DaveJB said:
Damnit- gonna give this Logitech mouse to the kids, it's got a tiny button on top to go back to the previous page and I've lost count of the times I've been 3 chapters into a reply only to hear 'the click of lost posts'....
Ahem, try again....
I have a long trade open on MERQ for example, current Bid/Ask is 46.15-46.16 so centre price is 46.155... the Cspreads spread is 9 pts, (as I type it's gone to 10 pts), so logically the Dec price would be 46.11 - 46.20 or perhaps 46.10-46.19/20 say. The actual price quoted is 46.16-46.25.... CS think it's bullish as well, and whilst they haven;t moved the price a LONG way from centring on the current actual share price it's definitely about 4-5 pts (ie the entire downside spread) higher than centre.
As I understand (possibly the wrong word here) the idea, CS are betting against me being right - I can follow the logic of the spread being wider with 3 months to go than with 2 weeks to go, but not the logic of applying interest etc apparently only to the long side (this may well be a point I am failing to grasp <g>).
If I wanted to short MERQ I get a price of 46.16 which is where the price actually is, and where CS put the current price, long I get 46.25 which is 9 pts higher than the market currently prices it. To my mind it would be logical for an SB company to say 'the price is 46.16, we want 4 pts either side so 46.12-46.20, we also want an X% p.a. interest fee so that's 46.09-46.23 with 3 months to go, dwindling to 46.12-46.20 on expiry day. Whether I think it's appropriate to charge interest on holding my money is another issue!
Dave
Hi Dave,
according to the SB companies(!), they make their money from the spread. The create a market in the derivative so in theory when everything is rolled up, your up bet wil be balanced by someones down bet - whichever way the price moves they win + lose = zero, leaving the profit from the spread. For larger players, or maybe when a lot of business is done one way ,they may also take out their own hedge with someone else (though I don't know who).
I only buy shares that have risen rapidly in price, and I haven't noticed the SB bias. But as I said previously, I may not pick up on fractions of a % shift, and maybe I should. But you would expect if they were to bias any trade, it would be this type.
They clearly state that the prices for indeces and sectors are based on their opinion of the market. The prices here tend to lead (in my experience) so if you take a contrarian view you benefit if you get it right, if you go with the trend you lose out. Again, the price bias is only significant to the target price (ie for bigger moves, it's less relevant, obviously).
As for interest charge -this isn't in the spread, it's in the mid price. this may be the shift you mentioned with the CS quote The mid price is higher than the mid price of the thing you're trading. This gradually tightens as the expiry date approaches. So if you're short, the price comes down at the rate of interest charges, and you benefit. If you were long, you'd lose. Note also that any dividend payment is priced in, as you wouldn't receive the dividend. So if the yield on the share is higher that the interest, the mid price would be less than the market price! If you take a long / short strategy, as I do, the effect of interest is zero.
Regarding them charging gor holding your money, I do a lot of trading through a credit account (sorry CS). I've used my old trading pot to offset the mortgage so I'm 6% PA better off, when combined with a long / short strategy. Like I say, as you benefit from the interest charge when short, it seems pretty fair to me
Note here, for frequent trading the credit account co's, such as IG, don't compete with CS on spreads, so best avoid.
Hope this helps a bit dave.
UTB
