CMC Seminar Report
CMC – Deal4Free Spreadbet Seminar
5th September 2002
Part 3 – Software Demo / Dealing Questions
(One of the software developers sat in the back of the room taking notes as people asked questions)
Speaker (“Ross” the dealer) started by demonstrating the deal4free software. Anyone who has used the service or the demo will already know of everything that was shown (probably better than Ross did – you could certainly tell he didn’t sit with this particular screen in front of him all day!). For this reason I will only transcribe the sections where questions were asked as these were the most interesting bits.
A Punter : “Have you got any facility where, if you want to put a limit order on, and if that order is then executed, you can then have a stop and take profit order?”
Ross : “Like a trailing order, yes, an ‘If Done” order I think it is. We’ve got it on the CFD software and something that they’re looking to maybe bring into the SpreadBet software. You have to grant it ‘this one is greater than that one’ sort of thing; ‘if this order’s done then that one goes in’. It’s something they’re looking to do. They’ve got it on the CFD software at the moment so it is something that will get put in place.”
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Ross demonstrates placing an order (FSTE) at £1 per point : “That’s gone green, that means it’s gone through. It’s gone through very quickly [Note: order went through in under a second]. If I’d put a larger size order in it would have taken longer, it would have gone yellow. If it goes yellow, that means the dealers are checking it”
A Punter : “Do the dealers check every single order?”
Ross : “They don’t check every single one, there’s certain hours like early in the morning they’re checking the trades because the prices are scattered around because not all the market makers have put all their prices in. You know, they’re trying to offer you exactly what they can in the market. But if it’s under a certain size it usually does go through fairly quickly. It depends what you’re trading, like the FTSE and the DOW there’s a hell of a lot of trades going through.”
Punter : “How long do you have to wait before a trade goes through?”
Ross : “It depends, and it depends on the speed of your connection as well. They try to get the trades through within 5 – 10 seconds, but it can take up to 30 seconds”
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Ross demonstrates the Live Chat facility : “That goes straight through to the dealers”
A Punter : “Do you have a response time for that?”
Ross : “It depends really to be honest. They’ll see that message – it pops up on every one of their screens, but if they’re busy then they won’t chat back to you, if they’re not they’ll come straight back. They will get back to you though, if there’s a message on there.
Punter : “I tried three times yesterday . . .”
Ross : “Really? Are you on the live or the trial?”
Punter : “No, the live.”
Ross : “Oh, they should definitely get back to you there on the live”
Punter : “Well one try was 20 minutes, one was 30 minutes, and the last one I gave up waiting for a reply”
Ross : “I can’t answer that, but I’ll have a word with Brain [“Chief Dealer”] when he comes in”
The question was put to Brian later, and he said a chat should be responded to instantly. If it’s urgent he suggested telephoning in rather than use the chat. He also suggested his dealers may need to pull their socks up and he would ensure that happened!
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Brian Griffin, chief dealer, then came in to take questions related to dealing.
A Punter : “You mentioned the Aussie on the currencies [reference to part of the demo where Ross showed a few example currencies that can be traded], but on the SpreadBet you’ve just got the four majors up there . . .”
Brian : No, we’ve got 20 currency pairs at the moment. We quote Aussie Dollar, we quote Kiwi Dollar, we quote . . .”
Punter “And you do all that on the SpreadBet?”
Brian “Yes [opens the Forex prices], see we’re quoting Kiwi Cash etc”
Punter “So if I wanted to deal in any of the currencies SpreadBetting I can do that”
Brian “Yep, and that’s a 24 hour margined full FX service. On an average day we’ll turn over half to a full yard, it’s a proper FX business. So, what we do is sell this through a SpreadBet desk, but the prices come from the FX desk, the guys are professional FX dealers.”
Punter : “If I put a limit order in, does it have to go bid before you fill me?”
Brian “If you’re a buyer on a Limit, it has to go Offer. If it’s Offered, then we’ll fill it. It’s the same as the stocks. A lot of people who’ve done FX properly, who are former traders from the City, have accounts with us. If you’ve dealt in the City and I told you their names, you would know who they were. And it’s because we offer InterBank, or thereabouts, rates. We’re probably within 3 points on the Euro, and 5 on the other majors.”
Ross : “Dollar / Yen we’re at 32/36 at the moment.”
Brian : “Yeah, so we’re 4 wide on the Spread”
Ross : “To be honest that’s where the banks deal you know, that’s the price the banks are dealing at.”
Punter “Oh I know that, I’ve worked in a bank for 16 years so I know what the spreads are, but I’m just wondering, are the stops negotiable?”
Brian “ Not necessarily, I mean, to us we’ve always used the InterBank as the standard, that’s the basis we use. [Bad bit in the recording, but he talks about the SpreadBet product being used for leverage on FX trades] You’ve got a choice, you can open a margined FX account with me, and trade FX but you’ve got to pay Capital Gains Tax. Or you can open a SpreadBet account – it’s the same service, the same guys doing it, in effect, the same guys running the risk, but you don’t pay tax. That’s all SpreadBet is – it’s CFDs, it’s FX, but we call it SpreadBetting and you don’t pay Capital Gains Tax. It’s what Rolling Cash bets are all about. I can show you the same spread but call it a SpreadBet so you don’t pay tax. It makes sense to us, it makes sense to the thousands of clients that use it.”
