Hedging

[the blades]

help please.....

I trade a portfolio of stocks, both spreadbet and DMA through IB. I hedge my positions through spreadbets on the FST100, Russel, S&P and nasdaq. I also hedge my currency exposure to US stock with a spreadbet.

The weight of my portfolio has shifted heavily from spreadbetting to DMA and as such I want to hedge my positions using futures. My questions;

What exchange should I subscribe to to give me the ability to hedge the above contracts, at the minimal exchange fee.

Which contracts do I trade for the above and what is the equivalent $/pt?

Any advice greatly appreciated.
UTB

 

[Jack o'Clubs]

help please.....

I trade a portfolio of stocks, both spreadbet and DMA through IB. I hedge my positions through spreadbets on the FST100, Russel, S&P and nasdaq. I also hedge my currency exposure to US stock with a spreadbet.

The weight of my portfolio has shifted heavily from spreadbetting to DMA and as such I want to hedge my positions using futures. My questions;

What exchange should I subscribe to to give me the ability to hedge the above contracts, at the minimal exchange fee.

Which contracts do I trade for the above and what is the equivalent $/pt?

Any advice greatly appreciated.
UTB

Hi Blades,

You have an IB account don't you? If so all but one of the futures you need are part of the 'free' market data package you get so long as you trade more than $30 comms/mth. If you have the US stocks, then you have those permissions already because Globex and ECBOT are part of the equities package. The only one you won't have is the FTSE which is an extra EUR5/mth. Use the codes ES and NQ for the S&P and Nasdaq and GBP for cable futures. GBP is equivalent to $6.25/point, ES is $50 and Nasdaq $20. The indexes are the 'minis' - you can trade bigger size on the full contracts if you wish (different codes though). FTSE is £10/point. Comms vary, but are basically insignificant (a couple of bucks) for what you need them for.

If I've remembered wrong and you don't have IB, then the codes/sizes will be the same but obviously you'll have to sort out the data permissions.

Hope that helps mate, Jo'C

EDIT: Forgot the Russell2000: code ER2, $100/pt. Globex, so in with your other index permissions.

 

[TWI]

LIFFE and CME

 

[the blades]

Hi Blades,

You have an IB account don't you? If so all but one of the futures you need are part of the 'free' market data package you get so long as you trade more than $30 comms/mth. If you have the US stocks, then you have those permissions already because Globex and ECBOT are part of the equities package. The only one you won't have is the FTSE which is an extra EUR5/mth. Use the codes ES and NQ for the S&P and Nasdaq and GBP for cable futures. GBP is equivalent to $6.25/point, ES is $50 and Nasdaq $20. The indexes are the 'minis' - you can trade bigger size on the full contracts if you wish (different codes though). FTSE is £10/point. Comms vary, but are basically insignificant (a couple of bucks) for what you need them for.

If I've remembered wrong and you don't have IB, then the codes/sizes will be the same but obviously you'll have to sort out the data permissions.

Hope that helps mate, Jo'C

EDIT: Forgot the Russell2000: code ER2, $100/pt. Globex, so in with your other index permissions.

joc,

Thanks for your helpful response.

Good news that I seem to have the correct premissions for free.....almost. However, at those $ / pt it makes hedging very inflexible, doesn't it?

Currently I've got a £50 per pt bet on the Russell, £6 on the Nas and £8 on the S&P. I can't get anywhere near this, can I?

I suppose 2 contracts on the Russell will do it - without the mixture of exposures.

TWI - as JOC has pointed out, haven't I had my problem sorted for free? CME access is (from memory) $35 per month(doubled for me and the wife )

Thanks all,
UTB

 

[Spam Man]

at those $ / pt it makes hedging very inflexible, doesn't it?

Where they exist, you could instead use the ETFs which track the indices - so QQQQ instead of NQ, SPY instead of the ES, IWM for the ER2 - and trade as many or few shares as you like. They are traded on Amex so you already have the permissions with IB. Loads of liquidity.

