Spreadbetting Firms Spreads

[sidinuk]

I'm certainly not looking for an argument and I apologise if it appears that way.

I still don't understand how you can think that the SB prices are biased against you and yet still be totally fair and correct. But I'm not going to argue with you about it.

At the end of the day I believe that the SB co's base their 'cash' prices purely on the movement in the futures market, rather than somehow foreseeing the future, knowing where the s/r lines are or any other manipulations.

I agree that their 'daily cash' price bears little resemblance to the index it is supposed to be tracking but it does tick for tick follow the nearest futures contract. I don't think the head dealer at D4F is sitting there thinking 'right, the dow is heading towards a resisitence level now lets skew the price a bit'. It's just my opinion but surely it is easier just to take the futures price and add a bit to it to give an approximation of the underlying index.

 

[darrenf]

Can I add my two penneth on the subject of bias.

I too believe that the sb prices follow almost tick for tick the futures price although I do not have futures feeds to compare this directly. However, I do believe this to be the case.

The bias, I believe comes down to the fact that the SB spread is wider than that of the futures price and this alone is where the problem (for traders) lies in that the SB company can position their spread at the top end/bottom end of the futures spread depending on the current market direction.

eg. say the ftse future spread is 3999-4000.

If the market is going up, typically the SB price may be say 3999-4004 and if market direction is down it may be 3994-3999.

In this way, the futures price is always within the SB spread but when trading the SB in the above example, if you went long on an upswing you would buy at 4004 and if you sold on a downswing at the same level, you would close at 3994. This would mean a 10 point loss when the equivalent futures loss would be just 1 point. Effectively, by using bias, the SB company have doubled their effective spread from 5 to 10 points and taken more of your cash than would be the case using futures.

Having said that, this does not make SB's a bad deal. As has been said on these boards previously, SB's are an excellent tool for holding several hours/days or even a couple of weeks or so. However, they are a bad deal for very short term, intraday trading when looking to pick up say 10-20 points a trade because of a) the wider spread and b) the fact that the bias could effectively double the usual SB spread when compared to the futures price.


Other than this bias within the spread, I do not beleive there is any underlying manipulation of SB prices. I think when some people talk of 30 point plus bias from the index, they are comparing the SB price with the actual index price (whether FTSE/DOW or whatever). When this is the case, I am sure that if you were to also look at the Futures price, that too would be about the same distance away from the actual index as the SB price.

Does this make sense or am I just talking cobblers?

Finally, a question for Chartman:-

You seem to advocate trading from the chart that reflects the underlying instument you are dealing in but at the same time you seem to trade the DOW using the actual index chart, using SB's as your trading method. I know you have said previously that your SB company does not provide charts, but surely this is contradictory? Would it be more beneficial to trade off a futures chart as the SB price would follow the futures chart much more closely than the actual DOW index chart? This is not a challenge of your methods as they seem to be working very well for you but I am curious to find out your reasoning on this.

 

[jpwone]

Fair enough sidinuk.

Apologies for getting on my high horse.

If you choose to trade the dow cash then you also choose to accept the prices the SB companies choose to give you. Sometimes it is not fair and sometimes it is very fair and sometimes the bias can be used to your advantage.

Its horses for courses with this one. I trade the cash dow with some success but I also understand that the price I trade at can often be very different to the actual level of the dow index.

How they calculate the price is not as simple as it could or perhaps should be but I think it is unlikely that any one of the SB companies will confirm exactly how they calculate the cash price. Would be nice if they did.

 

[sidinuk]

Are we friends again jpwone? virtual handshake?

Your absolutely right about the cash dow, you can only trade what they give you.

There is definitely a difference between the way that the different co's calculate their cash prices, I have accounts with D4F, city index and IG and the three of them never move together, I've been able to arbitrage between them in the past. But the ridiculous spreads that IG and city use make that very difficult. D4F do seem to track the futures more consistently than the others though and that is who I was basing my assumptions on.

 

[darrenf]

just to add some further comment...

I have a current long euro/ usd position open with d4f spreadbet. I have been following the SB price and comparing it to an FX brokers price (saxobank- who I use for FX charts).

Firstly, D4f spreadbet spreads are identical to the "real" FX broker in most cases (sometimes 1 pip higher). and secondly, the price is virtually identical to the saxo price. I have only noticed a maximum differential of 3 pips on euro/usd for a matter of seconds. most of the time it is identical or 1 pip difference either way.

I know this is a random observation, but no complaints from a bias or size of spread basis from me cocerning fx trading with d4f.

I think d4f offer a great service to anyone wanting to get into fx dealing, but only wishing to trade small amounts (£1 per point min). My only criticism is that they do not offer "if done" orders which most "real" fx brokers seem to.

PS I dont work for D4f or have any connection to them other than holding an account.

 

[jpwone]

Hi sidinuk

Shake shake

Basing my observations on Fins. I speak to another trader who uses D4F and there can be significant differences in the prices on the dow cash between Fins and D4F at times.

Anyhow, back to trying to make some money off of it

 

[waytogo]

Hi all

Just to add my two pen'orth of info (although I think you've almost discussed this topic to death already. I traded the FTSE (and sometimes the DOW) with deal4free for quite a while until I realised the hard way that I was never going to make money intraday that way and changed to direct access.

The Deal4free FTSE (and DOW) cash prices are based exactly tick for tick on the futures prices plus or minus a premium which changes from day to day. When I first started trading I was charting the (real) FTSE index and was totally frustrated by it as Deal4free seemed to be always biased against you, or ahead of the game, until I worked out what was going on. Then I used to chart the futures price, but still traded the cash price as the spread was less. The final straw for me was when they changed the premium between the future and cash price in the middle of the day, which caused my stop to be triggered even though there was no similar move on the futures chart. I then realised that you cannot rely on spreadbetting companies for short term trading as they always adjust the rules to suit themselves and do not care about the customer.

