Best Thread CMC Markets owner answers your questions

[gle101]

hi Gle101
I think everybody has the same type of spreads fixed or variable.
if you have fixed spreads and the under line market widens then fixed spreads widen. variable spreads do the same reflecting the under line markets.
our fixed spreads will reflect the markets. if market goes from one pip to three pips because it is volatile then doesnt matter if you have fixed or variable the spreads will go to three pips.

pc

Matters very much Peter. If you have fixed spread, the spread very seldom changes, only under very extreme market conditions (and only temporary). If you have a variable spread, the spreads will variate on a ongoing basis according and in line of the that of the underlying asset. Please, reread my post and try to answer my questions more accurate.

 

[PC at CMC Markets]

HI Gle101

I am not trying to be clever here or evade your question and I am a little confused by why you think I have not given you a clear answer so lets try again.
CMC offers fixed spreads but if the under line market widens then our fixed spreads will widen. This is normal market practice and also applies to variable spreads, doesn't matter if you are fixed or variable spreads if the market widens so do the spreads.
I have six live bank feeds on forex (as an example) and their spreads widen during volatile periods some more than others and it doesn't matter whether they are fixed or variable the market widens so do they and so do we and so do others.
once markets calm down then spreads come back to normal market spreads with a fixed spread or variable spread. I think this answers your question about spreads prior to figures being released.
For transparency of our spreads you can look at our five second spread charts that are freely available on our demo platform. we are offering transparency not being asked for it. our spreads are there for everybody to see for themselves. We do this because we think we consistently offer the best spreads and execution over a period of time and we publish the spreads to show our clients or potential clients because we are confident of what we offer.

at the end of the day as a spread betting client you need fast accurate tight spreads
and that is what you get with us. we do not offer head line spreads, we automate the execution process even during volatile periods.

I hope that answers your question. If I have missed a point, I have a feeling you will let me know.
live long and prosper
pc

Matters very much Peter. If you have fixed spread, the spread very seldom changes, only under very extreme market conditions (and only temporary). If you have a variable spread, the spreads will variate on a ongoing basis according and in line of the that of the underlying asset. Please, reread my post and try to answer my questions more accurate.

 

[Benny Dorm]

Big match tonight. My team Arsenal take on the mighty Ipswich away from home. don't think my finger nails will stand it. ha ha

cheers pc

Arsenal?? and your Dad's family are from Newcastle? Dear, oh dear.

Should be a Toon supporter!! Even after last Saturday's performance.......

 

[PC at CMC Markets]

Hi Benny and the links.
I am closet toon supporter. I always look for their results. In fact I am a bit mixed up with footie because I also like Sunderland as well but number one is Arsenal. Well some body has to support them.
I am in heaven because Arsenal, Newcastle and Sunderland are all in premiership so get to enjoy lots of games on t.v

Got invited to the Tottenham game v Man United from Goldmans in their box but I decided not to go because all the seats are facing the pitch ha ha

cheers pc

Arsenal?? and your Dad's family are from Newcastle? Dear, oh dear.

Should be a Toon supporter!! Even after last Saturday's performance.......

 

[PC at CMC Markets]

Hi Uchiki

Michelle told me you spoke to her today. I hope everything was explained to your satisfaction. Let me know if you need any more assistance.
regards Peter

Hi Peter,

I'm just starting to look at sb (previously using interactivebrokers and a separate ISA provider for trading stocks).
I liked the sound of the daily finance charge being calculated on net borrowings. I've opened a demo account with CMC (along with a few other sb's - you're on my shortlist so far), and I thought I'd double check my understanding with your Live Help.

Starting out, I'd be happy if I could use your platform as if I was buying the stocks outright ie no margin, so seeing your comments was a plus in CMC's favour. The key advantage I'm looking for is tax free trading.

My question
(summarising from your blog....) overnight financing charges are only applied on net borrowings ie if you held a position with a notional value of 20k GBP with 2k margin, but also with a further 18k GBP cash in the account, then no overnight financing charge would be applied. Could you confirm I've understood this correctly?

