IG Index versus CMC markets, immitation the sincerest form of flattery?

[Black Swan]

Noticed this yesterday; IG have launched a version of the CMC next gen daily cash bet where roll overs are eliminated, in practice you keep the bet open and pay a daily finance charge.

It'll be fascinating to watch how this battle develops over the next few years as each SB behemoth will want to hoover up the notoriously disloyal SB community..

Still think both are missing a trick not doing permanent 'micro stuff' in order to get the lads out of the bookies..Mind you that guy at Exeter getting 1.4ml, for a 2 quid stake, is the best pr the horse racing industry have had in ages.

Our new Daily Funded Bets offer a more refined way of spread betting on financial markets.

What are Daily Funded Bets?

Daily Funded Bets (DFBs) offer our tightest spreads without the inconvenience of daily rollovers. They replace our Daily cash bets on stock indices, forex, shares, gold and silver. Daily cash bets will be replaced by DFBs on 2 April 2011.

How do DFBs work?

DFBs have a long expiry date of April 2016. As with our current Daily cash bets, you will still be able to close your position whenever you choose, at any point before the expiry date.

Our current Daily cash bets expire each day and are subject to a rollover charge. But with our new DFBs the process is different. We make a cash adjustment to your account to reflect the funding costs of your position for each day that the bet remains open. The funding for DFBs will be charged in line with the rate for daily rollover charges.

Overnight funding and dividend adjustments

The funding adjustment will be made to all positions that you hold at 10pm UK time.

For stock index and share DFBs the funding adjustment is based on the one-month Libor rate for the currency the bet is denominated in, plus or minus 2.5%.
For forex, gold and silver DFBs, the funding adjustment is based around the Tom-next spread for the currency pair involved which will include a 0.0055% daily admin charge.

Funding adjustments will appear on the ledger as an aggregate amount for each currency that you hold positions in.

Dividend adjustments on stock index DFBs will be made at the close of the underlying cash market. Dividend adjustments on share DFBs will be made at the open of the underlying cash market.

Why the change?

The reason we're offering these new Daily Funded Bets is simple – it's what our clients have told us they want.

DFBs make it easier to see your true profit and loss for each position you hold by avoiding multiple rollovers over a period of time. Statements are simplified so that they are cleaner and easier to manage.

We will continue to offer our daily futures bets which remain unaffected.

A small amendment to our T&Cs

To accommodate our new DFBs, we’ve amended our customer agreement. From 2 April 2011, the following clause will replace clause 8(8) of the agreement:

8(8) When you open a Bet with us, we reserve the right to pass on to you any borrowing charges incurred by us when hedging our exposure to you under that Bet. Any such borrowing charges will constitute part of the Stake for your Bet. If you do not pay any such borrowing charges, or if we are (or become) unable to borrow the relevant underlying financial instrument that hedges your Bet (and we give you notice to that effect), we may, at our absolute discretion, take one or more of the following steps:

(a) increase your Margin requirements;

(b) close your Bet, with immediate effect, at such Closing Level as we reasonably believe to be appropriate;

(c) alter the Determination Date for your Bet.

You acknowledge and accept that these actions may result in you incurring a loss on the Bet. Further, you fully indemnify us against any fine, penalty, liability or other similar charge imposed on us for any reason by any Underlying Market or any other regulatory authority that relates in any way to your opening or closing a Bet or any related transaction by us to hedge your Bet. For the avoidance of doubt, this indemnity extends to any stock recall or buy-in costs imposed by any Underlying Market in relation to a Bet placed by you. For the avoidance of doubt, a financial instrument may either be unborrowable from the outset or our brokers or agents may recall from us a financial instrument that we have already borrowed against in order to hedge our exposure to you.

You will be able to download an updated version of our customer agreement, containing the above mentioned clause, from our website on 2 April 2011. Your continued dealing with us will signify your agreement to the amendment to clause 8(8).

What happens next?

You don’t need to do anything if you’re happy for your Daily cash bets to be converted to DFBs.

On 2 April 2011, any Daily cash bets you have open will be automatically closed and a corresponding DFB will be reopened at the same level – with no cost to you whatsoever.

Any working orders on Daily cash bets will also be converted into corresponding working orders on DFBs.

If for any reason you do not want your Daily cash bets to convert to DFBs, you will need to close any positions before the market close on 1 April 2011.

 

[Simoh]

It's an interesting trend, and not one that is necessarily good for the punter. I've posted my thoughts on rolling cash bets in 'Rolling Cash Commodities vs Futures, Who Wins?' See here.

It would appear to be a nice way of extracting a little more revenue from those holding bets overnight, when compared to the equivalent futures bet. Bettor beware, I guess.

Simon

 

[PC at CMC Markets]

Hi Black Swan.

Just seen this thread and thanks for your time posting.
We have been offering cash bets with no roll overs since July 2010 and I am not surprised the competition are finally latching onto it. just surprised it took them so long.
if you open cash bet with us by clicking on the history in accounts you will see the daily financing charge including the interest rate we apply.

