Best Thread CMC Markets owner answers your questions

[nigelpm]

Ermm. well the spread in the Brent/WTI per futures is $19 but $23 per CMC - clearly something has gone badly wrong with your calcs - How can the cash price be a full $4 ahead of the futures - it does NOT make any sense.

If it is simple - a brief calc of how it is worked out would be most appreciated.

And if it isn't simple I'd suggest your guys are overcomplicating it!

It's absolutely hopeless to try and trade if the cash price bears no resembalance to the futures - I would be MUCH better off trading the futures.

Right here goes.

I am disputing the price for Brent only FWIW:

Per :

http://futuresource.quote.com/quotes/relatedquote.action?symbol=BRN+1Q-ICE

Assuming a year is built in :

At the time of posting:

Aug 11 - 114.01
Aug 12 - 110.13

thus cost of carry should be 3.4% over the year and your cash price should be :

114.01 * 1 + 100/(3.4%/12) = 114.32!!

NOT 118!!

What on earth is going on?

I think these are very reasonable questions to be asking.

To make the point absolutely crystal clear:

On WTI (which I think you've got right)

http://futuresource.quote.com/quotes/relatedquote.action?symbol=CL+N1

Jul 11 - 94.95
Jul 12 - 98.29

You'd expect cost of carry to be 3.5% per annum

So cash price would be :

(94.95 * 1- ( 100/3.5%/12)) = 94.62

 

[Ross Spur]

Hi Peter,


However, as has been discussed recently, I prefer the market orders to be placed more easily. I saw the video demo and I tried it myself and it takes too many clicks. Perhaps deciding on the direction first may be helping you to provide these tighter spreads so this I can tolerate ( but I would certainly prefer not to disclose my direction before execution)

IMO the whole trade entry and order system is clumsy and needs revising (again), starting with a ticket with both Buy and Sell clicks. The narrowed spreads are good (beaten only by Spreadco - and their platform needs taking outside and shooting), but why's everything so slow?

 

[Truth Seeker]

i put the sad, bitter, paranoid troll (and a few others on this thread) on ignore a week or so back. I dunno, early days on this thread a big subject was "when you gonna cut the spreads then peter?"

this thread in particular attracts a lot of bitter, bitter ranters, perhaps it's envy..maybe they're sock puppets for a different sb firm, perhaps the bitterness is because they need someone to blame their failure on, but let's be honest here, if you're making cash (on whatever platform or method of trading) you don't moan, you do just do the job and take the cash out of the market. It's tiresome though as when i've looked in on this thread this week from time to time the quality of posting and intelligent questions had really been elevated..

Now i only trade the euro these days and as you know i only swing and or position trade so i can cope ok with the odd poor fill, bit of slippage etc, it's not that crucial to me measured over the year, but tax advice i'm getting is to spread bet only and 0.9 with decent fills is very attractive given i actually like the platform etc. And here we have the coo of the company prepared to have a *live* chat re. Any issue you may have and these guys only see the negative side, fook me they must be a barrel of laughs eh?

I've stated before that i see a situation were you only have 3-5 really strong sb firms competing for your business, i can see a situation were you're getting genuine 0.5 spread on the euro and ftse and ig cmc city and cs are doing all they can to get your business taking the sb industry to new heights of respect, compliance and customer experience, only thing they can't do is take the trades for you despite providing excellent chart packages, seminars, videos, strategies..and therein lies the troll dilemma..they just can't 'do the job' no matter what you give them :d

lol

 

[Truth Seeker]

Why don't you try getting a life sometime? You're petty arguments are no different than watching attention seeking footballers pretend they're hurt.

LOL, try harder

 

[forker]

I put the sad, bitter, paranoid troll (and a few others on this thread) on ignore a week or so back. I dunno, early days on this thread a big subject was "when you gonna cut the spreads then Peter?"

This thread in particular attracts a lot of bitter, bitter ranters, perhaps it's envy..maybe they're sock puppets for a different SB firm, perhaps the bitterness is because they need someone to blame their failure on, but let's be honest here, if you're making cash (on whatever platform or method of trading) you don't moan, you do just do the job and take the cash out of the market. It's tiresome though as when I've looked in on this thread this week from time to time the quality of posting and intelligent questions had really been elevated..

Now I only trade the Euro these days and as you know I only swing and or position trade so I can cope OK with the odd poor fill, bit of slippage etc, it's not that crucial to me measured over the year, but tax advice I'm getting is to spread bet only and 0.9 with decent fills is very attractive given I actually like the platform etc. and here we have the COO of the company prepared to have a *live* chat re. any issue you may have and these guys only see the negative side, fook me they must be a barrel of laughs eh?

