Best Thread CMC Markets owner answers your questions

[lancenicolase]

Thank you for your long reply Peter.

Unlike everybody else, you created Oil spot prices and charge 30% in overnight financing.
I'm sure you agree with me if I say that this was created to get more money from the traders...

Hi Lancenicolase

will answer your second question first.
no aim stocks on next gen but will be adding some in a few days time.

now first question second.

I have already answered this on posting 1008 but to save you looking it up here it is


CMC cash commodity prices are created by stripping out the carrying costs (convenience yield) that are built into futures prices. So the price you see on the platform is an implied cash price (stripping the underlying convenience yield from respective futures contracts). This cash price will be at a discount (less) than the futures price when the market is in contango (i.e. the price to buy a commodity today is cheaper than buying it in the future due to carry costs) and it will be at a premium when the market is in backwardation (i.e. the price to buy today is more than buying in the future due to immediate shortage / under supply or future oversupply in the market). So the convenience yield (carry cost that you get charged or paid depending on whether you are long or short) is dictated by the underlying futures market. The only difference is that we make this charge apparent and not build it into the price like futures contracts. Most people that trade futures don't pay attention to the convenience yield curve (the price difference between one future contract to another) but are subject to the same economics without noticing it.

For non-perishable commodities like gold or silver the convenience yield will be relatively low and for commodities such as Natural Gas, Heating Oil historically the carry costs could be quite substantial due to the volatility, storage constraints, seasonal factors, weather and political events.However it is important to note that the convenience yield applies to both sides of the trade if the market is in contango people who buy the commodity will pay this carry cost and people that short sell receive it as income on a daily basis. Alternatively for commodities that are in backwardation people who short sell the commodity will pay this carry cost and people that buy the commodity will receive it as income on a daily basis. The spread between what is paid and what is received in normal market conditions typically range between 1 to 3 percent.

Maybe giving you a current example could further clarify this... I will focus on Crude Oil which is going through some interesting times. Historically the price difference between Brent Crude Oil and West Texas Intermediary has been minimal. Currently the price difference between the two futures contracts are $17 (i.e. Brent $116.98 while WTI 99.76). WTI is in contago (with a steep convenience yield) while Brent is in Backwardation with a smoother convenience yield. Please refer to the respective images below which display prices and respective convenience yields. So due to the steep convenience yield curve WTI price diffreneces between various delivery dates are larger and for brent due to the smoother curve its lower. As a result implied cash price is closer to the front month contract on Brent and farther away for WTI.

So a customer that was short Brent yesterday would have paid 2.38% in carry cost and a customer that was long would have received 1.33% and a customer that was long WTI would have paid 30.06% and a customer that was short would have received 28.95%.


Bid Ask
US Crude -30.06% -28.95%
UK Crude 1.34% 2.39%


please see attachment I hope this helps
tks peter please see attachments oil.doc

 

[Trader1UK]

Thank you for your long reply Peter.

Unlike everybody else, you created Oil spot prices and charge 30% in overnight financing.
I'm sure you agree with me if I say that this was created to get more money from the traders...

30% overnight charging is very steep..

 

[PC at CMC Markets]

Hi lancenicolase

Thanks for your posting. I think rather than waste other posters time in answering your ridiculous assumption I would like to offer you the opportunity to come to our offices and get one of my team to educate you on how the cash and futures markets work and the cost of carriage. Not only would it help you understand how the markets work but it might help you in your long term trading.
Clearly you do not understand how the cash and futures markets work, even after my posting. It would be my pleasure to give you this free educational course. You can bring anybody else with you that needs help.
thanks Peter

Thank you for your long reply Peter.

Unlike everybody else, you created Oil spot prices and charge 30% in overnight financing.
I'm sure you agree with me if I say that this was created to get more money from the traders...

 

[PC at CMC Markets]

Hi si55amg. offer applies to you as well.
thanks Peter

30% overnight charging is very steep..

 

[Trader1UK]

Hi si55amg. offer applies to you as well.
thanks Peter

Thanks for the offer Peter,
I have been trading for quite awhile and i dont think i need any education on how the cash and futures markets work.

However, i will be giving your platform another try in the coming weeks, once you have more instruments transferred over to the new platform, and once you start offering CFDs on the new platform too. Looking forward to it.

Thanks

 

[tar]

y not offer both types of contracts to your clients , cash and futures , y force them to choose cash , give them the option , do u want to lose bussiness to your competitors because of this ?
When u offer bonds on your platform it will be cash or futures ?