I suspect the rest of the spread bet industry will follow us in due course.

thanks Peter

Noticed this yesterday; IG have launched a version of the CMC next gen daily cash bet where roll overs are eliminated, in practice you keep the bet open and pay a daily finance charge.

It'll be fascinating to watch how this battle develops over the next few years as each SB behemoth will want to hoover up the notoriously disloyal SB community..

Still think both are missing a trick not doing permanent 'micro stuff' in order to get the lads out of the bookies..Mind you that guy at Exeter getting 1.4ml, for a 2 quid stake, is the best pr the horse racing industry have had in ages.

Our new Daily Funded Bets offer a more refined way of spread betting on financial markets.

What are Daily Funded Bets?

Daily Funded Bets (DFBs) offer our tightest spreads without the inconvenience of daily rollovers. They replace our Daily cash bets on stock indices, forex, shares, gold and silver. Daily cash bets will be replaced by DFBs on 2 April 2011.

How do DFBs work?

DFBs have a long expiry date of April 2016. As with our current Daily cash bets, you will still be able to close your position whenever you choose, at any point before the expiry date.

Our current Daily cash bets expire each day and are subject to a rollover charge. But with our new DFBs the process is different. We make a cash adjustment to your account to reflect the funding costs of your position for each day that the bet remains open. The funding for DFBs will be charged in line with the rate for daily rollover charges.

Overnight funding and dividend adjustments

The funding adjustment will be made to all positions that you hold at 10pm UK time.

For stock index and share DFBs the funding adjustment is based on the one-month Libor rate for the currency the bet is denominated in, plus or minus 2.5%.
For forex, gold and silver DFBs, the funding adjustment is based around the Tom-next spread for the currency pair involved which will include a 0.0055% daily admin charge.

Funding adjustments will appear on the ledger as an aggregate amount for each currency that you hold positions in.

Dividend adjustments on stock index DFBs will be made at the close of the underlying cash market. Dividend adjustments on share DFBs will be made at the open of the underlying cash market.

Why the change?

The reason we're offering these new Daily Funded Bets is simple – it's what our clients have told us they want.

DFBs make it easier to see your true profit and loss for each position you hold by avoiding multiple rollovers over a period of time. Statements are simplified so that they are cleaner and easier to manage.

We will continue to offer our daily futures bets which remain unaffected.

A small amendment to our T&Cs

To accommodate our new DFBs, we’ve amended our customer agreement. From 2 April 2011, the following clause will replace clause 8(8) of the agreement:

8(8) When you open a Bet with us, we reserve the right to pass on to you any borrowing charges incurred by us when hedging our exposure to you under that Bet. Any such borrowing charges will constitute part of the Stake for your Bet. If you do not pay any such borrowing charges, or if we are (or become) unable to borrow the relevant underlying financial instrument that hedges your Bet (and we give you notice to that effect), we may, at our absolute discretion, take one or more of the following steps:

(a) increase your Margin requirements;

(b) close your Bet, with immediate effect, at such Closing Level as we reasonably believe to be appropriate;

(c) alter the Determination Date for your Bet.

You acknowledge and accept that these actions may result in you incurring a loss on the Bet. Further, you fully indemnify us against any fine, penalty, liability or other similar charge imposed on us for any reason by any Underlying Market or any other regulatory authority that relates in any way to your opening or closing a Bet or any related transaction by us to hedge your Bet. For the avoidance of doubt, this indemnity extends to any stock recall or buy-in costs imposed by any Underlying Market in relation to a Bet placed by you. For the avoidance of doubt, a financial instrument may either be unborrowable from the outset or our brokers or agents may recall from us a financial instrument that we have already borrowed against in order to hedge our exposure to you.

You will be able to download an updated version of our customer agreement, containing the above mentioned clause, from our website on 2 April 2011. Your continued dealing with us will signify your agreement to the amendment to clause 8(8).

What happens next?

You don’t need to do anything if you’re happy for your Daily cash bets to be converted to DFBs.

On 2 April 2011, any Daily cash bets you have open will be automatically closed and a corresponding DFB will be reopened at the same level – with no cost to you whatsoever.

Any working orders on Daily cash bets will also be converted into corresponding working orders on DFBs.

If for any reason you do not want your Daily cash bets to convert to DFBs, you will need to close any positions before the market close on 1 April 2011.

 

[Hoggums]

This is something that capital spreads have been doing for years....

 

[DashRiprock]

Our current Daily cash bets expire each day and are subject to a rollover charge. But with our new DFBs the process is different. We make a cash adjustment to your account to reflect the funding costs of your position for each day that the bet remains open. The funding for DFBs will be charged in line with the rate for daily rollover charges.

So instead of crossing a rollover spread, they are just financing you at a higher rate to compensate?

