Spread prices

The costs of spread betting

Here goes,

I have attached a spreadsheet which I aim to keep updated (periodically) with my trades via spreadbetting.

The aim is to review the price paid for the bet, rather than the quality of the trade (cos I wouldn’t dare!) so that I can compare the price quoted by the SB company against the market price. Note this is for individual shares only.

The SB Co’s claim (and my experience backs this up) that they charge the market price with the market spread plus SB spread on far quarter bets of 0.3% in Capital Spreads case and 0.9% in IG’s case ("comm %") and an interest or “carry” charge ("annual %") depending on the expiry date of the bet. You pay this if long and benefit if short. The spread itself is the cost we all incur.

To test the cost of SB's and compare with other methods - look at the "comm %" column - to compare with other instruments consider the brokerage charges to buy and sell, and stamp duty (if UK stock) .

To test the clarity of SB pricing, look at the "annual %" column. This should be less than or equal to the interest charge (look in the SS) quoted by the SB provider - usulally 4.75 - 6%. If the provider biasses the quotes, it will be shown here. It is worth noting that with an offset mortgage and a credit account you can receive better interest than you are paying the SB provider for doing the deal.

To clarify, the size of bets will be around £3,500 (£ per point X No points) so the data can only be trusted for bets around or below this value.

Hopefully, over time I (we) will test the debate about spread bias, and also compare 3 companies (IG, Finspreads and Capital spreads) charges. The benefits of trading using credit accounts (which CS don’t offer) can be discussed later.

The spreadsheet will be removed and re attached to the latest post as and when it is updated. I will alter it depending on any further comments.

UTB

Good idea the blades.

Only one thought....what about including D4F since they also claim to be competitive?

starspacer said:

Good idea the blades.

Only one thought....what about including D4F since they also claim to be competitive?

Click to expand...

Eyup Star,

The prices compared were real prices just before I "pulled the trigger" (this time with finspreads but.....) - with the 3 companies I deal with.

I'm under the impression that I must have an account with D4F to obtain a real quote. Could you confirm? Also, the job of snapshotting all the companies at the same time proved difficult and gets worse the more companies you compare. However, if they give quotes I will consider in future.

That said, when I looked at the D4F platfrom on trial, I could barely work out how to find the quotes (which could say as much about me as their platform )

UTB

I'm under the impression that I must have an account with D4F to obtain a real quote. Could you confirm? Also, the job of snapshotting all the companies at the same time proved difficult and gets worse the more companies you compare. However, if they give quotes I will consider in future.

Click to expand...

Yes, I believe this is the case as you need to download their software.

Personally I find their platform pretty good, it's just the fills that I find offputting.

Maybe it will be a bit time consuming - credit to you for taking this on-board.

Good idea Blades. I'm sure that CS will come out on top from what I've heard / experienced.
Now if only they'd do a credit account.......

Latest data attached.

All companies within the formula they "promise". Actual commission charge is lower than stated by the company - maybe becuase the market price spread was indicated wider than actual. Either way, the SB co's achieved better spreads (before commission) than indicated by Ample. For a further explanation of how to compare the SB prices with other methods, see my edited opening post.

Any suggestions as to where to find the most accurate B/O market prices - hopefully real time?

The price achieved on trade 2 was the same as for the quote, again with Finspreads.

UTB

4 more trades added.

I have included a column for comments on price discrepancies.

Looking at interest charges, the SB co's are still well under 6% interest, and have reflected dividend payments in their pricing - good news!

For one trade, all 3 SB commissions seem high, on a previous trade all 3 were low. As this number is the difference between market spread and SB spread, I'm convinced I need more accurate market BO data - if anyone can advise?

Overall, no pricing shocks. All trades executed at the quoted price.

UTB

nice idea - agreed with the BO spread, you ideally want the data available to the Market Markets using Reuters (for example). Alternativley , tried comdirect ?

jklondon said:

nice idea - agreed with the BO spread, you ideally want the data available to the Market Markets using Reuters (for example). Alternativley , tried comdirect ?

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that's gonna be subjective for fx spreads unless you want to opt for a composite spread.

sccz97 said:

that's gonna be subjective for fx spreads unless you want to opt for a composite spread.

Click to expand...

just to clarify, the trades here are for UK shares only.

UTB

ah right ... perhaps I could let you know then that my experience with uk shares on IG is that the spread is variable on many illiquid stocks .. always workign against you, and that they shade the prices immensely for fixed spreads.

new trades (7&8) attached. All SB companies behaving well.

Trades 7 - 8 filled at quoted prices, BO spreads from LSE.

CS didn't offer a quote for one, which was a FTSE350 company (they promised to rectify today!).

UTB

2 further trades added, a buy and a sell.

All filled at quoted price. Additional spreads as promised, though IG's interest charge was a little higher than usual. Will keep an eye out.

UTB

Hi Blades,
How about putting whether the trades were long or short? Just a thought.

Cheers,

Edster

Edster said:

Hi Blades,
How about putting whether the trades were long or short? Just a thought.

Cheers,

Edster

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Hello Edster,

All these trades are for stocks and at the moment I'm only long on stocks and shorting indexes - which I'm not covering here. I will cover whether the trade was a buy or a sell though.

Thanks for the feedback.

UTB

latest SS attached.

I've included a quick calculation for comparing the cost of dealing through a normal stockbroker with varying deal sizes and transactions costs.

No evidence (as yet) of the wide spreads or bias that the SB co's are accused of. And the choice of SB versus actual ownership seems clear for these type of transactions.