Disappointingly, the answer was
For spread betting you would be charged overnight financing on the unfunded portion of the trade. So in your example above you would be charged interest on the 18k GBP of the trade that you have not provided margin for.
Depending on the type of instrument you are trading you will be charged different rates

If my understanding was correct, would this also apply to stocks denominated in non-GBP currency if my cash balance was in GBP?

Could you confirm.
Thanks,


My trades would be swing trades with stops and targets. I'm happy with your order entry and as long as the spreads are consistent, they'll likely be OK.
I've had trouble drawing on your charts, but I'd only use them to fill gaps in the data feeds I have for Ensign. eg Moving cursor when trying to draw a trendline seems to expand chart, rather than draw trendline on a chart that's staying still.
I like the fact that you provide spread charts.
Be nice if you provided a few other drawing tools like pitchforks.
I really need to see what additional stocks you provide when you release them.

 

[gle101]

HI Gle101

I am not trying to be clever here or evade your question and I am a little confused by why you think I have not given you a clear answer so lets try again.
CMC offers fixed spreads but if the under line market widens then our fixed spreads will widen. This is normal market practice and also applies to variable spreads, doesn't matter if you are fixed or variable spreads if the market widens so do the spreads.
I have six live bank feeds on forex (as an example) and their spreads widen during volatile periods some more than others and it doesn't matter whether they are fixed or variable the market widens so do they and so do we and so do others.
once markets calm down then spreads come back to normal market spreads with a fixed spread or variable spread. I think this answers your question about spreads prior to figures being released.
For transparency of our spreads you can look at our five second spread charts that are freely available on our demo platform. we are offering transparency not being asked for it. our spreads are there for everybody to see for themselves. We do this because we think we consistently offer the best spreads and execution over a period of time and we publish the spreads to show our clients or potential clients because we are confident of what we offer.

at the end of the day as a spread betting client you need fast accurate tight spreads
and that is what you get with us. we do not offer head line spreads, we automate the execution process even during volatile periods.

I hope that answers your question. If I have missed a point, I have a feeling you will let me know.
live long and prosper
pc

Thanks, not exactly what I am after, but I guess I have to settle with that. What about network latency? You have instant execution, you do not re-quote, but can one get a price no longer valid message? Don't think I got an answer on slippage, can one get slipped without a gap in the market, I need a yes or no on this question.

 

[Ross Spur]

HI Gle101

I am not trying to be clever here or evade your question and I am a little confused by why you think I have not given you a clear answer so lets try again.
CMC offers fixed spreads but if the under line market widens then our fixed spreads will widen. This is normal market practice and also applies to variable spreads, doesn't matter if you are fixed or variable spreads if the market widens so do the spreads.
I have six live bank feeds on forex (as an example) and their spreads widen during volatile periods some more than others and it doesn't matter whether they are fixed or variable the market widens so do they and so do we and so do others.
once markets calm down then spreads come back to normal market spreads with a fixed spread or variable spread. I think this answers your question about spreads prior to figures being released.
For transparency of our spreads you can look at our five second spread charts that are freely available on our demo platform. we are offering transparency not being asked for it. our spreads are there for everybody to see for themselves. We do this because we think we consistently offer the best spreads and execution over a period of time and we publish the spreads to show our clients or potential clients because we are confident of what we offer.

at the end of the day as a spread betting client you need fast accurate tight spreads
and that is what you get with us. we do not offer head line spreads, we automate the execution process even during volatile periods.

I hope that answers your question. If I have missed a point, I have a feeling you will let me know.
live long and prosper
pc

Sorry, PC, I don't really get that explanation. The SBs that offer fixed spreads generally keep the same spread, even when the underlying market spread widens, otherwise the word 'fixed' wouldn't mean much! That's one of the main advantages of spreadbetting. It's obviously easier to keep a fixed spread if it's already wider, which is where you'd expect the SBs giving 1pt or less Dow, EU, etc, to run into problems with rejections and requotes.

