Best Thread CMC Markets owner answers your questions

[scose-no-doubt]

That $102 takes care of the discount factor but you're still gonna have to consider financing costs to keep the trade... unless you're stumping up in full.

 

[PC at CMC Markets]

Doesnt matter if you trade cash or futures the financing cost and cost of carriage is there
either on a daily basis with daily finance charge or built into the futures price.
The major difference between the two is that you see the daily finance charge on a cash bet whereas with a futures bet it is reflected in the futures price. if you take the difference between the cash price and the futures price this is the calculation you need to do.
there are other complicated calculations in terms of backwardation and I will post soon my response. it is with compliance at moment.
tks peter

That $102 takes care of the discount factor but you're still gonna have to consider financing costs to keep the trade... unless you're stumping up in full.

 

[PC at CMC Markets]

Hi tar
My point is that it will cost the same in finance and cost of carriage (approximately) whether you do cash or futures bet. But if you do cash bet you pay the cost of carriage on a daily basis where as futures price has cost of carriage included. that is why in normal market futures price is more expensive that cash price (there are exceptions to this and will post shortly, eg backwardation etc. so the statement you posted was misleading. I will post something soon I promise. dying to post it with compliance at moment.
You other point is, that it is expensive if you are buying oil but what if you are shorting oil, you receive the finance so depends what way round you are in the markets.

peter

I know the difference between futures pricing and spot prices , i wanted to help Simon to post his question , but anyway if it will cost 50% then it is expensive , Mar12 is at 102 $ , Jul11 is at 104 and Apr11 is 101.5 $ , seems it will be costly to hold long term with CMC , anyway no critisim intended waiting for your reply .

Regards

 

[scose-no-doubt]

Doesnt matter if you trade cash or futures the financing cost and cost of carriage is there
either on a daily basis with daily finance charge or built into the futures price.

never said it wasn't I was alluding to the fact that the leverage needs to be considered when looking at finance costs. suppose that could have been clearer.

 

[PC at CMC Markets]

Yes sorry you are right. Just a bit sensitive over what was posted by tar
thanks peter

never said it wasn't I was alluding to the fact that the leverage needs to be considered when looking at finance costs. suppose that could have been clearer.

 

[tar]

Hi tar
My point is that it will cost the same in finance and cost of carriage (approximately) whether you do cash or futures bet. But if you do cash bet you pay the cost of carriage on a daily basis where as futures price has cost of carriage included. that is why in normal market futures price is more expensive that cash price (there are exceptions to this and will post shortly, eg backwardation etc. so the statement you posted was misleading. I will post something soon I promise. dying to post it with compliance at moment.
You other point is, that it is expensive if you are buying oil but what if you are shorting oil, you receive the finance so depends what way round you are in the markets.

peter

@ misleading : u mean the 50% cost ? i took this number from Simon i dont know how much it costs with CMC so i said if it will cost ...
@ Backwardation : Does this mean u will fund traders on backwardation market ?
waiting your full explanation

Regards .

 

[tar]

Yes sorry you are right. Just a bit sensitive over what was posted by tar
thanks peter

Dont be , thanks for your replies .

 

[PC at CMC Markets]

Hi Tar Here is response for you and simoh

CMC cash commodity prices are created by stripping out the carrying costs (convenience yield) that are built into futures prices. So the price you see on the platform is an implied cash price (stripping the underlying convenience yield from respective futures contracts). This cash price will be at a discount (less) than the futures price when the market is in contango (i.e. the price to buy a commodity today is cheaper than buying it in the future due to carry costs) and it will be at a premium when the market is in backwardation (i.e. the price to buy today is more than buying in the future due to immediate shortage / under supply or future oversupply in the market). So the convenience yield (carry cost that you get charged or paid depending on whether you are long or short) is dictated by the underlying futures market. The only difference is that we make this charge apparent and not build it into the price like futures contracts. Most people that trade futures don't pay attention to the convenience yield curve (the price difference between one future contract to another) but are subject to the same economics without noticing it.

