Cash market fair value arbitrage (CMC/IG Dow contract)

[lurkerlurker]

I don't usually go for arbs, but I've noticed this with CMC and IG more than once.

I usually stay away from "cash" markets, and prefer to trade daily future contracts where possible. Over the last few months I have mostly traded the YM through spreadbetting.

I have been using my CMC account again in the last few weeks, and they do not offer a daily future - I have been forced to pay attention to cash prices.

IG and CMC apparently differ on the FV for the YM. This may be due to them using different figures for the appropriate rate of interest - however, more information from somebody who understands FV would be appreciated.

Anyway, the point here is that the quote for the "Wall Street Daily Cash" at IG is outside the spread which CMC quote for their "US30 Cash". Today, for example, I am bid 4 points higher at IG than I am offered at CMC in these markets. (see screenshot)

Providing that both contracts settle at the official NYSE closing (I'm yet to verify this), would this not imply a risk free profit of 4 pips? This seems to happen regularly - I can only assume that CMC and IG use different values for the interest rate when calculating FV.

Is it possible to arb these markets? Further, how can I be assured that the prices are "fair" - I don't want to trade against the SB firms - not clever. If this is an arb, where is the money coming from - the SB firms or the market?

If this is an arb, the following might be an idea:

- wait a few minutes until settlement
- select an appropriate stake size which is sensible given the execution risk involved
- execute 2 simultaneous deals with the SB firms, ensuring that the 4 point differential provides enough margin for execution risk in getting both deals away
- close out the positions at the NYSE settlement - don't roll over

 

[Bintrader]

CMC dow cash is rolling, it does not settle at 9pm or any other time.

 

[counter_violent]

CMC dow cash is rolling, it does not settle at 9pm or any other time.

Yes it does, it settles at 10pm each day, and a new bet is opened at the same time and all adjustments made to account.

cv

 

[tightstops]

if cmc are anything like they use to be theres a 50% chance youll get a requote so you may find yourself short with ig and flat with cmc and it sounds like u may have to pay another 2 pts to get out of the position as well as hitting it at exactly 9pm and then hoping when the official dow close settles it doesnt drift to far from where it was at 9.
relying on spread betting companies to fill a bet when youre trading at market is not a pleasant experience.
good luck if youre trying for it tho

 

[lurkerlurker]

Thanks for the comments. Rolling contracts are a pain - the old daily contracts would settle at the official last trade price of the underlying (which also means you don't pay the other half of the spread if you let the bet expire at EOD).

There is no arb here if you have to manually close both contracts. Still, nobody has explained why IG and CMC quote different values for their cash contracts in the same instrument....

I'm not trying this, since it is only a few pips and not worth the hassle and execution risk. I just wondered if I had found one of those famous spreadbetting arbs which are discussed from time to time here!