Trading Level 2 via CFD's

[mik1973]

Researching all i can on Level 2 and am curious to find out whether anyone is currently trading via CFD's. I don't have the financial resources to open a PDT account but am aware that it is possible to trade via CFD's (albeit with a wider spread).
Any feedback would be appreciated- would also like to know which CFD provider is able to provide this facility as well as margin/leverage/minimum account balances etc.
Cheers,
Mick

 

[Nephin]

Mick,

this may be of interest......

https://accounts.uk.etrade.com/cfd_page.htm

 

[Marc100]

IGMarkets offer CFD level 2.

£10000 initial account balance, although once opened you can go lower than this.

Margin requirements range from 10%-25%.

 

[mik1973]

Nephin , Mark
Thx for your replies- going to do a bit of phoning around to get more info from these companies. Can i ask if either of you are trading via this method and (if you are) how you find trading this way.
Cheers,
Mick

 

[Marc100]

I place all my trades via the level 2 screen. Although I'm no expert, when I combine TA with level 2 I seem to pick more favourable entries.

I rarely day trade so level 2 is just another tool in my arsenal.

Good luck.

 

[jaison]

Mick,

IG Market's Direct Access is superb. I'm not sure what the general opening requirement is but I only needed £2,000 to open my account.

You need to trade 10 times a month or else you are charged after the six weeks free trial.

I make 10-20 trades a day using their platform. I wouldn't be with them if there was a better deal going.

They have my 100% recommendation. To be honest if you aren't going to trade 10 times a month you don't need level 2. Why pay £50 a month when it's free with IG?!

Jaison

 

[Naz]

Trading the US with cfd's and a level 2 screen is a good way to trade the US if you dont have enough for a PDT account.Remember also you can short any time you like and in many cases short stocks that are on the US brokers hard to borrow list.

The level 2 screen is ideal for watching at important levels.Take ASKJ shown in the chart last night.I was waiting for the evening move.

We had what i call the Corrie pullback which they confirmed by holding the whole number,by the blue arrow. There was the low risk trade with the stop under the low of the mid day chop.Off to watch Corrie and away we go on the evening run.

All of this can be very nicely traded by getting a feel for the level 2 story during the end of the lunchtime chop,then traded with a cfd platform.In fact the evening run is one of the best moves going.I always trade it after i've been coaching.

As mentioned a few UK companies offer CFD platforms that allow traders to trade these type of moves.I'm pleased to be meeting the CEO of one of these companies shortly and i'm looking forward immensely to the meeting,because i feel its the way forward for a lot of UK traders to get into trading the US market.

 

[mik1973]

Thanks for your responses- i've contacted IG who are sending me their literature. Also been in touch with etrade but that particular company (on the link) only provide access to trade UK level 2.
I've already viewed a number of CD's and have taken 8 pages of notes of Direct Access- just want to find out as much as i can before i take up any training - i'd like to be in a position where i know something. One thing that i am trying to get my head around is the 'inside' bid and 'inside' ask- what exactly does the inside part mean- a simple example showing figures would be appreciated.

NB- Apparently with this being my 100th post i get 'promoted' to a senior member and yet i'm still a complete novice!!!
Cheers,
Mick

 

[jaison]

Mick,

Trading inside the spread:

1 Ask 19.25
2 Bid 19.00

If you deal through a broker you will at best be offered 19.2 to buy and perhaps 19.05 to sell. The only exception to this is if the market maker (who has level 2 access) sees an imminent price movement. Then you may get offered a better price for a minute or so.

When you have direct market access, YOU decide on your price to buy and sell.

The problem with trading via a broker is that even though you may put in an order, this order won't go through to the order book. It sits on the brokers server until it knows that the price has changed.

With Direct Market Access you can make an order for buying at 19.00 and selling at 19.25. This is then placed on SETS ready for a sudden swing. You get to control the action whilst all the others just get to watch.

Throughout the day, the more volatile and liquid stocks will have sudden price jumps when a big player decides to buy all the available stock that's sitting on the order book at a certain price. By the time the price has moved on the ordinary feed your brokers order will have missed the action.

This is what is meant by trading inside. All the others trade outside the spread. Once you have mastered it you will realise just how easy it was not to make any money doing it the old way.