For non-perishable commodities like gold or silver the convenience yield will be relatively low and for commodities such as Natural Gas, Heating Oil historically the carry costs could be quite substantial due to the volatility, storage constraints, seasonal factors, weather and political events.However it is important to note that the convenience yield applies to both sides of the trade if the market is in contango people who buy the commodity will pay this carry cost and people that short sell receive it as income on a daily basis. Alternatively for commodities that are in backwardation people who short sell the commodity will pay this carry cost and people that buy the commodity will receive it as income on a daily basis. The spread between what is paid and what is received in normal market conditions typically range between 1 to 3 percent.

Maybe giving you a current example could further clarify this... I will focus on Crude Oil which is going through some interesting times. Historically the price difference between Brent Crude Oil and West Texas Intermediary has been minimal. Currently the price difference between the two futures contracts are $17 (i.e. Brent $116.98 while WTI 99.76). WTI is in contago (with a steep convenience yield) while Brent is in Backwardation with a smoother convenience yield. Please refer to the respective images below which display prices and respective convenience yields. So due to the steep convenience yield curve WTI price diffreneces between various delivery dates are larger and for brent due to the smoother curve its lower. As a result implied cash price is closer to the front month contract on Brent and farther away for WTI.

So a customer that was short Brent yesterday would have paid 2.38% in carry cost and a customer that was long would have received 1.33% and a customer that was long WTI would have paid 30.06% and a customer that was short would have received 28.95%.


Bid Ask
US Crude -30.06% -28.95%
UK Crude 1.34% 2.39%


please see attachment I hope this helps
tks peter please see attachments View attachment oil.doc

Goodmorning Peter , here is a question from Simon he couldnt post it here :

"Just checked my CMC account and note that CMC are charging me 30% for financing long positions in WTI oil.

To put that into persepective, that's 30% per year on the entire worth of your position folks. Yep, at only £1 per point your position is worth £9000, so to keep a long position in WTI CMC will charge you an amazing £2700 per year for a £1 pp bet.

Another way of putting it is that your trading must make you (net after all losses etc.) 30% per year just to break even. How many people net 30% pa?

This is an unbelievable rate, I am utterly astonished at what is happening here.

I have a similar position open in the futures markets and it's costing me (effectively) zero . Let me explain this: CMC have abandoned futures bets for their new platform and replaced them with rolling cash bets, for which they charge a financing rate consisting of two elements: financing (which is the normal element you would expect consisting of the interest on the value of the position) and 'carrying costs'. Carrying costs are the problem.

While the financing element is broadly equal to the intrinsic interest charged within the futures contract (but slightly more expensive; this is in line with other spreadbetting firms), the 'carrying cost' would appear to be a bonus for CMC.

If a bet is taken 'old style' on a futures contract, the intrinsic cost of the bet will be roughly equal to the central banks rate (say 1%). A SB firm will add a few percent if they operate rolling cash bets instead of direct bets on the futures price, so you pay say 3%.

CMC are charging an additional 27.5% for the 'carrying cost'. Adding this to the extra 2% premium over the futures style bet nets them 29.5% for financing your bet (versus a futures bet).

These costs are crippling, no business can survive with these sorts of costs, nor can a trader.

As far as I can tell (further info has not been forthcoming after my phone call asking for precise information on how this charge is calculated) CMC claim this mirrors real-world equivalent costs for storage of the spot commodity and the such-like, which doesn't really wash I'm afraid.

CMC have abandoned many markets and all futures bets for the new platform. Spot bets would appear to be prohibitively expensive for non-day traders; futures bets, or futures derived bets are not available.

My advice would to be very careful before using a CMC new platform account - when compared to costs elsewhere, including their own MarketMaker platform which is being retired, the costs are prohibitive. A futures bet taken elsewhere will net you around an additional 30% per year in profits."

then he said :

" While I would like to pose my question to the other thread, unfortunately every time I submit a post it says it needs to be approved by a moderator.

As the moderators would appear to be on leave at the moment, according to another thread in the General section, it would seem my post is not likely to appear any time soon.

Hmmm.