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[Punter asks if other currencies will be launched, Brian confirms he would like to launch Polish and Czech currencies against the Euro as he thinks they have the potential to join the Euro.]
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Another punter asks “On your Stop Loss order, is that on the Bid Offer price or traded price?”
Brian “FX or shares?”
Punter “Shares”
Brian “For shares, we will reference everything back to the underlying cash market.”
Punter “To the Bid or the Offer?”
Brian “It depends, because we can deal to the Bid or the Offer side. Say you’ve got a stop at 225 in whatever share, if it deals at 225 or lower then you’ll be filled, or we will endeavour to fill you at the next price. It gives everyone the chance to go onto ADFVN or ProQuote or whatever to see time and sales and you’ll see it traded there, and that’s why we’ve filled you. Everyone out there [points at dealing room] is not a Trader, they’re an Execution Broker. We give them rules, and the rules are if it’s there then fill it, if it isn’t, don’t. We always go back to what’s in the underlying market. It’s why we have access to all the orderbooks at the relevant exchanges because that’s the basis on which we fill it. Keep it simple.”
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Another Punter “Trading the FTSE after hours. You know how it can go up 20, 30, 40 points, how do you arrive at that price? Sometimes after hours you can make more money than you can during the day!”
Brian “The premise for the FTSE, even in hours, is what the Futures contract is doing, ok. All our index values are derived from futures, minus fair value / plus fair value. The futures market starts dealing at 8:00, and finishes at 5:30 and the cash market closes at 4:30, and we know this is where the futures market is going, and that the institutions are watching this. After 5:30 we use the ADR market – UK shares are dual listed on the New York Stock Exchange as ADRs. We pull the ADR apart and see what is the price of that share. If you notice we offer I think it’s 52 shares during extended hours, and those shares have a market cap – share price by number of shares in issue – and we convert that back to what index points that represents and you’ll find the number of index points come up . . . .”
Punter “And you have a computer work all that out?”
Brian “It hasn’t been easy but we’ve got there. I’ve spent most of my days trying to decipher from historic data and knowledge the variances between different shares in the indices and futures contracts. Like if I said to you there’s a historic relationship between the S&P 500, the DAX, and the FTSE - there is. It’s like, you take a bit of everything percentage wise, real time and give it a FTSE price.”
Punter “So you made a program to work this out”
Brian “Yes. It’s not perfect, but the whole point is if I remain consistent to the program, then clients will get a consistent price. How many people here have done free market on the FTSE and realised we’ve opened at the same price? We do. I think 2 mornings out of 100 we’ve got it wrong, and that’s been because of a stop loss going off on the futures market. I don’t know where the FTSEs going to open, all I know is what the sums tell me. If I knew where it was going to open I’d be doing this myself! There’s no magic here and there’s no crystal ball, there’s just sums that dictate this is where the FTSE should open because of where the ADR market left 60%, or rather 60 shares which surprisingly enough is 80%, of the FTSE market. It kind of makes sense if you look at 60 shares which is 80% of the overall FTSE 100 fund, until 9:30 (discounting Asia for now) – the FTSE should open at this price. There’s no mystique, ok fair enough we’ve got powerful systems here that allows me to look directly into the ADR market, and it took me probably the best part of 9 months to crack the ADR prices, but I used to do that for a living. So there’s no mystique there it’s just a percentage change. If the ADR goes up 2% for Vodafone, where do you think Vodafone will open in the UK?”
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Me : “Going back to what you were saying about index prices being based on the Futures, is that why your Dow prices always appear to be so biased compared to what’s really going on in the market?”
Brian “It’s not biased, but you will find that the futures market is a lot more efficient. The Dow index only updates when the underlying shares have traded, past tense, so you will find on the open, you know, big ceremony lets ring the bell. Most of these people can’t move that fast, so individual shares don’t open very quick. If you can see the orderbooks open up, even around about 2:40pm, 10,000 have been dealt on IBM, it’s hardly an indication of where IBM, which is lumpy stock, is going to trade. I use the Dow futures. The Dow futures are terrible, but I have no choice. Either that or you can bias it against the S&P500 which may give you a greater indication of where the Dow is trading properly. If you look at the two charts you will see they are correlated. If you’re looking to daytrade the Dow, I suggest to you, and I don’t want to sound stupid, don’t. Trade in a pit in Chicago. I’ve seen more people get killed in the Dow than anywhere else. Why? It suffers some huge illiquidity. It’s just the way it’s calculated, how the way the futures market works. If you wan to daytrade something, that’s a little bit of fun, makes absolutely no sense but gives you a decent range so you can stop and correct, trade currencies. It’s not a recommendation but I’m saying if you look at it, if you’re looking to daytrade, it may make a little bit more sense. But if you’re looking to daytrade I suggest you don’t. I cannot possibly advocate daytrading at all. The only people who daytrade are the people that work in institutions, and these people have millions of pounds worth of systems in front of them, lots and lots of years experience, and they can see orders coming in, out, all over the place. It allows them to be closer to the action. This is a great system for taking a medium to long term view. It makes sense, it brings you closer to the cash market and it’s tax free. All spreadbetting is tax free.”
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A final question asked if the software could be run on a handheld PC (such as a Compaq IPAQ). After a brief discussion on how resource hungry the dealing software is, the software developer taking notes at the back of the room piped-up and hinted that there was something in the pipeline that would definitely allow trading from a handheld PC
