CFD Pricing

[akardar1]

Hello all.

I am looking for clarity with regards to CFD's.
I would like to eventually trade a system I have been working on.
It would involve long/short across CFD's (commodity/financial instruments and FX). No equities.

I have come to understand that spreadbetting bid/offers can be skewed towards buyers or sellers depending on the spreabetting provider. Price are somtimes not exactly where they should be, but they are allowed to do so, they are essentially making prices.

My question relates to whether CFD pricing are closer the market. Are they ?
I have heard sum1 say that equity CFD's bid/offer are always at, or much closer to the market than spreabets (i.e prices are not skewed). Has any come across this ?
How about CFDs on commodities, bonds etc... For instance, how close are IG's prices to the futures contract on which it is based on ? Is there a difference therefore in pricing between CFD and spreadbet? (perhaps one of the reason why we pay CGT on cfds).

I ask because, when use mechanial systems, if my sell stop is 55, and market reaches 53, i dont expect to be kicked out, yet due to skew on spreadbet prices, one may be kicked out. Any thoughts / experience?

Dre

 

[ns1000]

For indices, the prices will be the same as for spreadbetting, i.e not always the same as the cash index. For futures, it will depend on the firm, but frankly you'd be a mug to trade futures as CFDs. It's much cheaper to trade the real futures markets.

 

[akardar1]

Sure understood, but CFDs do offer the ability to "scale down". Alot of these mechanical systems are capital intensive and one may just not have enough funds to take the signals.. and oil trade for instance with a stop at 1 or 2 time ATR would require big dough...
CFDs, are more expensive ok, but they do allow the ability to take smaller exposure, eg, 20 - 50% of one contract - do u agree here?

 

[ns1000]

What sort of size are you looking to do? Most of the popular contracts have mini versions these days, which are generally about a fifth to a half the main contract.

 

[akardar1]

Sure, understood, there is some value in these minis thats for sure, sizes will depends on position sizing, but for something like oil and spx, sizes would be minimal, larger sizes on wheat for instance, i understand that spreads on cfds are wider, and am beginning to wonder how they affect the bottom for strategies that there with a longer /end of day focus..
but i understand that these wider spreads with intraday trading would really affect ur bottom line..
another issue with mini is the fact there is only a few of them, with slightly less liquidty on some of them (apart from spx, eurostoxx of course), i would have thought that this would limit the diversification possibilities - u seem to imply there is no value whatsoever in trading cfd's ..