 

[Ross Spur]

Thanks, not exactly what I am after, but I guess I have to settle with that. What about network latency? You have instant execution, you do not re-quote, but can one get a price no longer valid message? Don't think I got an answer on slippage, can one get slipped without a gap in the market, I need a yes or no on this question.

I don't think SBs ever have gaps in markets that don't close, which is why there should be no slippage.

 

[uchiki]

You're on the ball Peter...
OK, I was waiting for an email before I blogged a reply.

The basics are that you can check what rate you're being charged on the demo platform.
Enter a position, hold it overnight, then click on Bet Financing Cost for the overnight period in question. You will then see a list of the overnight positions with an interest rate and cost value against each.
As an example, holding a UK stock had an interest rate of 2.55% last night.
From talking to Michelle, this is derived from a reference rate which approximates to overnight LIBOR (it's an average of overnight rates and other rates polled during the day) PLUS 2%.

In your previous blog to kalott, "Nice thing also is that all balances are netted off so you only pay finance on net borrowings. I believe we are only spread company that does this." As someone who has not been familiar with sb practices, this suggests a single notional 10k position with a 10k cash balance = no net borrowings (regardless of margin %). Seems like that would be market leading, but is not what CMC does.
The actual position is that finance charges are only levied on the notional minus margin. ie 10k position, 1k margin, finance charged on 9k.
If there is any distinction between yourselves and competitors on this, it could be that a competitor is charging finance on the whole 10k, which to me sounds fraudulent.

I will open demo positions for other products - a commodity, a US stock, plus shorts of these and a couple of FX pairs today and check the rates that they attract overnight.

There is an explanation of the principles of how the Bet Borrowing Cost is constructed on your website (http://www.cmcmarkets.co.uk/spread-betting/information), but I could find no indication of the haircut/loading rates, except on external websites which suggest that the rate is LIBOR + 3%. Would make sense to put this on your website rather than be pictured as charging higher rates by eg comparison sites.

So, in summary, the amount on which you charge financing is higher than I was hoping for, but probably in line with competitors (even if some charge on the full notional position, your 90-95% of notional net of margin won't make that much difference).
The loading rate at 2% for stocks is tied lowest with 2 other providers of the ones I've reviewed.
The fact that the finance charge is separately itemised for each position is a plus, as is the fact that you don't adjust entry prices (except for dividends/corporate actions).

Hi Uchiki

Michelle told me you spoke to her today. I hope everything was explained to your satisfaction. Let me know if you need any more assistance.
regards Peter

 

[Ross Spur]

Hi Ross
I wish life was that simple. You forgot to mention capital adequacy requirements, narrow spreads, snipers, precision pricing, pricing transparency, regulations, treating customers fairly, cost of developing real time trading systems, customer 24 hour support, 24 hour dealing but apart from that it is all plain sailing.

pc

I'm aware that there's more to the business model than sitting around counting the cash landing in one's lap, but the poster was asking where SB make their profit, and that's basically way it works. The idea that it comes from the spread is ridiculous.

 

[gle101]

I don't think SBs ever have gaps in markets that don't close, which is why there should be no slippage.

Gaps do occur now and then, and if you don't have a guaranteed stop loss, you might be hanging with a position with no protection.

