!
Hope this helps.
 |
A: I have it on good authority (from more than one dealer at Selftrade) that every single potential trade, including those "dummy" trades that many people such as myself make of, say, only 100 shares for the purpose of attempting to gauge the demand for a stock at any one time, can be seen by the market makers.
Furthermore, I have noticed on many occasions that when I test the market in this way - particularly when putting in a larger quantity of, say, a few thousand shares - Level 2 often changes straightaway; in particular, WINS may go up or down (depending on whether the dummy trade is a buy or a sell). Also, the dealing quantities are likely to change, seemingly as a result, so whereas the system might have accepted 5000 shares before, it will now only accept 1000 or even fewer.
Now, of course, it is impossible to prove that this isn't all down to coincidence. It's just that it has happened so many times that I think it is not. And furthermore, the price/dealing size nearly always change in a disadvantageous way - e.g. if I'm thinking about buying, and thus put in a dummy buy trade, the price goes up and/or Level 2 strengthens, and the buying quantity/improvement on offer price shrinks!
Which is why I now tend to be pretty cautious about putting in too many dummy trades for a share which I am very likely to want to buy or sell; and tend only to put in those small 100-share quantities as a test, as this is less likely to lead to the MMs changing their prices/cutting online dealing sizes in response.
This is what I've been told by dealers who I respect and trust; they visit market makers' offices from time to time, so I have no reason to doubt them. I suspect that MMs only watch dummy trades on shares that happen to be "active" at a particular time. A bit like our old friend Mr. Treeshake, in fact - MMs are not going to expend effort on shares that aren't moving/being traded much.
A: The trouble with indicators is that there are too many of them and a number are just duplicates of each other. Just to mention a few -: Relative strength index, Bollinger Bands, Head and Shoulders, Double Tops and Bottoms, Trendlines, Candlesticks, MACD, Moving Averages, Momentum, Support and Resistance, Coppock, Breakout, Average True Range, Accumulation index, Fibonacci levels and Pivot Points…you could of course also go the exotic route and have Gann’s square of nine, Murray Math or even Pryapoint or Grid lines using square root of price...phew there’s just an awful lot...
No doubt an increasing number of traders are learning about technical indicators and will use them to make trading decisions. Indeed some people will spend hours and hours trying to find that holy grail combination of indicators that will help them find the road to fortune. The fact is that no technical analysis tool by itself will give you reliable buy or sell signals. There is no magic blackbox and the fact is there are few indicators more appealing than a simple plain price and volume chart. Sure, some other indicators coupled with these might give you a heads up where something might happen but the price action with a bit of volume analysis will tell you what is happening. Combining this with discipline and adequate trading capital has been the road to success for many traders.
A: With regards to the rolling bets you will normally find that these get rolled on a daily basis. This rolling takes the form of one bet being closed and a new one opened. If you check the levels of this opening and closing you might find that they differ slightly and this is to reflect the cost of carry which you are asking about.
Rolling and Monthly contracts both operate in the same way. You need to understand that the contract which you are betting on is the firm's version of that contract. The monthly contracts are therefore calculated through mathematical formulae by taking into consideration all know events between the current date and the expiry date of the contracts. The monthly contract has an interest premium priced into it which decays over the course of the contract which in turn means that slowly the futures price draws towards the cash (or rolling) price as time goes forward. If you are long the cash at ex div then you get paid the dividend and if you are short the cash then you have to pay the dividend.
A: When you do a quarterly bet then all you pay is the spread. If you do a daily rolling bet then the spread is much tighter, more like the spread found in the market but you pay a finance charge each night (or get paid one if short) based on a formula your spreadbet company will provide.
So with some spread betting companies you can do a daily bet which expires same day. Or a rolling bet which settles each day and automatically reopens next day, and continues doing so till whenever cancelled. Or a 'near week' bet which you open on any day but which expires at close on the coming Friday. Or a 'far week' bet which you open any day and which runs to the Friday of the next week. Or a bet which runs to the end of a month. A 'near quarter' bet (at present expiring September 19), or a 'far quarter' bet expiring December 19 (quarterly bets expire on the Tuesday before the third Wednesday in each third month, i.e. Mar,Jun,Sep,Dec). One or two firms will take a 'distant quarter' bet expiring say next March - but the longer the timeframe the greater the spread they add on top of market spread - and the further away their quoted spread is likely to be 'centered' in relation to where the market spread currently is.
