SB Bias!

rglenn

Well-known member
379 4
Does anyone knows a way of overcoming the opening bias that an SB company marks up/down the indices by.

Sometimes it can be around 30 to 40pts on an index especially the Dow.

Is there an SB company or broker whose spread is not so wide on the open price?

Any advice much appreciated.
 

al-motor

Active member
249 0
As u may know the cash is not traded on the open mkt or exchange- it is only the future -

But SBs do offer cash index trading, except that it is their interpretation of the cash ( using the futures) to give them an indication-

Therefore, any system based on the open of the Cash mkt is not really practical-

I would say, u are going to find the discrepency, whiever SB u use- But i could be wrong !!
 

TheBramble

Legendary member
8,395 1,170
If I understand the question correctly (and I'm a relative newbie, so it's quite possible I haven't) you're looking for a SB that doesn't make an untradeable spread on the indexes?

I use IG Index and although their 'version' of the cash price may not always be in line with the 'real' cash price, it does move pretty much in line with the underlying.

IG offer a zero bid/offer spread with a 4 point commission (6 for controlled risk).

Hope this helps.
 

rglenn

Well-known member
379 4
Thanks for that guys.

I'll have a look at IG index spreads and see how much they differ.

I notice that the Deal4free and finspreads don't take any trades on Eurostoxxe until 10 minutes after the markets open- I wonder why!!
 

Glenn

Experienced member
1,040 118
"Does anyone knows a way of overcoming the opening bias that an SB company marks up/down the indices by."

This is my understanding:-
A SB company is basically a single market maker operating their own rules. They have to protect themselves first thing from a potential flood of orders in one direction, just like many market makers do for equities.
Most SB co's do not hedge the positions they take on, because it is an expensive thing to do. I know of only one which does hedge (Cantor), and their spreads generally appear to be wider then the rest. The rest are effectively gambling against you, and, in the case of the open, making it more difficult for you to beat them at a time when they don't know what orders will come in.
There is nothing you can do to overcome this except
1. as you say, find a company with smaller spread or bias
2. or don't trade the open :)

I don't know whether Cantor skew or widen the spread at the open. Perhaps others might know.

Glenn
 

stevet

Established member
917 5
for narrow spreads and real prices- trade futures

for wide spreads, but low bet size opportunity - play with spreadbets
 
  • Like
Reactions: jezza888

Glenn

Experienced member
1,040 118
"for narrow spreads and real prices- trade futures "

I trade the Eurostox50 futures and very often the opening spread is 6-8 times bigger than the intraday spread.
What is even more interesting is that this index is supposed to be totally electronic !!
Nothing good is ever easy :)
Glenn
 

fudgestain

Well-known member
254 9
Rglenn, hi again.

I use Quote.com LiveCharts so if you watch the mini-Dow (CBOT:YM03U) there will be no initial gap because the SB firm (ie CMC) mirrors the futures price of the Dow from the Open.

Also at the Open the actual Dow index moving up or down to meet roughly the level of the SB price can give one a misleading visual impression.
 

rglenn

Well-known member
379 4
'Also at the Open the actual Dow index moving up or down to meet roughly the level of the SB price can give one a misleading visual impression'

Fudgestain that is exactly the situation I have found myself in sometimes as I find that there are a few times when the market reverses just before the index reaches the SB prices and at other times it passes it by quite a number of points.

This doesn't void my system but it makes it a bit more difficult to achieve my expected profits within a certain time frame. i.e if a couple of these 'gap' openings go against me then it could cost me a few more days in trading before my expected profits are realised.

As you know I am always looking for ways of improving my trading.
 

stevet

Established member
917 5
glenn

do you trade futures through a futures broker and with an electronic trading platform?

the estox50 is 100% electronic though Eurex - what did u mean by "supposed to be electronic"?
 

