Trading the Dow Jones

[dazzam]

guys,

What is the best broker/system to intra day trade the Dow. I currently have been using an IG spreadbet account but wondered if there is a better way. I have looked at deal4free which seems ok. What is this terminology direct access all about, I have seen somewhere on here about someone using direct access at 1 point spreads??

I am a bit confused what all this level 2 business is etc.

Sorry if this is a daft question

 

[options]

L2 in this instance is for usa Nasdaq shares only.
Dow can be sb'ed with a wide spread, or by direct access through people like Interactive Brokers, tight spread 1 to 2 points normally as against 5 points or more and the jerking about of the price (bias) with the sb's.

Difference? The tax.

 

[Trader333]

dazzam,

You have asked several questions which I will attempt to anwer.

If you want to trade the Dow intra-day the most cost effective broker is Interactive Brokers (IB), who have very low spreads and are a direct access broker. You should note that using IB or any direct access broker you will be trading the index future as you cannot trade an index itself. With SB comapnies when you think you are trading the index it is in fact a version of the index future.

It is also possible to use IB as a data source for the instrument you are trading so again there are cost savings to be made using them. Trading with IB is effectively instant on the Dow. The ticker symbol for Dow trading is called "YM" and the value per point is $5

Direct access means that when you place a trade you place it direct with the exchange that is trading that instrument which is why it is so fast and as you have said the spread on the "YM" is generally 1 point.

Level II is primarily used by those who trade Nasdaq stocks but is not really relevent to those trading the Dow and I wouldnt want to go into too much detail on it unless you specifically want to.

I hope this helps


Paul

 

[dazzam]

Cheers Options, so basically I could use IB at 1 to 2 spreadds but I would have to cater for tax instead of tax free but larger spreads with say IG.

Does IB charge a comission on top of spread??

 

[Trader333]

dazzam,

IB do not set a spread they make their money from commissions only and the cost for YM is $4.80 per round trip which is less than 1 point.


Paul

 

[ChartMan]

There is a table , somewhere in the archives under one of the spreadbetting threads where I drew up a table of "actual" profits, trading direct compared to an SB. This made simple of it, but basically showed that unless you were a consistent BIG winner, Direct was the most profitabe, even after tax. Take an "average" win on a 5 point move. ( 50 points on the dow). The IB return is more than double the SB net position. More than enough to cover tax. Of course, if your wins are >10 points, clearly SB is the better route. You don't make anything on a 3 point move with SB so you may as well have the win on IB and pay the tax!. Don't kid yourelf too much that you're going to be catching 10+ points all the time! It's also more impotant to note that the losses are smaller on IB!( to a point)

 

[hampy]

I have already made the decision to switch from sb to direct.
Most people here seem to use IB but I've also had a recommendation for Spiketrading and wondered if anyone had heard about or used them?
hampy

 

[dazzam]

Cheers Chaps...what does the term roundtrip mean..is it the opening and closing of the position.

I am only used to SB. The IB website seems a bit all over the place re explaining stuff but I am sure I will get used to it. If anybody has a few simple exampes of trading the DOW on IB I would be interested in any comments help etc. All I will want to trade is the DOW intrday.

 

[Trader333]

dazzam,

You are right round trip is opening and closing the trade. To open
is $2.40 and to close is $2.40 so a total of $4.80. I am unable to
provide you with trading examples on the Dow because I dont
trade it but I am sure others will help.


Paul

 

[osho67]

Dear Paul

I get the impression that you donot trade us index futures but prefer us stocks. Is it possible for you to give general comments as to how do you go about doing this. This will be very educational for new traders like me. Thanks

 

[Trader333]

osho67,

There is a lot I could say so could I ask you to be more specific
in your request as it will be easier for me to answer.


Paul

 

[osho67]

Tanks Paul

1. How do you select your shares?

2. Do you daytrade or other period

3 What indicators do you use in TA

4 Which online broker do you use?

Thanks so much

 

[Trader333]

osho67,

I will send you a private message.


Paul

 

[sandpiper]

hampy,

Spike Trading aka Rosenthal Collins. Certainly big enough, so no worries on that front. Once youv'e got that out of the way (and made sure that they haven't been black flagged by the NFA a few times) then the only things that matter are:

1) Margin requirements/processes, i.e. IB will pay you interest on your money. Will Spike Trading? or will you have to purchase T-Bills that can be used to offset your margin requirements?
2) Commissions/Fees.
3) Trading Platform. Which do you prefer. Also, last time I looked most places charge a fee for using X-Trader (not for J-Trader). X-Trader is almost certainly a better trading platform than IB's TWS. But worth money?

Don't be fooled by the "built specifically for you" or "nice guy" stuff that brokers lay on you. Unless you are after a full service account then it's all irrelevant. The only thing that matters is the security of your funds and the bottom line.

 

[sandpiper]

dazzam,

There are obviously lots of pros and cons to both direct access futures trading and sb's. I switched from direct access to futures trading some time ago. I was very reluctant to make the switch after having made financial calculations simalar to those of Chartman above.

However, for me at least, there were many more factors than just the difference between the sb spread and commissions/exchange fees.

Breifly, these were:

A good few years ago, my FCM nearly went down the tube because of a couple of over enthusiatic proprietary traders. But for the fact that they were taken over, a large portion of my trading capital would have disappeared.

After many months watching the spread quotes, I figured out that the sb bias can have a positive or negative effect depending on your style of trading or method. Indeed, with certain types of entry you can sometimes affectively trade spread free. With direct access futures trading you won't always get filled on the mini-dow or the es at the spread unless you use stop limit/limit orders (and then you won't always get filled).

Tax. Clearly the tax thing may or may not be any issue for you. It was for me simply because I traded futures though my own company.

Risk Management. For the type of trading I was doing it became more and more obvious over a number of years that trading in multiple contracts/lots was absolutely essential in order to get the most risk/reward out of a position. I've found it far more cost effective to emulate multiple lot trading using the sb's.

I might go back to direct access futures trading at some point but economically it just makes more sense for me to use the sb's at the moment.

 

[sandpiper]

dazzam,

Sorry, should have said:

I switched from direct access futures trading to sb's some time ago......

 

[Skimbleshanks]

sandpiper:

If you need to edit your post, just click on the edit button beneath the post.

 

[dazzam]

Thanks for all help chaps, certainly opened my eyes even more then they already were.

 

[sandpiper]

Skim,

Aaah, thanks for that....

 

[sandpiper]

dazzam,

D4F/CMC has come in for a fair amount of stick recently with various "system" problems. However, a few people will remember 2 or 3 years back when IB's TWS had loads of problems, as did PatSystems J-Trader when it first appeared. When TWS had it's problems it was almost impossible to get hold of their "brokers" (using that term loosely ) to offset a trade.

I'm sure everybody can testify as to how much more reliable these platforms are these days. One day (hopefully sooner rather than later) I expect CMC's MarketMaker platform to be just as reliable.