The spread they add for each timeframe is to a known formula - so you can always work it out yourself before you contact them (adding it to the current market spread) - but the positioning of it (i.e. how far ahead of or behind the current market price) is something they are free to vary - usually affected by what's going on in the futures market for that stock or sector. Use a rolling bet for anything up 2 weeks, a futures/monthly bet has the interest calculated into it using a wider spread and no daily interest charges added each night.
Some spread traders may disagree with me but daily rolling is cheaper only for short term bets and only on larger bets, otherwise quarterly is best. I held Burren on a rolling quarterly spreadbet for nearly 2 years. Expensive relative to holding the shares but all the while my capital was working hard for me elsewhere. It wasn't a plan, it's just the way it worked out.
I choose my date based on how long I envisage keeping my position. Rolling bets are good for intraday trading because you will not pay any interest. However a word of caution most spread bet accounts do not roll over bets where you do not have enough available funds in your account so I would only use rolling if you are sure you will have spare funds overnight. Many people (I have been) are screwed overnight if they have insufficient funds to cope with fluctuations out of trading hours. You only want to close a position when you judge not because you are forced to.
Having said this my spread bets are nearly all quarterly ones - with expiry dates (if not closed sooner) in Mar, Jun, Sep, Dec. In which cases the spread quoted incorporates all costs, and there is no separate calculation of, or billing of, interest. One disadvantage of this (but which doesn't trouble me) is that the spread (incorporating whatever interest element) is calculated on the basis of the bet running full term, even if closed sooner.
In order to encourage clients to continue betting by rolling into the next quarter, firms tend to offer special discount terms during the final week of each quarter - which means the standard terms go outta the window. But they isn't a significant issue anyway, imo (others who are trading ten times my scale might disagree!). Incidentally, you can roll part of a bet and let the remainder expire (though you need to be talking with a dealer who knows that, as some juniors seem unaware).
P.S.: If you have several bets to roll, and you want to save a shilling or two on phone calls - you can email them a list of positions you are interested in rolling and ask a dealer to look at them and phone you back ;o)
A: I rarely buy on news, because in at least 7 times out of 10 cases (at least on the - market-maker - stocks I trade), the price is marked up before I can buy, rarely then going up much further, and then is gently (or not so gently) dropped, leaving yours truly nursing a loss. What is important is the ability to react appropriately when not first in the queue for that news.
If a positive news release is timed at say 12:15pm, and you see it at say 12:17pm, how long have you got before the news-driven reaction reverses and it's no longer worth clambering aboard? How long before the next wave of positive reaction kicks in? On a stock held mostly by big-volume institutional players, the pattern will differ from that of a stock held mostly by thousands of private investors.
The old saying "Buy on the rumour, sell on the fact" has a lot of merit IMO.
But the best way to answer the question you posed is to trade. And make mistakes. And then analyze and learn from those mistakes. And then refine your system to reduce the mistakes. And keep on, endlessly, patiently, plugging away, until you have a system that works for you. No-one else can do that for you IMO, even though we can give advice on particular points (e.g. how far away to place stops).
I suspect that most traders learn to trade this way - and are still refining their respective systems. I honestly think that you can learn a lot more from doing it yourself than endlessly reading what others have to say on the subject - useful though the latter undoubtedly is.
A: Yes, but the charges and spreads is a big difference. If all you want is a long term tracker then spread betting the FTSE 100 is unlikely to be the best idea.
With the FTSE around 6100, each £1 spreadbet is the same as buying £6,100 in a tracker. i.e. if the FTSE rose 100 points then (before charges and spreads) £6,100 in a tracker would be worth £6,200 (a £100 gain) and the 100 point gain on the spread bet would be worth £100.
Working the other way, £1,000 in a tracker is worth (1000/6100) about 16.4p as a spread bet. i.e. a 6100 point rise in the FTSE (for ease of the mathematics) would mean a £1,000 profit in the tracker and a (6100*0.164) £1,000 gain on the spread bet.
