DMA CFDs - can i set my own prices within the spread? help much appreciated!

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Fiddlers Retreat

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hello there, firstly i would like to say how informative this site is!

my question is this:
The London Stock exchange offers direct market access to its order books - meaning you can place limit orders on the buy side of the order book. if the order gets filled - you have effectively bought the share at a lower price (less than the sell side of the order book) -- if i then placed this stock in the order book, on the sell side, i can ask more for it (what ever the difference in the spread is (this is anywhere from 0.1p to 1.5p usually) - if the order gets filled, i have made say, 0.5p on every share.

what i want to know is, can this be done with CFDs? worked example below:

Buy shares (or start the CFD) using DMA limit order on the buy side of order book,
Purchase price 100p
order gets filled.
I now hold a CFD, worth £10,000 (my margin is 10%, so i pay in £1000)
this means i hold 10,000 "shares" at 100p each.
I then place the trade on the sell side of the order book for 100.5p (this is the best current offer say)
order gets filled.
CFD ends at 100.5p == meaning iv "made" 0.5p on each one.

would this translate to £50 Profit, minus any commission etc.

it would be great if this worked as it puts you in an excellent starting position. as when using a quote driven system, you often pay near or over what people wish to sell at. meaning the share price has to rise 1 or 2p JUST to break even.

Your thoughts on this would greatly be appreciated.

Thanks

Matt

P.S. i have been trading shares for the last year, recently got into CFDs, and am now looking into this Direct Market Access, as i feel im missing out on the real action!
 
Fiddlers Retreat said:
hello there, firstly i would like to say how informative this site is!

my question is this:
The London Stock exchange offers direct market access to its order books - meaning you can place limit orders on the buy side of the order book. if the order gets filled - you have effectively bought the share at a lower price (less than the sell side of the order book) -- if i then placed this stock in the order book, on the sell side, i can ask more for it (what ever the difference in the spread is (this is anywhere from 0.1p to 1.5p usually) - if the order gets filled, i have made say, 0.5p on every share.

what i want to know is, can this be done with CFDs? worked example below:

Buy shares (or start the CFD) using DMA limit order on the buy side of order book,
Purchase price 100p
order gets filled.
I now hold a CFD, worth £10,000 (my margin is 10%, so i pay in £1000)
this means i hold 10,000 "shares" at 100p each.
I then place the trade on the sell side of the order book for 100.5p (this is the best current offer say)
order gets filled.
CFD ends at 100.5p == meaning iv "made" 0.5p on each one.

would this translate to £50 Profit, minus any commission etc.

it would be great if this worked as it puts you in an excellent starting position. as when using a quote driven system, you often pay near or over what people wish to sell at. meaning the share price has to rise 1 or 2p JUST to break even.

Your thoughts on this would greatly be appreciated.

Thanks

Matt

P.S. i have been trading shares for the last year, recently got into CFDs, and am now looking into this Direct Market Access, as i feel im missing out on the real action!
Click to expand...

Quick answer for you - Yes, this is how it works.

Of course you have to worry about the queue and monitor your position very closely, but I'm told some people can make a pretty good living out of it. Basically your acting like a market maker.
 
Thank you both!

I have been looking at various providers of DMACFDs, IG Markets, and GNITouch seem among the best...

but i also found Blue Index (http://www.blueindex.co.uk/) (which wasn't on the LSEs Listing), has anyone used them or know if there any good?

i ask as their deposit amount is much smaller than others.

until im completely comfortable with this i only want to deal in relatively smaller sizes.




a second question,
Will i be able to trade my CFDs in the auction period?

thanks,

Matt
 
Fiddlers Retreat said:
Thank you both!

I have been looking at various providers of DMACFDs, IG Markets, and GNITouch seem among the best...

but i also found Blue Index (http://www.blueindex.co.uk/) (which wasn't on the LSEs Listing), has anyone used them or know if there any good?

i ask as their deposit amount is much smaller than others.

until im completely comfortable with this i only want to deal in relatively smaller sizes.




a second question,
Will i be able to trade my CFDs in the auction period?

thanks,

Matt
Click to expand...

Yes you should definitely be able to trade in the auction. Think Blue Index may be a white label.