I've stated before that I see a situation were you only have 3-5 really strong SB firms competing for your business, I can see a situation were you're getting genuine 0.5 spread on the Euro and FTSE and IG CMC City and CS are doing all they can to get your business taking the SB industry to new heights of respect, compliance and customer experience, only thing they can't do is take the trades for you despite providing excellent chart packages, seminars, videos, strategies..and therein lies the troll dilemma..they just can't 'do the job' no matter what you give them

I'm in a similar boat although I trade sterling too and its more than enough to grow the balance. I completely agree with your thoughts on these lamenting muppets trying to put on a show as though they are special.

 

[Black Swan]

I'm in a similar boat although I trade sterling too and its more than enough to grow the balance. I completely agree with your thoughts on these lamenting muppets trying to put on a show as though they are special.

Strange how you end up going full circle once you really have the confidence that your strat/edge is sound...all seems so obvious in hindsight; less pips, less trades, less losses, less screentime, I have now completely removed stress from my trading, I still get slightly annoyed when the market doesn't do what it *probably* should have but wtf, wait for the signals and reverse..

 

[forker]

Well I trade off the 4 hour for the same goal. Sometimes I wait an entire week before I get a trade. I don't know if I'll ever get used to that feeling of an entire week passing and the anticipation of the next trade. I am glad i only find myself in that situation every other month or there about.

 

[Black Swan]

Well I trade off the 4 hour for the same goal. Sometimes I wait an entire week before I get a trade. I don't know if I'll ever get used to that feeling of an entire week passing and the anticipation of the next trade. I am glad i only find myself in that situation every other month or there about.

"After spending many years in Wall Street and after making and losing millions of dollars I want to tell you this; It never was my thinking that made the big money for me, it was my sitting.."

Jesse Livermore

 

[tar]

fftopic:

 

[Black Swan]

Well I trade off the 4 hour for the same goal. Sometimes I wait an entire week before I get a trade. I don't know if I'll ever get used to that feeling of an entire week passing and the anticipation of the next trade. I am glad i only find myself in that situation every other month or there about.

I've only taken 3 trades this week all off the 2HR, 3 winners, this is the last of the three, might look for a short on the Euro tomorrow which is why I puked on this early a few hours back (well short of the 150 pip limit), my *bias* is short given the contagion in Euroland etc.. I'm sure you can work out where the entry was on the other two..

 

[nigelpm]

Overnight carrying costs on Brent was 37% (p.a.)

How on earth is this being worked out?

I shall be moving all positions out and using IG unless Peter can explain what is going on!

 

[PC at CMC Markets]

Hi Nigel,

I will get a full explanation and post it on here like I have done many times before. I will show the calculations etc. tks will get back to you.
regards peter

Overnight carrying costs on Brent was 37% (p.a.)

How on earth is this being worked out?

I shall be moving all positions out and using IG unless Peter can explain what is going on!

 

[PC at CMC Markets]

could not have put it better myself
pc

I put the sad, bitter, paranoid troll (and a few others on this thread) on ignore a week or so back. I dunno, early days on this thread a big subject was "when you gonna cut the spreads then Peter?"

This thread in particular attracts a lot of bitter, bitter ranters, perhaps it's envy..maybe they're sock puppets for a different SB firm, perhaps the bitterness is because they need someone to blame their failure on, but let's be honest here, if you're making cash (on whatever platform or method of trading) you don't moan, you do just do the job and take the cash out of the market. It's tiresome though as when I've looked in on this thread this week from time to time the quality of posting and intelligent questions had really been elevated..

Now I only trade the Euro these days and as you know I only swing and or position trade so I can cope OK with the odd poor fill, bit of slippage etc, it's not that crucial to me measured over the year, but tax advice I'm getting is to spread bet only and 0.9 with decent fills is very attractive given I actually like the platform etc. and here we have the COO of the company prepared to have a *live* chat re. any issue you may have and these guys only see the negative side, fook me they must be a barrel of laughs eh?

I've stated before that I see a situation were you only have 3-5 really strong SB firms competing for your business, I can see a situation were you're getting genuine 0.5 spread on the Euro and FTSE and IG CMC City and CS are doing all they can to get your business taking the SB industry to new heights of respect, compliance and customer experience, only thing they can't do is take the trades for you despite providing excellent chart packages, seminars, videos, strategies..and therein lies the troll dilemma..they just can't 'do the job' no matter what you give them

 

[nigelpm]

Hi Nigel,

I will get a full explanation and post it on here like I have done many times before. I will show the calculations etc. tks will get back to you.
regards peter

Ok, I appreciate that.

Did you see my calculations posted before - taking the futures curve and trying to work out carrying costs - it should be somewhere around 4% p.a. unless I'm missing something obvious.

 

[PC at CMC Markets]

hi nigel
yes boss I saw it and have already emailed it to our quant team.
will get reply to you today but I can tell you now there is nothing wrong with our calculations. you will need to see how it is calculated and where the cash adjustment is. maybe we have released this product too early for the spread bet market. it is probably more akin to the cfd markets but thought spread betters might find it easier as it is rolling contract and you can keep it open indefinitely and cash contract is open longer than futures contract.

anyway will get you the calculation.

tks pc

Ok, I appreciate that.