 

[PC at CMC Markets]

Hi Tar

cash commodities are then next big thing in trading. Commodities are really seeing a massive increase in business around the world. I know of at least one major bank that is developing cash commodities. Because their clients are demanding it.

Also our biggest product on next gen spread bet is cash commodities. The spreads are extremely tight, you only pay cost of carriage on a daily basis, the contract does not expire and the cash markets are open longer than the futures markets.
also we are bringing commodities in line with bullion and forex trading.

You will see more and more providers offering cash commodities in the very near future. this time next year you will not be asking this question.

just remember you heard it here first and CMC Markets were the first spread bet firm to offer cash commodities.


tks pc

y not offer both types of contracts to your clients , cash and futures , y force them to choose cash , give them the option , do u want to lose bussiness to your competitors because of this ?
When u offer bonds on your platform it will be cash or futures ?

 

[PC at CMC Markets]

hi si55tamg
thats good so you will understand that we do not charge 30 percent financing on cash commodities.
We are days away from launching more products and next gen cfds. I am sure you will like the new platform. thanks for giving us a try that is all we can ask.

peter

Thanks for the offer Peter,
I have been trading for quite awhile and i dont think i need any education on how the cash and futures markets work.

However, i will be giving your platform another try in the coming weeks, once you have more instruments transferred over to the new platform, and once you start offering CFDs on the new platform too. Looking forward to it.

Thanks

 

[tar]

Hi Tar

cash commodities are then next big thing in trading. Commodities are really seeing a massive increase in business around the world. I know of at least one major bank that is developing cash commodities. Because their clients are demanding it.

Also our biggest product on next gen spread bet is cash commodities. The spreads are extremely tight, you only pay cost of carriage on a daily basis, the contract does not expire and the cash markets are open longer than the futures markets.
also we are bringing commodities in line with bullion and forex trading.

You will see more and more providers offering cash commodities in the very near future. this time next year you will not be asking this question.

just remember you heard it here first and CMC Markets were the first spread bet firm to offer cash commodities.


tks pc

Ok thats good but give the option for your client , your competitors could easily corner you now by offering both ( cash and futures ) , be the first to do it offer both in the same platform .

Regards

 

[PC at CMC Markets]

Hi Tar.
Firstly if any of our competitors want to offer cash commodities it is not that easy. You need a high quality quant team to work out all sorts of pricing and execution algorithms. It is not that easy because there is not a price feed that they can tap into to offer their clients cash commodities, so they will have to do all the calculations, pricing, software development themselves. That's not to say they cannot do it but it will take time.
secondly, we have no interest in looking backwards. quarterly bets will fad out in our opinion. After all we created the rolling cash spread bet and 99 percent of our business is rolling cash spread bets. before our rolling cash spread bets a large proportion of spread betting was quarterly. now it is rolling cash.
Like I said in one years time you will not ask the question.
I think the logic is compelling it is just that some clients are set in their ways and it is hard to change but we will stick to our guns.
I do not believe we will lose a lot of business to competitors because we are not offering quarterly bets. Like I said if you saw the growth in our next gen cash commodity business you would agree.

tks pc

Ok thats good but give the option for your client , your competitors could easily corner you now by offering both ( cash and futures ) , be the first to do it offer both in the same platform .

Regards

 

[tar]

Hi Tar.
Firstly if any of our competitors want to offer cash commodities it is not that easy. You need a high quality quant team to work out all sorts of pricing and execution algorithms. It is not that easy because there is not a price feed that they can tap into to offer their clients cash commodities, so they will have to do all the calculations, pricing, software development themselves. That's not to say they cannot do it but it will take time.
secondly, we have no interest in looking backwards. quarterly bets will fad out in our opinion. After all we created the rolling cash spread bet and 99 percent of our business is rolling cash spread bets. before our rolling cash spread bets a large proportion of spread betting was quarterly. now it is rolling cash.
Like I said in one years time you will not ask the question.
I think the logic is compelling it is just that some clients are set in their ways and it is hard to change but we will stick to our guns.
I do not believe we will lose a lot of business to competitors because we are not offering quarterly bets. Like I said if you saw the growth in our next gen cash commodity business you would agree.

tks pc

This is the problem , there isnt a price feed , why should clients trust the SB firm ? there is no benchmark to compare your commodities prices with , in other words there is no transparency , anyway goodluck .

Regards .

 

[arabianights]

er... you don't have to be a genius quant to do these calcs...