Trader333

Moderator
8,605 932
Even though an exchange is all electronic such as Eurex (but not SB companies), it is more than possible that the trading is so fast at the open that the spread widens because there is a lack of people wanting to trade at certain prices or all the orders at those prices have been filled or pulled. I dont think that it means there is anything suspicious going on and in some cases offers an opportunity.


Paul
 

Glenn

Experienced member
1,040 118
Stevet
I trade through IB using TWS.
What I meant was that big opening spreads make me suspicious that there is human intervention, despite it being supposed to be entirely electronic.
I can understand why a MM would want to set up some protection at the open, but if there are no MM's, then why a wide spread specifically calculated by the electronic system ?
If there is a dearth of orders during the day, the spread is never altered to attract business.
In fact I wonder why there need to be a spread at all. Just as with OEIC's there could be one price to buy or sell at. The spread is there traditionally to allow the MM to make a turn on every trade. So if there are no MM's where does the profit from the spread go ?
Anyway, I'm straying from the subject. Just saying that opening spreads can also be a problem with futs.

Paul
You may well be right, I don't know. What I do know is that something somewhere calculates a wider spread at opening gaps, presumably based on some kind of logic.
As a wild guess, it could be that the futs spread profit is used to finance the operation and maintenance of the electronic system and the wider opening gap spread is simply a vehicle for protecting that income.

I'm open minded, but always suspicious :)

Glenn
 

stevet

Established member
917 5
Glenn

the spread is simply the difference between the ask and bid that traders are willing to trade at - and apart from computer generated, arbs, risk based or outright trades, its all human directed - its not all computers trading between each other out there!

a long shot - but were you looking at an expiring or far out contract or even the estoxx contract on another exchange apart from eurex - u can choose a number of different exchanges and expiries for the estoxx on your IB TWS?
 
Last edited:

probookie

Junior member
17 0
SB bias...

SB "bias" is a theme that seems to crop up regularly. Let me give you an insider's view.

I work for one of the major SB companies. When we make a quote on the dow cash we calculate it from the futures price, minus a likely "fair value" reflecting dividends and cost of carry. We never ever EVER go around the cash.

Most of the time this doesn't matter too much, as the cash is pretty well behaved and will tend to trade at its fair value to the futures. HOWEVER, during the first 15-30 minutes of the day, the cash market is a nonsense number. This is because it is the running average of a bunch of stocks, some of which are not yet open, and therefore not yet tradable, and therefore don't yet have a meaningful price. So you can never trade "the cash" at this time of day, whether you use a SB firm, a basket trading progam, or whatever.

To give an example: the dow closed at 9400 yesterday. Today Microsoft comes out with a profit warning, and is expected to open significantly lower, pushing the market down 100 points or so. The futures markets will factor this in, and therefore so will the "daily dow" quote of every single spread betting bookmaker. When the cash starts trading, it will do so at around 9400. It will stay around 9400 until Microsoft opens, feeds into the calculation and causes the market to dive instantaneously to 9300. Everyone knows the fall is coming, but nobody can trade it, as to trade it would require the ability to sell MSoft at its pre-profit-warning level.

So offering quotes around the cash would be a quick way for bookies to go broke (no bad thing, you might argue). I have seen one occasion on which one of the newer companies tried this, presumably through ignorance. We laughed until we were sick, then sold the hell out of their quote, as did their fortunate clients. They never did it again.

The purpose of any "Daily Dow" quote is to predict the closing level of the market that day, ignoring all the shenanigans inbetween. We can and very often do get this wrong... ...but we'd get it wrong far more often if we took any notice of the cash index during opening periods, sudden moves in the futures markets etc.

There are no free money trees in finance, I'm afraid.

Apart from being a bookmaker, that is ;-).
 
 
AdBlock Detected

We get it, advertisements are annoying!

But it's thanks to our sponsors that access to Trade2Win remains free for all. By viewing our ads you help us pay our bills, so please support the site and disable your AdBlocker.

I've Disabled AdBlock