Peter, if you're reading, would you care to comment on your financing rates of 56%. This is frankly only a way to show a customer the door; no-one is going to accept these kind of rates, you may as well just call them up and say 'sorry, but we don't want you as a customer'. It would be a more honest way of dealing with customers you don't want.

Simon "

 

[PC at CMC Markets]

Hi Tar

Was not happy with your posting because you said a lot of things that are not correct. Here is the post you put and it may have come from somebody else but that still doesn't make it acceptable to post inaccuracies and try to put people off working with CMC. This is what you said

MC are charging an additional 27.5% for the 'carrying cost'. Adding this to the extra 2% premium over the futures style bet nets them 29.5% for financing your bet (versus a futures bet).

These costs are crippling, no business can survive with these sorts of costs, nor can a trader.

As far as I can tell (further info has not been forthcoming after my phone call asking for precise information on how this charge is calculated) CMC claim this mirrors real-world equivalent costs for storage of the spot commodity and the such-like, which doesn't really wash I'm afraid.

CMC have abandoned many markets and all futures bets for the new platform. Spot bets would appear to be prohibitively expensive for non-day traders; futures bets, or futures derived bets are not available.

My advice would to be very careful before using a CMC new platform account - when compared to costs elsewhere, including their own MarketMaker platform which is being retired, the costs are prohibitive. A futures bet taken elsewhere will net you around an additional 30% per year in profits."

then he said :

" While I would like to pose my question to the other thread, unfortunately every time I submit a post it says it needs to be approved by a moderator.

As the moderators would appear to be on leave at the moment, according to another thread in the General section, it would seem my post is not likely to appear any time soon.

Hmmm.

Peter, if you're reading, would you care to comment on your financing rates of 56%. This is frankly only a way to show a customer the door; no-one is going to accept these kind of rates, you may as well just call them up and say 'sorry, but we don't want you as a customer'. It would be a more honest way of dealing with customers you don't want.

Simon "

Dont be , thanks for your replies .

Some very misleading statements from you and Simon. I hope now you understand the underline markets more and how the futures markets work with the cash markets.
thanks Peter

 

[scose-no-doubt]

Bid Ask
US Crude -30.06% -28.95%
UK Crude 1.34% 2.39%

Out of curiosity how'd your guys work that out?

 

[tar]

Peter :
These r Simon words i quoted him , i posted his post here cuz he said he couldnt post in your thread , these r not my words , sorry for the misunderstanding ...

Goodmorning Peter , here is a question from Simon he couldnt post it here :

 

[PC at CMC Markets]

ok tar sorry to bang on about it.
lets move on tks peter

Peter :
These r Simon words i quoted him , i posted his post here cuz he said he couldnt post in your thread , these r not my words , sorry for the misunderstanding ...

 

[PC at CMC Markets]

we have team of top top quants that work all this stuff out.
Do not know of any other spread bet firm that offers cash commodities do you.
by the way cash commodities is our biggest traded product on next gen at the moment
pc

Out of curiosity how'd your guys work that out?

 

[tar]

ok tar sorry to bang on about it.
lets move on tks peter

I am neutral , dont shoot the messenger

 

[scose-no-doubt]

I think IG do but can't remember.

Peter, how come you only offering (based on the Simoh's post) US west @ 53% rather than US light being closer to the 30%? Wouldn't that be more beneficial for your clients?

 

[tar]

Long

Out of curiosity how'd your guys work that out?

CMC : Long 1 WTI crude spot @ 97.162

Futures : Nymex crude June 2011 @ 101.52

lets c

 

[tar]

Short

Used another demo account for this trade ...

CMC : short 1 spot cash WTI oil @ 96.838


Futures : there was some delay when i took the screen shot so lets say short Crude June @ 101.15

 

[tar]

I think IG do but can't remember.

Peter, how come you only offering (based on the Simoh's post) US west @ 53% rather than US light being closer to the 30%? Wouldn't that be more beneficial for your clients?

No they dont ...

 

[scose-no-doubt]

maybe CFDs

 

[tar]

maybe CFDs

futures