A: Not trying to be condescending but by implication Tom, you are willing to bet up to and beyond 47 grand [(5825-4250)*30] that your bet (it's a bet let's face it) is correct. I don't consider that more prudent than active trading with stops and reassessments. Us day traders will step back and review after 20, 50, 100 points. You are going to stick it out and leverage up for 1600 FTSE points. In 1929 it took well into the 1950's to hit the same levels. Not saying we are there now, but there are no certain bets...
As for the risk-free technique of a £1 bet on the FTSE account I think you are missing the point, which is had you of invested in 2000 at a reasonable level of 6000 points (remember the high was 6700) for that period, you would have caught the fall and were you a greedy investor wanting to cash in at say 6500, you would have had to wait almost 6 years till your investment made a profit, this forgetting about the interest your spread betting company charges while if you had your cash in a bank, and made an average of say 5% per annum, the index would have to be 300 points higher each year to make a profit - in other words the cash in the bank would have made the equivalent of 7800 by today, forgetting about compounding.
Longer term trading or investing has to take into account inflation. Short term trading doesn't. I'm still amazed how some people who work in the city still don't understand the ravages of inflation.
It is false to assume that spread betting is easy money, better to have clear entry and exit strategy and look into making modest profits (perhaps 50 points), and know when to cash out.
A: Sort of yes. Although a direct offset like that (holding a FTSE tracker whilst short selling a FTSE spreadbet) might not make too much sense - why not just sell a percentage of your FTSE tracker instead? (although there can be a good reason - see below)
Hedging in this sense I'd take more to mean that if you hold a selected basket of stocks, you might short sell the FTSE - so that if the market in general goes down you'll be covered - but if your stocks outperformed the market even when trending downwards then you still benefit (another way to short-sell is using options).
I personally think that spreadbetting can have a place as an investment tool as well as for 'speculation'.
You certainly need to be aware of the difference in charges but a lot of it also comes down to mindset. If you can convince yourself that holding a spreadbet is just another way of buying the shares then you can use it in a more classical investment rather than speculation.
Certainly spreadbet charges are (generally) higher and you pay interest over time, but there are other counteracting benefits.
Imagine you want to sell some shares because you think they are now pricey. But you've used up your CGT allowance for the year. You can -:
I personally think that great care is needed with the "mindset" side of using spreadbets, but IF you get that cracked they are a useful additional option to have in your toolkit.
A: It's worth recapping how dividends are applied to individual share spread bets first.
If a company X currently has a mid price of 100, a futures spread bet may have a mid price of 105 (the extra 5 being effectively the interest charge you pay on the spread bet) .
If company Y is also currently at a mid price of 100, but is due to yield a 2p dividend during the period covered by the spread bet the spread bet will then be 103 (105 less the 2p dividend) i.e. you effectively buy the shares "ex-dividend" and pay the ex-dividend price.
It's quite easy to see this factor in play with individual shares - whereas the share will drop by 2p on X-dividend day, the spreadbet will not move.
Exactly the same approach is taken for Indices - it is, however, much less easy to see in action - A share will typically yield 1-2% twice a year but an index is more likely to yield a fraction of a percent up to 52 times per year.
How do we then know that what I've said actually does happen for index bets?
Firstly IG Index appear to confirm this in their dealing handbook (although I'd stress that if you want to be sure you should confirm directly with you spread betting provider).
Secondly it effectively 'has to be' true. If the index bets did not include dividends there would be an effective bias that would make shorting the index via spread betting more attractive than longing it.
In fact it might even create an arbitrage opportunity to buy the underlying index and receive the dividend whilst simultaneously shorting the index spread bet and gaining advantage of the price falls that result from shares going x-Dividend. It would probably be a pretty thin arbitrage, but I don't think market forces would allow such an inefficiency to exist.
FWIW, though I think generally investors would do well to steer clear of indices because they are much harder to gain any 'edge' on than individual shares - it is easy however to con yourself into thinking you what's what (I seem to recall that a large proportion of people who lose whilst spreadbetting do so because they play the indices).