 

[PC at CMC Markets]

Hi Ross
You said it yourself ''generally'' you didn't say 100 percent of the time. Nobody has fixed spreads 100 percent of the time because of market volatility. The spreads of any major asset class are determined by the exchanges, market makers and banks etc. not spread bet firms. If the spread widens in the under line market doesn't matter if you have variable spreads or fixed spreads the spread bet firms spreads widen. If you want proof come and watch the banks that are quoting us on forex over gdp numbers. Another example, when the Dow is closed the spread betters offer wider spreads than when the market is open. why because the under line market is illiquid and that is the market spread. I repeat markets determine spreads not spread betters.

people make a lot of fixed or variable spreads but the bottom line is spreads move up and down with the markets. I suppose technically if you trade with sb firm in normal markets on fixed spreads you have more of a chance of executing the trade because fixed spreads normally take into account normal market fluctuations. with variable spreads you probably get more ticket cancellations but do not know this from experience and I do not have evidence of this just thinking logically. What I do know is that generally clients want to trade quickly without re quotes and ticket killing. Spreads are important at all times but getting the trade away in normal or volatile markets is just as key.
tks pc

Sorry, PC, I don't really get that explanation. The SBs that offer fixed spreads generally keep the same spread, even when the underlying market spread widens, otherwise the word 'fixed' wouldn't mean much! That's one of the main advantages of spreadbetting. It's obviously easier to keep a fixed spread if it's already wider, which is where you'd expect the SBs giving 1pt or less Dow, EU, etc, to run into problems with rejections and requotes.

 

[PC at CMC Markets]

Spot on gle101 that is why on next gen we generate automatic margin level stop losses with every trade.
pc

Gaps do occur now and then, and if you don't have a guaranteed stop loss, you might be hanging with a position with no protection.

 

[gle101]

Spot on gle101 that is why on next gen we generate automatic margin level stop losses with every trade.
pc

Is this a kind of "free" guaranteed stop within the margin level for that position, quite distance from the entry level, but still a protection, if there is a wide gap in the market. Have I understood it correctly?

 

[PC at CMC Markets]

Hi Ross
Didn't realise you were expert on how spread bet firms make their money.

I think the term spread betting is a bit misleading. I believe spread bet to be the ultimate way to trade the financials markets if you live in UK. Providing you work with top firm like cmc where the execution, pricing, spreads and service are strong.
Spread betting is the modern day stock broker and as such most spread bet firms of any repute have to treat a spread bet as a financial product and hedge the risk accordingly. I did not start my life as spread better. I worked in banking as a forex dealer for 15 years and the way we hedge forex spread bets here is exactly the same as when I hedged forex exposure in a bank.
You are wrong to assume that spread optimisation is not part of the way we make our money, it is a key component of how we manage risk.
Also if you have a sizeable book of business (which we do) then you just cannot sit back and wait for clients to lose money. there are all sorts of issues with that namely capital adequacy, risk controls, exposures, major loss potential. I suppose if you were a small spread bet firm with a couple of hundred clients and plenty of capital you could operate this way but we are not.. we have a share book that runs into the hundreds of millions and billion dollar plus turnover in forex daily, not even thinking about our commodities and index books. I would need a reinforced pair of under pants if I ran the risk on that lot.

hope that helps
peter

I'm aware that there's more to the business model than sitting around counting the cash landing in one's lap, but the poster was asking where SB make their profit, and that's basically way it works. The idea that it comes from the spread is ridiculous.

 

[PC at CMC Markets]

hi gle101
the margin stop loss is not guaranteed but it is at the margin level of the trade you are opening. if you want to enter guaranteed stop loss that is different process and is not automatic on the ticket
tks pc

Is this a kind of "free" guaranteed stop within the margin level for that position, quite distance from the entry level, but still a protection, if there is a wide gap in the market. Have I understood it correctly?

 

[gle101]

hi gle101
the margin stop loss is not guaranteed but it is at the margin level of the trade you are opening. if you want to enter guaranteed stop loss that is different process and is not automatic on the ticket
tks pc

Ok I see, it is a user predefine stop loss in points on the market order ticket. Yes this is becoming a standard feature on the most of SB platform today. That it took 5 years for the industry to implement I don't understand. Some SB might earlier benefit (the same goes for CMC) for not having it, but today clients demand it to be available, this in order to trade secure. I agree, it is a good thing that CMC finally implemented it.

 

[Physicsman]

Hi PC,

Firstly, thanks for taking the time to communicate on this message board, I've been following this thread with great interest.

