Difference between FTSE daily and FTSE daily future

[SinbadTheTrader]

I've just begun trading with IG and I'm trying to understand why there's currently a 28 point difference between the FTSE 100 Daily and the FTSE 100 Daily Future. According to IG's dealing handbook and what I've read elsewhere, futures contracts reflect differences due to interest costs and foregone dividends. But the interest for less than a day is negligible and, AFAICT, no FTSE100 companies go ex-dividend today so I'd expect the prices to be similar. Is there some obvious reason for such a big difference?

 

[Rhody Trader]

The spread between futures and cash reflect those things you've mentioned going all the way out to the expiration of the futures contract, not just one day. You'll notice the spread narrow as expiration approaches.

 

[SinbadTheTrader]

The spread between futures and cash reflect those things you've mentioned going all the way out to the expiration of the futures contract, not just one day. You'll notice the spread narrow as expiration approaches.

Thanks for your answer. I understand what you say but the future I'm looking at on IG is described as the Daily future so wouldn't that mean it expires today? If so, I can't see how there can be such a difference between the FTSE Daily and the FTSE Daily future w/o any ex-divs.

 

[Rhody Trader]

I can't speak to the platform specifically as I've never used it, but if the prices you are seeing are based on the actual cash and futures markets then it is as I've described it.

 

[SinbadTheTrader]

I can't speak to the platform specifically as I've never used it, but if the prices you are seeing are based on the actual cash and futures markets then it is as I've described it.

Let me put it another way. IG currently quote prices for the following FTSE (and DJ etc) futures: Daily, Feb, Mar, Jun, Annual. All the different months have specified expiry dates (something like the 3rd Friday in each month). Their prices take into account interest/ex-divs up to that date.

My question is: when does the Daily future expire? Might it refer to one of the other futures? For example, the prices for the FTSE Daily future are very similar (fractions of a point difference) to the Mar expiry future. Could they be referring to the same thing? And if so, what might the reason be for having both a Daily expiry future and a Mar expiry future referring to the same thing?

 

[Aspire]

Let me put it another way. IG currently quote prices for the following FTSE (and DJ etc) futures: Daily, Feb, Mar, Jun, Annual. All the different months have specified expiry dates (something like the 3rd Friday in each month). Their prices take into account interest/ex-divs up to that date.

My question is: when does the Daily future expire? Might it refer to one of the other futures? For example, the prices for the FTSE Daily future are very similar (fractions of a point difference) to the Mar expiry future. Could they be referring to the same thing? And if so, what might the reason be for having both a Daily expiry future and a Mar expiry future referring to the same thing?

There is no daily future or Feb or Annual. Just Mar, Jun, Sep and Dec. It rolls every 3 months. I don't know much about spread betting but I guess you'll have to find out from IG what they base these prices on.

 

[SinbadTheTrader]

There is no daily future or Feb or Annual. Just Mar, Jun, Sep and Dec. It rolls every 3 months. I don't know much about spread betting but I guess you'll have to find out from IG what they base these prices on.

Thanks. You're right: what IG call the Daily future is in fact (currently) the Mar future under another name. However, they do quote Feb and annual so maybe those refer to internal markets they've set up. It's sometimes difficult to get info from IG (I tried them first on this but no response) but I'll try again.

 

[wrobinson]

Good morning,

I just noticed your post and thought I would try to give a useful answer.

The are 3 separate things here:

1) the ftse cash market, i.e. the real ftse index, calculated using the actual stock prices,
2) the ftse daily as calculated by the spreadbetting firms, and
3) the ftse futures.

This is how they work:

The ftse cash is exactly what it says it is, and forms the basis for the other two:

The ftse futures are effectively a way of buying the real ftse 'cash' on credit, and they expire in Mar, Jun, Sep, Dec.

The calculation for this is S.(e^rt)-d, or more simply S.(e^(r-y)t)

Where S is the price of the cash market,
e is the base of the natural logarithms (used for continuous compounding),
^ is a symbol I have used to mean "raised to the power of",
r is the riskless intererst rate,
t is the time to expiry in years, and
d is the dividend amount for the period, or
y is the equivalent dividend yield.

The calculation is actually a lot more complicated than this, but this is a good theoretical one. This futures price is called the fair value, although the term is often incorrectly used to refer to the spread between the futures and the cash, and expressions like 'the futures are trading above, or below, fair value are heard when the futures get out of line. It is when they are out of line by too much that arbitrage between the two can occur, but that is a separate issue.

Now the ftse daily as calculated by the spreadbetting firms. This is none other than a theoretical 'cash market' price derived by working the equation backwards from the futures price. They calculate it this way because the futures are the only way in which they can hedge their positions. This ftse daily can therefore also be called an 'implied cash price', because it is the price 'implied' by the futures.

The reason that the ftse daily and the cash price sometimes differ is simply because the cash price and the futures prices differ as well as traders impact upon them differently, as I have alluded to above.

I hope this helps.
W.Robinson
Author: Trading for Wealth
out on Amazon very soon, or email [email protected]

 

[solentsurfer]

Thanks. You're right: what IG call the Daily future is in fact (currently) the Mar future under another name. However, they do quote Feb and annual so maybe those refer to internal markets they've set up. It's sometimes difficult to get info from IG (I tried them first on this but no response) but I'll try again.

These are just the SB Companies ways of offering different bets on the same thing. Firstly, notice they call it Wall St, not Dow, as their price may differ to suit themselves. (Usually not by much I grant you but the spread bias can take a couple of points out of you on a move)

Basically a daily future is unique to Spread Betting and gives you the chance to bet on the futures with a daily bet that normally expires at the end of the day - you will notice the spread is lower than the normal future. You can roll this over at the end of the day but if you know you are going to be doing this more than once or twice you may as well stick with the regular future bet as it costs to roll over, better to pay higher spread up front.

 

[SinbadTheTrader]

Thanks for both the previous answers. I think I understand now how it works. I'm sorry I didn't reply earlier but I've had appendicitis and been out of things for a week or so.

Simon

 

[Shaun12uk]

Just noticed this post and I wondered if anyone could offer any advice.
If you have been trading say a SB FTSE100 rolling daily and wanted to trade the the index with a
direct broker what is the product most similar in price and volatility to that SB instrument.
Would you simply use a futures contract quoted say at this time with June expiry.

Thanks Shaun

 

[duxank]

Does anyone knows is there a difference between SB FTSE daily cash index and FTSE100 at Yahoo (^FTSE)?

 

[solentsurfer]

Does anyone knows is there a difference between SB FTSE daily cash index and FTSE100 at Yahoo (^FTSE)?

SB daily cash should pretty acurately represent the actual market, although there is often a bias in the SB co's favour around the spread ie better to sell when price is moving up and vise versa. As for Yahoo, that should represent actual market although their hi/lo historical figures are nonsense because they represent cumulative hi's and lo's ie all the hi's of the constituent Co's over the day added trogether(and lo's) at least that's what happens with their Dow Jones data.