 

[Jack o'Clubs]

TWI - as JOC has pointed out, haven't I had my problem sorted for free? CME access is (from memory) $35 per month(doubled for me and the wife )

Thanks all,
UTB

Blades - Spam Man is right - I wasn't thinking sufficiently laterally but that gives you the flexibility. The problem (maybe) is leverage - do you have to put too much 'down' to hedge your positions? At least with the futures you get plenty of gearing. CME=Globex to all intents and purposes so TWI and I were kind of saying the same thing. Globex is their 24-hr electronic exchange, I got a feeling the $35 is for access to floor trading which you don't need.

 

[the blades]

Cheers chaps,

I've used the ETF's before actually but you've sort of hit on it JOC - they eat up margin and you don't get the effect of the interest from being short (I think).

They do give me more flexibility mind so food for thought......a mixture of both maybe?

UTB

 

[grantx]

Blades,

If your running positions on UK and US stocks, why don’t you hedge via their respective options? Unless your running mega US positions, is dollar hedging really worth it? And unless your portfolios correlate pretty close to the indices, you may be over-hedging via the indices sb’s, not to mention over-paying. And unless, unless, unless. You can trade equity options (UK and US) via IB at pretty good rates.

If you're reading this, Hello Socrates. I wonder if this is illegal in Austria.

Grant.

 

[the blades]

Blades,

If your running positions on UK and US stocks, why don’t you hedge via their respective options? Unless your running mega US positions, is dollar hedging really worth it? And unless your portfolios correlate pretty close to the indices, you may be over-hedging via the indices sb’s, not to mention over-paying. And unless, unless, unless. You can trade equity options (UK and US) via IB at pretty good rates.

If you're reading this, Hello Socrates. I wonder if this is illegal in Austria.

Grant.

Thanks Grant,

Hmm....options.....last time I thought about those I was 15

In truth, being a simpleton I don't undertand the first thing about 'em Grant!

My portfolio definitely needs hedging - I'm "always in" with a portfolio of stocks - doing so (by spreadbetting) has saved me plenty as luck would have it, and thankfully tax free!

I'm not at all concerned about the cost related to spreadbetting - a few pts on a quartely bet is neither here or there. It's the worry that I'll gain on my long (share) protfolio, lose on the hedge through the spreadbet (tax free anyway) and hence lose the ability to offset my tax bill.

Thanks for all input though.

UTB

 

[grantx]

UTB,

Anytime.

Grant.

 

[Spam Man]

I've used the ETF's before actually but you've sort of hit on it JOC - they eat up margin

Are you aware of IB's new-ish Portfolio Margining? It's complex but in a nutshell will reduce margin when you have a balanced porfolio - ie. exactly the situation you are describing. It makes a big difference. There's a demo on their website, you should check it out. If it works for you, you need to opt in via Account Management.

Cheers.

 

[TheBramble]

TB - why are you hedging rather than taking outrights?

I've been assuming you're taking positions of relatively large size where you're happy to lock in a relatively small (in relation to overall size) profit for low-to-no risk. But then I wondered if you were using another strategy that was perhaps the complete opposite - relatively large but high risk profit in relation to overall size and the hedge acting effectively as a guranteed stop.

Curious - plus I want to steal your edge....

 

[the blades]

TB - why are you hedging rather than taking outrights?

I've been assuming you're taking positions of relatively large size where you're happy to lock in a relatively small (in relation to overall size) profit for low-to-no risk. But then I wondered if you were using another strategy that was perhaps the complete opposite - relatively large but high risk profit in relation to overall size and the hedge acting effectively as a guranteed stop.

Curious - plus I want to steal your edge....

Tony,

To clarify what I'm doing;

I have a "fund" of stocks. UK (through spreadbetting) and US (DMA).

The value of my portfolio is constant - so when I sell one share I buy another...ish.