 

[tar]

 

[shortsell]

a lot of the questions on this thread seem to be answered with;

"our new platform is really good and technology is exciting, quant technology future next gen".

it's propaganda pure and simple.

a. like arabian says, this is not especially complicated

b. like tar says you could have chosen to offer your clients a transition period, but as with your AIM offering, it is just withdrawn, with the reason given disingenuous (in that case 'we want to concentrate on liquid products - because of our new technology, next gen etc etc' when the real answer was margin related IMO)

i find it patronising that you are talling people what they will and won't be thinking in a year. there are actually some people on this board who know what they are talking about and who aren't so baffled by your next gen quanty spiel as to be able to consider issues on their genuine merits.

 

[peakoil]

Hello Peter, you say this: "You will see more and more providers offering cash commodities in the very near future. this time next year you will not be asking this question. "

But with all respect I very much hope and trust that you're wrong on this matter. I have checked this issue with a few spread bet companies and they most certainly say they will be continuing to offer monthlies/quarterly contracts on commodities. I've wondered since if some of them even thought my question was my idea of a joke! Besides, if there were really no people interested in trading futures bets and cash (for whatever reasons they like) then there'd be no Spread Bet operators continuing to offer them. Why would they bother offering such thinly traded (!??) instruments, as you might be seen as implying here? Consider too that if some of the responses on this board are representative of the wider financial betting community, it is arguable that there will continue to be a very strong demand for both cash and futures commodity contracts.

You also say this, which I must also respectfully challenge: "I do not believe we will lose a lot of business to competitors because we are not offering quarterly bets."

Well, I may still have an account open with you, but.. I'm reasonably certain that I'm not the only one who's taken business that I would have done with CMC to at least one of your competitors in recent days, only because I unquestionably want to continue being offered the choice of cash *and* futures as regards commodities. And, again with all respect, I'll admit that I did not personally, nor entirely, find that your argument against your overnight financing charges removed the doubts I had felt about same.

 

[lancenicolase]

Hi Peter,
Before going around and telling people that they are not smart enough, you need to understand that they are smarter than you think.

People believe in what they see and your overnight charges are... pathetic. Where on your website you specify your overnight charges on cash commodities?

Rumour on the streets... you laid off people in sales and marketing teams. Is it because they have conscience and can’t stand such high overnight charges or platform doesn’t sell? :clap:

Hi lancenicolase

Thanks for your posting. I think rather than waste other posters time in answering your ridiculous assumption I would like to offer you the opportunity to come to our offices and get one of my team to educate you on how the cash and futures markets work and the cost of carriage. Not only would it help you understand how the markets work but it might help you in your long term trading.
Clearly you do not understand how the cash and futures markets work, even after my posting. It would be my pleasure to give you this free educational course. You can bring anybody else with you that needs help.
thanks Peter

 

[Ross Spur]

I tend to agree with the last few posts, PC. No-one seems to like the charts or the cash commodities much, but you keep insisting that clients will come round to your way of thinking. Meanwhile, there's still a distinct lack of comment from live next gen users.

 

[scose-no-doubt]

er... you don't have to be a genius quant to do these calcs...

Stop pulling the curtain back on the wizards.

 

[gle101]

I tend to agree with the last few posts, PC. No-one seems to like the charts or the cash commodities much, but you keep insisting that clients will come round to your way of thinking. Meanwhile, there's still a distinct lack of comment from live next gen users.

I would say like I suggested to PC, offer micro lots (on the new coming CFD's platform as well). This would for sure attract a lot of new clients who like to try out their platform, and if service is as good as he says they will stay on. This constant promotion talk by PC is frankly starting to get quite boring and it is not a good way to promote the new CMC nextgen platform, at least this is my viewpoint on the matter.

 

[PC at CMC Markets]

Hi shortsell
Thanks for your post
Difficult to get my points across in isolation in just
Discussing cash commodities.
We have very good long term plan that
I believe will overall take spread betting to another level
Watch out for cfd next gen release in next few weeks to see where we are going overall.
Tks
Pc

a lot of the questions on this thread seem to be answered with;

"our new platform is really good and technology is exciting, quant technology future next gen".

it's propaganda pure and simple.

a. like arabian says, this is not especially complicated

b. like tar says you could have chosen to offer your clients a transition period, but as with your AIM offering, it is just withdrawn, with the reason given disingenuous (in that case 'we want to concentrate on liquid products - because of our new technology, next gen etc etc' when the real answer was margin related IMO)

i find it patronising that you are talling people what they will and won't be thinking in a year. there are actually some people on this board who know what they are talking about and who aren't so baffled by your next gen quanty spiel as to be able to consider issues on their genuine merits.