Did you see my calculations posted before - taking the futures curve and trying to work out carrying costs - it should be somewhere around 4% p.a. unless I'm missing something obvious.

 

[Ross Spur]

hi nigel
yes boss I saw it and have already emailed it to our quant team.
will get reply to you today but I can tell you now there is nothing wrong with our calculations. you will need to see how it is calculated and where the cash adjustment is. maybe we have released this product too early for the spread bet market. it is probably more akin to the cfd markets but thought spread betters might find it easier as it is rolling contract and you can keep it open indefinitely and cash contract is open longer than futures contract.

anyway will get you the calculation.

tks pc

Whether the calculation is right or not, the problem from our side is that the price doesn't relate to any other quotes.

 

[nigelpm]

hi nigel
yes boss I saw it and have already emailed it to our quant team.
will get reply to you today but I can tell you now there is nothing wrong with our calculations. you will need to see how it is calculated and where the cash adjustment is. maybe we have released this product too early for the spread bet market. it is probably more akin to the cfd markets but thought spread betters might find it easier as it is rolling contract and you can keep it open indefinitely and cash contract is open longer than futures contract.

anyway will get you the calculation.

tks pc

Cheers.

I don't think it matters whether it's CFD or spreadbet.

If the price calculation makes sense that's fine because it will always tie back to the underlying futures, and thus make it tradeable.

If it can't be tied back it's untradeable.

I await your calcs with interest.

Both markets getting a right kicking as we speak.

 

[Ross Spur]

Both markets getting a right kicking as we speak.

No kidding. Excellent buying opportunity

 

[PC at CMC Markets]

Hi Nigel here with technical explanation.

1:- Backwardation and Contango:
WTI is in contango while Brent is in backwardation and above the WTI forward curve.
Hence everything else being equal, the spread of $19 on futures will be magnified when transposed into cash.

The question is why the additional $4

2:- Effect of decreasing correlation between prompt month future and other futures as the prompt month is about to expire.
Cash product are by design bound to match the prompt future price on its last expiration instant.
During the last trading hour of Brent, the prompt month was trading around 118.30 (expiration on the 14-June) while the second
month was trading around 116.30 This spread of $2 is entirely transmitted to the cash price as the prompt month is expiring within less than one hour.

What about the remaining 2$ on the spread.

What happen next is that, The disconnect between the expiring Brent future contract and the remaining contract
month did manifest itself and, within the last 30 min of the expiration instant, the entire Brent forward curve to
the exception of the prompt month moved downward by about $2 this resulted in the widening of the spread between the prompt Brent and the next future contract on Brent i.e. our cash Brent and the future contract to become the prompt Brent in less than 30 min.

That is technical explanation and I accept that it is confusing for most punters but I hope eventually that roll cash commodities will be accepted by the community.

tks pc

Cheers.

I don't think it matters whether it's CFD or spreadbet.

If the price calculation makes sense that's fine because it will always tie back to the underlying futures, and thus make it tradeable.

If it can't be tied back it's untradeable.

I await your calcs with interest.

Both markets getting a right kicking as we speak.

 

[nigelpm]

Hi Nigel here with technical explanation.

1:- Backwardation and Contango:
WTI is in contango while Brent is in backwardation and above the WTI forward curve.
Hence everything else being equal, the spread of $19 on futures will be magnified when transposed into cash.

The question is why the additional $4

2:- Effect of decreasing correlation between prompt month future and other futures as the prompt month is about to expire.
Cash product are by design bound to match the prompt future price on its last expiration instant.
During the last trading hour of Brent, the prompt month was trading around 118.30 (expiration on the 14-June) while the second
month was trading around 116.30 This spread of $2 is entirely transmitted to the cash price as the prompt month is expiring within less than one hour.

What about the remaining 2$ on the spread.

What happen next is that, The disconnect between the expiring Brent future contract and the remaining contract
month did manifest itself and, within the last 30 min of the expiration instant, the entire Brent forward curve to
the exception of the prompt month moved downward by about $2 this resulted in the widening of the spread between the prompt Brent and the next future contract on Brent i.e. our cash Brent and the future contract to become the prompt Brent in less than 30 min.

That is technical explanation and I accept that it is confusing for most punters but I hope eventually that roll cash commodities will be accepted by the community.

tks pc

That does acually make sense and it's very simple but a nightmare for traders!

Ulitmately you are using the difference made at the last rollover as the carry cost i.e. in this case $4 - so translated over a year that is 41%!!!

This is the confusing bit - and why the current price bares no resemblance to the futures strip at today.

With futures it is MUCH better as the punter can decide when to roll the future so aren't bound by the expiry rollover - which for brent this month was $4.

Thanks for the explanation but I can't trade it!

Please bring the futures back!

Looking at the chart on the expiry day you can see all this very clearly as well - very painful for those short Brent who didn't close at 114!!!