If you're only trading in small size, check the platform and data costs before you open the account.
 
thanks for that Camelot...it was very informative.

with the dma demo - and the demo of the auction, can someone confirm one thing...

in an auction, where the bid is higher than the offer side -- when the auction ends - do you end up buying the shares for whatever the sell (offer) side is?

eg... the bid is 600p, but the offer is 400p -- upon the auction closing - do all those wishing to buy - buy at 400p? (even tho they entered 600p to secure execution on auction end)

Thanks for all the help folks,

Matt:cool:
 
No, the LSE uses an uncrossing algorithm in the auction which fills both buys and sells at the price where most shares will trade. What you see as the bid and offer after the auction are those bids and offers which did not get filled. The official closing price could be 5.45 with 5.40 bid and 5.50 offered.
 
ns1000 said:
No, the LSE uses an uncrossing algorithm in the auction which fills both buys and sells at the price where most shares will trade. What you see as the bid and offer after the auction are those bids and offers which did not get filled. The official closing price could be 5.45 with 5.40 bid and 5.50 offered.
Click to expand...

Right, ok, so if i understand that correctly...would that make my example as follows...

bid 600p -- Offer 498.75P == closing price could be 549.375p?

attachment.php


thanks

Matt
 

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No, the uncrossing price will be what the LSE computer calculates it can excecute the most stock at (normally quite near the last trade), if you look at the volume above, its only 600 bid for a small amount, but 400000 offered at 498 so it's more likely to cross at the lower levels. On most level2 systems if it shows a current price this will be what the auction would cross at at that time.

As for the post for going 100 bid then 100.5 offered...good theory but that rarely works, if you're hit at 100 it's more likely the stocks going down, so the next price is 99.5 -100. It hardly ever happens that a stock is hit then taken, maybe 1 in 10 times, so there'd be a lot of losers to the one where you nick that 1/2p...wish it did work like that!
 
In the screen shot above the uncrossing price would be 524 as indicated in the right hand box. As foredog says, most L2 providers will give you that info while the auction is taking place. (In actual fact the auction has already uncrossed in the above screen shot, marked on the trades section as a UT trade)
Any buy orders with a price above 524 and any sell orders below 524 will all be matched off at 524.

EG: you place a limit buy at 550 you'll get filled at 524.

With regard to "making a market" foredog is right, it's not a valid retail trading strategy unfortunately. The majority of the spreads on the LSE are more than your commission. Which I expect will be 6-10bps for a new modest size account. Any shares with a wider spread will be slow and illiquid, you'll be sitting waiting for your bid to get hit all day with no size to lean on when it goes wrong. Plus when the spread's wide anyone who wants a fill asap will hop over you and go best bid.
Saying that though, one viable strategy with DMA which is rarer these days than years ago, is to go "bot fishing" by placing an order at best bid on several shares first thing in the morning on wide spread 2nd tier shares.
Older trading algorithms used to "jump" over you to go best bid themselves. We used to have great fun getting sell orders ready, putting a 1 share high bid in 3 ticks from the offer, waiting for the bot to hop over and then hitting him.

Another strategy is to find an auction uncrossing far away from the expected opening price due to 1 large order only if you've got several orders leave it alone as there's some news or a rumour you haven't seen, but 1 large order skewing the uncross can be an opportunity.

Focus on using the same strategies as you would with quote driven CFD's. DMA's great for auction participation and scale down strategies on gappier shares but apart from that you've still got to develop an extra trading edge.

Good Luck.
 
Always fun beating the computers at their own game, watching them leap like salmon over your scrappy bid right into the perfect place for you to stuff them at the high of the day! Been there many a time, shame the systems are getting wiser!
 
Thank you all!

its just clicked into place how it works!

the bot trick sounds great - but like said, things get more sophisticated everyday!

Cheers

Matt:cool:
 
Hi all,

Was on the phone to blue index -- they quoted 50 bpm (or something) as commission - can someone explain what this is?

im used to having a fixed percentage - say 0.2%

Matt
 
I'd guess they mean 50 bp (basis points) or 0.5%...sounds a bit high to me, to go in and out of the trade you've got to clear 1% before breakeven. You can get DMA from 10bp i believe
 
50BPS is daylight robbery, 10-15 is bad.
6bps (0.06%) should be pretty attainable with most going down to 4bps for big volume. Try IG Markets, or Global Trader, GNI aren't very good at negotiating.
 
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