I just want to follow up on your previous answer to fixed/variable spreads, because it is confusing me.

You stated that spreads widen during volatile news periods, which is fine and understandable since the underlying market does too. However, by definition, this isn't a fixed spread but a variable spread. Am I missing something?

What exactly do you mean when you say CMC has a fixed spread, and how does this differ from those companies offering variable spreads?

Thanks!

people make a lot of fixed or variable spreads but the bottom line is spreads move up and down with the markets. I suppose technically if you trade with sb firm in normal markets on fixed spreads you have more of a chance of executing the trade because fixed spreads normally take into account normal market fluctuations. with variable spreads you probably get more ticket cancellations but do not know this from experience and I do not have evidence of this just thinking logically. What I do know is that generally clients want to trade quickly without re quotes and ticket killing. Spreads are important at all times but getting the trade away in normal or volatile markets is just as key.
tks pc

 

[PC at CMC Markets]

Hi physicsman
nice to hear from you, your first blog on this site.
To be honest I can understand the confusion in the markets. I think it is difficult to define what spreads are fixed and what are variable. It seems to me these are new terms invented by spread bet firms.
in essence fixed spreads are there so you can execute your bet. the actual fixed spread doesnt mean that it is fixed at that spread all of the time. say ftse is 1.3 spread with us. this is the normal spread in normal markets. if things go crazy then spreads widen.
I think our industry does confuse the issue. take variable spreads from some of our competitors they shout from the roof tops one pip on ftse but if you read their statement it says
FROM one pip FTSE. They are not guaranteeing one pip all the time. They are saying that it is one pip to start with but they reserve the right to widen in volatile times.
I am sorry for the ambiguity regarding fixed and variable spreads to me they are the same . I suppose the subtle difference is that on fixed spreads (regardless of size of spread) you can normally trade and the fixed spread will take out the day to day normal market volatility. with variable spreads you might get move quick movements especially if the variable spread is tight and that I suppose means that you have to expect fill or kill scenario. I suspect that on a slightly wider fixed spread you are more likely to get executed on that price in normal markets with variable spread it might not be as efficient.
I am not trying to compare one with the other here to say what is best or not. I am trying to give an honest answer to the question. It is confusing, I get confused and the above is my opinion I have not evidence to support it and I invite other spread bet firms to come onto this blog to try and clear up the confusion. If you are a competitor please state that you are so we can get the issue out into the open.

sorry to confuse you even more
peter

Hi PC,

Firstly, thanks for taking the time to communicate on this message board, I've been following this thread with great interest.

I just want to follow up on your previous answer to fixed/variable spreads, because it is confusing me.

You stated that spreads widen during volatile news periods, which is fine and understandable since the underlying market does too. However, by definition, this isn't a fixed spread but a variable spread. Am I missing something?

What exactly do you mean when you say CMC has a fixed spread, and how does this differ from those companies offering variable spreads?

Thanks!

 

[PC at CMC Markets]

hi gle101
I am not aware of any other spread bet firms that generates an automatic margin stop loss every time you open a trade (also a profit take as well at same time) can you tell me who else does this.
we have operated regular stop loss orders and limit orders on our platformw since 1996, for forex, 2000 for cfds and 2001 for spread bet, thought I would put you right about the facts.
the margin stop loss is new concept in that it is generated automatically when you open trade. it can be switched off and we put it in voluntarily. I have stated before on this blog we want our clients to make money and anything we can do to help clients during volatile market periods we are happy to assist. Don't forget we have been offering trading education for over ten years now.

thanks peter

Ok I see, it is a user predefine stop loss in points on the market order ticket. Yes this is becoming a standard feature on the most of SB platform today. That it took 5 years for the industry to implement I don't understand. Some SB might earlier benefit (the same goes for CMC) for not having it, but today clients demand it to be available, this in order to trade secure. I agree, it is a good thing that CMC finally implemented it.