UTB

the blades said:

latest SS attached.

I've included a quick calculation for comparing the cost of dealing through a normal stockbroker with varying deal sizes and transactions costs.

No evidence (as yet) of the wide spreads or bias that the SB co's are accused of. And the choice of SB versus actual ownership seems clear for these type of transactions.

UTB

Click to expand...

Hi Blades
Thanks for this, good to see an objective evaluation.
Seems like any deal worth less than £10,000 would be better using SB, above this level it might be worth looking into direct access.

Had a quick question, I hoped someone could answer.:
For IGIndex the current average Comm% is 0.82%
Which is less than the stated 0.9% (what we expected)

For both CS and FS the comm% is double (0.6 instead of 0.3).
From your initial post it seems as though your data backs up their claims, from the spreadsheet I am seeing something else. Am I missing something?

zatinus said:

Hi Blades
Thanks for this, good to see an objective evaluation.
Seems like any deal worth less than £10,000 would be better using SB, above this level it might be worth looking into direct access.

Had a quick question, I hoped someone could answer.:
For IGIndex the current average Comm% is 0.82%
Which is less than the stated 0.9% (what we expected)

For both CS and FS the comm% is double (0.6 instead of 0.3).
From your initial post it seems as though your data backs up their claims, from the spreadsheet I am seeing something else. Am I missing something?

Click to expand...

Hello zatinus - thanks for your observations - post modified with latest info.

On searching through each companies literature rather than relying on telephone calls it seems CS charge 0.3% for FTSE100, 0.5% for FTSE250 (whichever contract), Finspreads charge 0.6% and 0.7% for near and far quarters for all FTSE350's. Smaller co's are 1.1 and 1.2%

I will ammend SS accordingly with a column for the relevant index.

My main observation so far is that you can use a formula to predict the SB price - hence predictability - lack of this being one of the criticisms I've often seen. Once we establish the predictability, it becomes a debate about cost structures.

More data is required to accurately establish the SB costs. It's fair to say that movements in the market as I'm taking the quotes make absolute accuracy difficult, though the error should be + and - and even out over more trades.

All the best,
UTB

the blades said:

latest SS attached.

Click to expand...

Thanks for this. I'm just finding out about trading generally, and spread betting specifically and the info I have so far tells me the hows and whys but yours is the first example I've found of actual data.

I'm too new to risk anything just yet, and don't want to open an account anywhere until I'm sure I know what I'm getting in to. Sb firms all seem to want me to sign up and commit before giving me any live data regarding charges on specific trades.

I'm up to 'paper trading' and watching how my trades perform. Please forgive me if I'm asking something that belongs elsewhere, but your data seems an excellent point of reference.

Just clarify for me please...

I get 'closing prices' in a data feed which would say, for example 206.5 for 14 Jan 05

Your SS example has "the market" showing a "spread" of 206.25 to 206.75 - I assume this to be the bid and offer prices if I were to buy or sell actual shares on the day.

Your example shows 209.9 to 211.6 for FinSpreads for the same share. I assume these to be the bid and offer prices if I were to enter a trade with FinSpreads on that day. The 0.57% commission is FinSpreads' cut of the deal after they've charged me the higher/lower price on my buy/sell trade.

Is that it? Are there any other charges I need to account for? Are there any subscription or account management fees, or 'per trade' fees or anything else that would affect my profit on the trade?

tulaine said:

Thanks for this. I'm just finding out about trading generally, and spread betting specifically and the info I have so far tells me the hows and whys but yours is the first example I've found of actual data.

I'm too new to risk anything just yet, and don't want to open an account anywhere until I'm sure I know what I'm getting in to. Sb firms all seem to want me to sign up and commit before giving me any live data regarding charges on specific trades.

I'm up to 'paper trading' and watching how my trades perform. Please forgive me if I'm asking something that belongs elsewhere, but your data seems an excellent point of reference.

Just clarify for me please...

I get 'closing prices' in a data feed which would say, for example 206.5 for 14 Jan 05

Your SS example has "the market" showing a "spread" of 206.25 to 206.75 - I assume this to be the bid and offer prices if I were to buy or sell actual shares on the day.

Your example shows 209.9 to 211.6 for FinSpreads for the same share. I assume these to be the bid and offer prices if I were to enter a trade with FinSpreads on that day. The 0.57% commission is FinSpreads' cut of the deal after they've charged me the higher/lower price on my buy/sell trade.

Is that it? Are there any other charges I need to account for? Are there any subscription or account management fees, or 'per trade' fees or anything else that would affect my profit on the trade?

Click to expand...

talaine - your questions are perfectly reasonable.

And you have almost answered them yourself - yes the spread you see is the spread you pay. Ths SB firm's spread is a little wider as they take the market spread and then adds their own - this is their profit. If you bought through a broker - you would pay them a fee (usually around £15) to buy - this is their profit, then again when you sell. You would also pay 0.5% stamp duty.

The only other difference to consider is that when you SB - you don't pay money up front (other than about 10% of your deal). So your money can be sat earning interest. However, the SB firm factors this in by applying interest to the quote. As the expiry date of the bet approached, this ammount reduces to zero. This is not a charge as such - if you are long you will pay this and if you are short you will recieve this - because the level of the quote falls to the market price on expiry.

If you have any further questions, feel free to PM me.

Final thought - don't be afraid by any of this - it seems complicated but it really isn't. Once you've grasped it, you'll wonder why you ever thought it so.

All the best,
UTB