The only rational reasons I can see to 'play' the indices are:
A: I'm not sure of your level of knowledge here so if I go down into detail that you already know you'll have to bear with me.
With spreadbets you only actually lay out cash for the margin component of your bet, so you are in effect borrowing the rest of the money to buy the shares from your spreadbetting company. They charge you interest on this.
There are basically two types of spread bets - quarterly and daily.
In the case of Quarterly Bets the interest is included in the price - spelling this out more clearly with a real example -:
THUS (I've chosen THUS because they don't yield a dividend which confuses the calculations)
| Bet | Mid price |
| Daily (expiring 2-Mar*) | 182.50 |
| Qrtly (20-Mar) | 183.00 |
| Qrtly (20-Jun) | 185.79 |
| Qrtly (20-Sep) | 188.57 |
So you see you pay a 'premium' for the futures bets and the premium increases the further into the future you go. (This amounts to a compounded interest charge of c. 6% pa currently).
If you bought (or sold) the September position and the price of the underlying stock did not move at all up to 20-Sep the price of the bet would gradually erode to close on 20-Sep @ 182.5 so you would have paid 6.07 for holding the position (or if you were short would have been paid 6.07 by the SB company).
Simply that's the interest on a quarterly SB. You need to be aware also though that when you buy and sell spread bets you also pay the Normal Market Spread PLUS the spread betting companies spread (and the SB spread becomes slightly wider for the longer term positions).
For daily spread bet positions you pay no interest on the day, but if you want to hold the position open into a second day, the bet will 'roll-over' closing at the first days closing mid price and re-opening at the second days opening mid price - you will be charged interest separately for the roll over.
Please note that this reflects the way both IG Index and treat interest - other spread betting companies might vary from this slightly but the basic principle ought to be the same.
* IG Index don't actually quote the value of their daily positions when the market is closed but I've based the 182.5 on the market mid price at close which should have matched the closing mid price of the IG daily spread bet.
A: The future price is based on the cash market plus the funding costs, you are correct there is no futures market and therefore the spread betting company is unable to accept market orders for the future contracts because they do not exist, all orders for these contracts are basis of the provider's quote. Also, the future price of a share will often be slightly different to the price trading in the stock market when taking into account the fair value (interest and dividends).
Thereby, the future price is traded at a price which reflects the interest advantage and the disadvantage of foregone dividends. A future price can be adjusted at any time if a share is expected to go into ex dividends (pay out of dividends).
It is not normal to open a future price that is lower than the cash market due to the funding charges - they include the implied interest cost of holding the position from today to the expiry date. Typically dividend yields are less than interest rate adjustments and forward price therefore trades at premium to the cash price. However some stocks with high dividends can mean that the forward price trades at a discount.
So to address your question - such a situation is possible, if a dividend payment is due in this period - in the case of Bradford & Bingley there is a dividend due for payment on 19th March so this would be included in a Sept contract but not in March. The futures price will decay as it gets closer to expiry and will exactly reflect the stock price on the final day. There is a direct correlation between the movement of the stock price and the movement of the futures. Other that this, the price is usually higher as these is a 'cost to carry' factored in. If you keep a long position for a while, you will be paying a financing charge each night, obviously, over time, this adds up. You do not pay financing on a quarterly position, as this is already factored in.
Therefore when considering a hedge on a specific daily price against a future, consider the calculation of a future price :
price = cash price + cost of carry - dividends.
Therefore a rise in a daily price will have an effect on the future however there are other factors to incorporate when doing so.
You can indeed open a short position as a hedge against your long term position, so if you were in the Sept contract you could do a rolling or March against it. You cannot open a short in the Sept contract though as most providers do not allow it and would simply close your open trade (except for IG Index which actually allows you to open a Sept long and short position on the same instrument - to do this you need to make sure the 'Force Open' button is selected on the deal ticket)
Hope that answers some of your questions but feel free to send me queries, comments or concerns at traderATfinancial-spread-betting.com or by filling in the form below :-)
Please do not copy/paste this content without permission. If you want to use any of it on your website contact us via email at 
traderATfinancial-spread-betting.com (remove the AT and substitute by @).