I'm scared of (1) a Bear market and (2) a 9/11 event. I can't predict 'em, I just believe I can outperform the index. I'd rather have a much bigger portfolio with less "risk" but lower % returns. When markets fall sharply then correlations betweens shares go up and they fall together, in line. Well, that's the theory anyway

I thus hold an equivalent down bet (or sell a futures contract) for the value of my portfolio. So if (for eg) I held £100K of UK stock I'd take a down bet on the FTSE of (£100,000/6600) £15 per pt, or an equivalent futures bet. This is what I describe as my hedge, though maybe not strictly so in a textbook sense?

Cheers,
UTB

 

[the blades]

Are you aware of IB's new-ish Portfolio Margining? It's complex but in a nutshell will reduce margin when you have a balanced porfolio - ie. exactly the situation you are describing. It makes a big difference. There's a demo on their website, you should check it out. If it works for you, you need to opt in via Account Management.

Cheers.

Cheers Mr Spam. I'll definitely look into this as I've missed it!

UTB

 

[the blades]

Cheers Mr Spam. I'll definitely look into this as I've missed it!

UTB

OK - I've not got as far as the Portfolio margining thingy, but I've just checked out the interest paid on short sales - and it's only on balances over 50K. So If I assumed I'd get 5% (?) factored into a futures contract, I'm losing £2,500 ish per year doing it this way.

Forget the actual numbers as I've rounded up and down a bit - I'm still better off using the futures and losing some flexibility.

Aren't I?

UTB

 

[Jack o'Clubs]

Assuming you want to move from spreadbet hedges because you want to be able to use the tax losses, how about CFDs? You'd need another broker account (IB were talking about introducing CFDs at some stage), but you'd be able to much more closely match exposure levels.

 

[the blades]

Assuming you want to move from spreadbet hedges because you want to be able to use the tax losses, how about CFDs? You'd need another broker account (IB were talking about introducing CFDs at some stage), but you'd be able to much more closely match exposure levels.

I love this site. Right under my nose, I've even got a CFD account somewhere at the back of the drawer, and I'd forgot! Oh, the choice....

JOC - I take it I'll get CFD's for the Russell - this being my biggest exposure? Any recommendations on brokers that will suite my tight yorkshire ****?

Edit - I see CMC do the Russel (HL, my old broker don't), are "commission free" with a finance charge of + / - 3%. Can I get better financing?

Cheers,
UTB

 

[Jack o'Clubs]

JOC - I take it I'll get CFD's for the Russell - this being my biggest exposure?

Cheers,
UTB

CMC certainly do - it'll depend on your provider.

 

[Jack o'Clubs]

Just another thought: if one of the things you want is insurance against is a 'black swan' event (lots of commentators drawing parallels between the 20th anniversary of Black Monday and current market trends) - I'd be careful about any hedging taken on against a market maker. You can just see a 30% drop in the market, and the next day the s'bet firm uses its T&C get-outs to null and void your position. Not sure if CFDs are the same, but I'd sleep better at night with a proper 'market' hedge via futures, options, whatever.

 

[the blades]

Just another thought: if one of the things you want is insurance against is a 'black swan' event (lots of commentators drawing parallels between the 20th anniversary of Black Monday and current market trends) - I'd be careful about any hedging taken on against a market maker. You can just see a 30% drop in the market, and the next day the s'bet firm uses its T&C get-outs to null and void your position. Not sure if CFDs are the same, but I'd sleep better at night with a proper 'market' hedge via futures, options, whatever.

I'd wondered about that before actually and you might have made my mind up here, but sticking with CFD's in principle;

HL don't do the Russell.

IG do, but one contract = $100 per pt, that on the mini contract too! No benefir on the futures there then.

CMC do, but I couldn't get sense from the helpdesk. If I understood them correctly it seems that for each cotract I own I'd make or loose £1 for each pt move in the index. Now that's so far from IG markets to make me think I've missed the point?

Can you advise? Sorry to be a pain with the questions, take your time.

Thanks again,
UTB