There, I've got that off my chest now!

Waytogo

 

[ChartMan]

DarrenF - I was just making the point of basing your decisions on what you see on the chart in front of you NOT what price is being offered by the SB's at any given instant in time. IF you think the chart price is heading for support, stick with it ( with a few points of leeway). Look at what the SB sell price is and you may well wet your nickers as it may be 20 points below what your chart says. Give it a minute, watch the price come off the bottom 2 points and look at the buy price.... 10 points above the chart now.
I use the DOW charts purely for TA analysis- it's an excellent vehicle. I don't care if the Futs are a few points out here and there. We all know SB's are not scalping vehicles. I mostly trade ES Futures BUT I still take my cues from DOW TA. It has ten times more clarity than the spikey ES Futures chart. When looking for 50+ ( 5 on ES ) point moves, the bias/disparity thing is far less relevant. We are really only interested in breakouts, tops and bottoms aren't we?
If I see a big move in the offing, I'll trade the DOW and take the bias, othedrwise it's ES.
(ES is S&P500 futures)
One final point for the ponderers. If you are wondering why I trade DOW and ES it's because on big moves, I can't face the huge increase in stake required on ES so I take the DOW and don't suffer the FEAR syndrome. Yes, I base my stake on the probability of the size of the move. Each to their own, as they say.

 

[Miki]

“I was just stating a fact.”

Opinion, my dear fellow, opinion.


“But I just don't believe that they somehow 'know' which way the market is going and bias their quotes accordingly. Their prices are based purely on the futures and move accordingly.”

That’s exactly the reason why you failed your exam. If you observe the SB’s price movements carefully (and patiently) you will notice the bias pattern based on S/R.

The same pattern can be observed with Single Stock Futures price movements – it is the nature of the beast.

My advice to anybody trading via SBs or SSF is: do not trade unless you understand that bias – it is essential part of doing business.

 

[Bigbusiness]

I presume that the spreadbet company will also manipulate it's price according to the open positions of its clients.

If most of the clients are long the market, it will move the spread up to attract shorters to balance the position. This is assuming that the spread betting company doesn't hedge all its positions in the open market.

This is the way they do it for sports betting. If they can keep a balance between clients who are long and short, they make profits on the spread.

 

[sidinuk]

That’s exactly the reason why you failed your exam. If you observe the SB’s price movements carefully (and patiently) you will notice the bias pattern based on S/R.

I did notice this when I was trading with D4F and I wanted to understand why it was happening. That is why I compared the D4F cash prices to the underlying near futures contracts (not just once, but many dozens of times) and found that the futures do exactly the same at s/r. The net difference between D4F and the nearest futures contract stays the same throughout. D4F merely add/subtract a constant to the nearest futures contract to arrive at an approximation of the cash index. It has been noted that this constant did change midway through a session, which is not really fair! But it certainly doesn't happen at every s/r point, or even every day.

I must say that I have only studied the relationship between D4F and the futures and cannot say for sure how the other companies produce their cash prices. As Bigbusiness says I think some company's prices are influenced by their clients own positions, effectively creating a completely separate market to the one they are supposed to be tracking!

In my opinion D4F are the fairest SB co (with tighter spreads and honest pricing). However open an account with IB and trade ES and you'll wonder how you ever managed with a SB co. with their big spreads and slow unreliable dealing platforms. SB is not an ideal medium when price and speed are critical. Chartman certainly has the right idea in my opinion, only use SB for the longer big moves, where price and speed of execution are not so important.

 

[Helenqu]

I really think it's unfair to compare the two instruments. They do different things and are very good for different things.

SBs give a great low cost entry into trading and enable you to trade a massive choice of markets at low risk/cost. But they are not for scalping/small price moves.

Futures are liquid but the capital risk is greater (or should be!).

I'm now using both and I think a lot of traders do that. It's horses for courses you just need to learn which is best to use for a particular trade

 

[Miki]

“Bs give a great low cost entry into trading and enable you to trade a massive choice of markets at low risk/cost. But they are not for scalping/small price moves.”

I agree, Helen. I am sure that most of us on this board use IB for scalping.

Regarding the “low cost entry into trading” I would recommend SSF as suitable instrument ($ is cheaper than £).

 

[mmillar]

What's interesting here is what 'spreadbet bias' actually means to different people. From all the variety of posts on this subject I think these are the main definitions...

1. SBs 'cash' price is different from the Index.
2. SBs futures price is different from the real future by wide margins (5-140 points).
3. SBs futures price is different from the real future, but only within their spread.
4. Although the SBs futures price is the same as the real future, they 'bias' their 'cash' price.
5. SBs requote me to my disadvantage.
6. I am betting against the SB rather than the market. Therefore, the SBs manipulate the prices so that they always win.
7. SBs change their spread during the day.
8. The whole market is rigged and everyone is out to get me!

Maybe when this 'spreadbet bias' argument goes on in future people could declare which number they actually mean.

[edit - I'll just keep adding things as they come up]

9. We also need to clarify the timescales that people think 'bias' is occuring over - is it something that happens constantly through the day, once or twice a day at extremes, or once every blue moon.
10. Which SB firm are you referring to? People seem to have different perspective depending on which SB firm they deal with.
11. Is this 'bias' deliberate or is it just a consequence of the way SBs (and other brokers) do business?