Indice trading Question IG Markets

OK, I was going to go long the dow yesterday with IG Markets.

The dow wasnt refereed to as the dow, but as 'wall street,' i assume that's it.

Unlike the FTSE 100, wall street didnt match the dow exactly. but is roughly the same at 12800 points or so, maybe 100 out.

Why is this? is this a dffrent indice, ayone know where i can trade the dow?

irishneil said:

OK, I was going to go long the dow yesterday with IG Markets.

The dow wasnt refereed to as the dow, but as 'wall street,' i assume that's it.

Unlike the FTSE 100, wall street didnt match the dow exactly. but is roughly the same at 12800 points or so, maybe 100 out.

Why is this? is this a dffrent indice, ayone know where i can trade the dow?

Click to expand...

Where were you getting your 'Dow' price from? Let me guess, Ceefax or some other delayed data source like Yahoo?

irishneil said:

OK, I was going to go long the dow yesterday with IG Markets.

The dow wasnt refereed to as the dow, but as 'wall street,' i assume that's it.

Unlike the FTSE 100, wall street didnt match the dow exactly. but is roughly the same at 12800 points or so, maybe 100 out.

Why is this? is this a dffrent indice, ayone know where i can trade the dow?

Click to expand...

Probably comparing a spot cash price with near month futures ?

yea yahoo,

and this indice was allowing people to trade before the exchange opened at 13:30 gmt.

def was the 'wall street future'.

Confused :/

The FTSE 100 works fine.

bump

You answered your own question here – “Wall street FUTURE” . It’s not the same as the DJI or “Wall Street Cash”. It’s a futures contract, and hence will be priced for the expiry date which takes into account future dividends and zero-risk interest rates.

irishneil said:

bump

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Call them and ask them. You should check exactly what it is that you are punting on.

"Wall Street" is Dow, but they will do several different versions. One is their cash version. Many bucket shops are notorious for shall we say "irregularities" with these instruments. The price is derived from the output of a random number generator - at the moment I think IG is using the machine that picks the balls for the mid-week lottery draw.

Then they will also have their versions of various futures contracts - there are four of these each year, the current one being June (the actual instrument is YM M2 - YM is the Dow code, M is June, 2 is 2012).

In fairness to IG, when I used them (Index rather than Markets) their front month futures contract was pretty much spot on. They used half points which obviously don't exist, but the price was always within half a point of the actual value. Of course, they charged a four tick spread as well, which I was happy to leave behind...

Sorry wrote the below on a stale page before i saw Leapord's posting.

I think the point is , its a Daily Funded Bet, which will have a cost associated with it.
My guess, the FTSE DFB seems to match the spot shown on BBC website closely due to the low cost of funding, since IG is a UK based company.
Dow cost of funding is higher and hence does not match the spot shown on Dow Jones ? Business & Financial News, Analysis & Insight.
I have found IG help desk to be quite helpful, maybe one to get confirmed with them?

Cheers!

Why can you trade Indices on IG when the market is not open. Is it in anticipation of what will happen when the market opens?

It's priced based on movement in other indices that are open i.e. SP/Dow during US session Nikkei Hang Seng etc during Asia session.

irishneil said:

Why can you trade Indices on IG when the market is not open. Is it in anticipation of what will happen when the market opens?

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Hey IrishNeil

Remember Brokers can do what they want.....if they refer to a indice or Market product then quiz them on what they are doing and test the correlation

they are just bookmakers ..........thats it...... they could offer a fly up the wall race if they want and people had confidence in the facts ....

this is quite a good thread here....

http://www.trade2win.com/boards/spr...arty-risk-few-more-questions.html#post1830380

N

irishneil said:

Why can you trade Indices on IG when the market is not open. Is it in anticipation of what will happen when the market opens?

Click to expand...

Dow Index futures are basically 24hrs. Although 90%+ of the volume is traded during RTH, the Globex platform allows trading of mini dow, s&p, nasdaq etc 24hrs a day (with a short break).

Will everyone please stop saying indice.

The SB firms have had to stop using the trademark names of the various indices in recent years. They don't have the legal rights to use terms such as DOW, DAX etc. Hence the use of Wall Street and Germany etc.

In the early days of spread betting the firms would quote in quarters and these were obviously linked to the underlying futures market for the corresponding period.

To put it simply, this was a nightmare after the tech boom of 1999/2000 as the huge numbers of new clients to online trading gave rise to an issue. These new customers did not know anything about 'futures'. All they knew in regards to index pricing were the cash prices quoted on TV and websites etc.

So the need was to create a synthetic version of the cash indices for clients to trade rather than the costly need to educate all your clients as to what a future was and how they were priced etc, thus explaining the price differential to spot and the decay etc.

The core issue being that the cash index does not exist for hedging, the clean hedge is still the underlying future, so you cannot just replicate the cash index using a basket formula of the underlying constituents and their weightings but have to derive your cash quote from the near quarter future.

You do this by having to take into account the underlying stock dividend payments over this period and the implicit funding charge of the future. Once you add back in the divis and remove the funding you are left, in essence, with a cash index.

In slow markets this synthetic cash will track the real cash almost perfectly but it moves in perfect correlation to the futures so in volatile conditions its direction and movement is driven by the futures and not the cash.

So, once you have this mecanism the next issue to deal with is how to quote out of exchange hours. This is done by deriving a formula linked to markets which are open at that time. So, the cash FTSE will move according to your propriatory algo running on movements of the US and then Asian exchanges.

When all done, you have a clean product but it is at this point that the pricing is then impacted by the internal book of the issueing firm, both its size and liquidity as well as the risk profile of the operator.

A firm with a small flow will be more prone to having to skew their quote on reciept of 'large' client orders. A firm with a small balance sheet may not be able to hedge as much as it would like externally so need to derive opposing flow from within by using price. There will also be operators who will try an lead the underlying trend in order to capture additional spread.

In the early days all the firms ran different models and algos and you could see the differences quite clearly but over the years as staff have moved from one firm to another the knowledge and education has spread more evenly so prices are derived more inline with each other these days. This also helps protect against arbing.