There is also another fundamental difference in trading by direct access. When you watch the shares that have been traded you will see AT against quite a few trades. This is Automatic Trade. It means that the order book has matched two traders that both want to buy and sell at the same price. Both get their price with no market maker getting his cut. Another big plus, and another example of trading inside the spread.

 

[EK1]

Jaison,

excellent post: really opened my eyes to the whole L2/DA way of working.

How would you recommend (For a beginner) to go about becoming skilled at reading/interpreting L2/DA et al.

Cheers

EK

 

[jaison]

I would recommend getting a level 2 feed trial and watching the price movements.

You can then paper trade and see what goes on.

I only scalp, so really there is no way someone can teach you that. You have to fly by the seat of your pants.

I know there is always a course that says it can teach you, but I have always preferred to teach myself.

I have seen other posts from experienced members that say they use the level 2 screen to signal entry points for longer term trading. This however is out of my area of knowledge. I am sure that that style of trading can probably be learned and you could benefit from paying someone to teach you.

I prefer to have my trades over a period of minutes and hours. Anything held overnight for me is a potential mistake, possibly even a disaster.

 

[EK1]

Thanks for the answer Jaison.

I presume you can only access the L2 data screens by opening an account with a suitable broker??

 

[jaison]

No, there are quite a few sites offering free trials.

Just do a search of the financial sites.

Generally you pay £50 a month or so just for the feed. The "others" that don't know about DMA pay for a feed as an addition to their normal trading platform.

You have the choice of paying up front with no commitment of trading capital, or getting it free for 6 weeks by opening an IG Markets account.

If you are already trading, all you have to do is to trade ten times a month with IG to keep the feed for free. You also have the option of paying after the trial is over if you don't feel confident enough to trade that often.

 

[Racer]

I use GNI for level 2 and trading on the book. Have no complaints apart from a few niggles with software but overall a thumbs up

 

[mik1973]

Jaison,
Many thanks for your post and explanation- it is appreciated. I haven't funds to trade a PDT account but am looking at CFD's as a way of trading this market. I can see the benefits of using Direct Access but using CFD's doesn't seem as flexible (ref: hidden island orders).
Any thoughts on this ?
Cheers,
Mick

 

[jaison]

Mick,

I think you will find that they are only used on US markets, but that said I don't know anything else about them so I can't really comment.

Whatever, I make bags more money on CFDs than I ever did on shares. I can't imagine and easier more efficient way to trade.

I just wish I had changed over earlier. Years ago CFDs were more complicated and the platforms on which to trade them were not available to the average retail trader.

 

[dod]

Jaison,

You said:

"IG Market's Direct Access is superb ... They have my 100% recommendation."

Isn't the commission with IG prohibitive? I believe it's 0.25% one way, making 0.5% per completed trade. On 1000 shares priced at, say, $30, that's $150.

Isn't that a bit steep for scalping? Or have I miscalculated something?

Nick

 

[jaison]

Dod,

Like all things the commission is negotiable.

I did start at 25 basis points, and I made money. If you are making small trades, then the minimum commission of £10 is excellent.

It puts them on par with a conventional broker. You get the added benefit of being able to trade by direct access with no substantial increased cost.

I came from a broker that charged £7 per trade and the government took their .25%. On an opening and closing trade of say £4K you would pay £14 to the broker and £10 in stamp duty.

With IG you pay £10 + £10. £4 less for Direct Market Access with a free Level 2 screen. How can you beat that?

Yes the commission does get to alarming proportions on large trades. On many days they get £500+ from me. However, I make larger profits too.

Big or small DMA has the edge!

 

[peterpr]

The other thing about IG is that when you place a L2 trade you initiate a stock purchase/sale DIRECTLY with the market on IG's behalf. Other CFD providers give you the LT data but when you hit the trade button, what you get is an immediate quote from the provider based on the current best price which you can either accept or reject. - not the same thing at all.

See my review of IG CFD service at:

http://www.trade2win.com/reviews/product.php?id=37

 

[dod]

Jaison,

I see what you mean, from a UK share trading point of view.

I'm looking into trading US shares. I already have an IB account, and I think they have a commission of around $15 a round turn for a 1000 share trade.

I would have to pay extra for back data and Level 2, but at $30 or so a month, this would seem way more cost efficient than using IG, even if the platform is free.

Nick