How does this save you any money, have i missed something?

 

[PC at CMC Markets]

not true they do daily roll overs

This is something that capital spreads have been doing for years....

 

[PC at CMC Markets]

hi dashriprock

there is no extra cost involved it is just that you can keep your original bet open at it's original bet price and the daily finance is accrued separately. if you go onto your next gen back office in a live or demo account with us you can break down the daily finance charge including the interest rate applied. it is more transparent for spread betters. all that has changed really is the way the daily finance charge is reported. it is easier to understand instead of a daily roll over that changes the original bet price every day.

peter

Our current Daily cash bets expire each day and are subject to a rollover charge. But with our new DFBs the process is different. We make a cash adjustment to your account to reflect the funding costs of your position for each day that the bet remains open. The funding for DFBs will be charged in line with the rate for daily rollover charges.

So instead of crossing a rollover spread, they are just financing you at a higher rate to compensate?

How does this save you any money, have i missed something?

 

[Simoh]

there is no extra cost involved it is just that you can keep your original bet open at it's original bet price and the daily finance is accrued separately. if you go onto your next gen back office in a live or demo account with us you can break down the daily finance charge including the interest rate applied. it is more transparent for spread betters. all that has changed really is the way the daily finance charge is reported. it is easier to understand instead of a daily roll over that changes the original bet price every day.

This is misleading, and in my opinion, not true.

In the other thread I mention above I explain this fully.

Once the bet has been broken down into it's constituent parts, the financing and costs of carry that are charged to the customer are increased.

The financing rate paid is the rate (implied in the futures contract) PLUS 2%.

The cost of carry charged will be MORE than if a single futures bet was taken, because the firm doesn't know when you are going to close your bet. It will be based on either the most expensive (contangoed) contract, or some form of higher average. This will also probably be increased a la financing charge too.

So rolling bets are definitely more expensive than futures bets, and because the de-construction formula is hidden, how could it possibly be more transparent. It's not.

Simon

 

[Hoggums]

not true they do daily roll overs

No they don't (or at least they didn't 2 years ago - I no longer use CS) They keep the bet and P&L at the original open and charge a daily interest to the account. The position does not get closed/reopened every day.

 

[Ross Spur]

The cost of carry charged will be MORE than if a single futures bet was taken, because the firm doesn't know when you are going to close your bet. It will be based on either the most expensive (contangoed) contract, or some form of higher average. This will also probably be increased a la financing charge too.

So rolling bets are definitely more expensive than futures bets, and because the de-construction formula is hidden, how could it possibly be more transparent. It's not.

Simon

Yes, surely it's theoretically only the same if you kept both bets open until the fut expires. Until then, the rolling bet is more expensive.

 

[PC at CMC Markets]

so why do they call it rolling cash

No they don't (or at least they didn't 2 years ago - I no longer use CS) They keep the bet and P&L at the original open and charge a daily interest to the account. The position does not get closed/reopened every day.

 

[peakoil]

Simoh, I quite agree with most of the sentiments raised by Simoh. And I was very interested in your last post too, on this issue, btw.

But when you say, "So rolling bets are definitely more expensive than futures bets", is that strictly true in all cases? Because there are definitely examples of the opposite, I suspect you might have meant: "depending on how much time a position is held for, rolling bets certainly can be more expensive than futures bets."

In general, I was thinking some more about why this is a good time to start tinkering with rolling bets and financing charges. And it struck me that of course interest rates are still at such a low that it's an absolutely brilliant time to try and convince people that these new instruments (with their complicated charges priced in) make "better sense" etc. etc., but... when interest rates rise, as will surely happen in the not too distant future - how cheap will these newly contrived bets look then!?? Thanks, but no thanks.

Anyway, I'm just hoping that there are enough spread-betting customers left who can or will see the wood for the trees.

By all means offer additional & complicated ways of charging certain... customers more, but I hope most companies have the sense to realise that there are still sufficient customers remaining with a working brain in their heads, who will take their business elsewhere - if they are then essentially told that reduced choice will be introduced for the "customers' benefits" & whatever other rhetorical 'smoke & mirrors' as are deemed sufficiently appropriate for those who like to have their thinking done for them...

 

[tar]

This is something that capital spreads have been doing for years....

That's true capital spreads have been doing this for years...

 

[shortsell]

and man. more half truths and propaganda from PC.

 

[Simoh]

Thanks for your reply peakoil.

While I agree that if you don't hold the bet overnight this is true, I can't really see any other circumstances when it might be (on the assumption you hold to expiry). Maybe my understanding is incorrect, if so maybe you could provide an example for me? Unfortunately, unless the exact method for how these rolling cash bets are made up is published it will always be guesswork!

As I explain HERE, the daily overnight charge is split into 2 parts, a financing fee and a fee for cost of carry. PC has already admitted on another thread that the financing fee charged on rolling cash bets is 2% more than a futures contract. He did quietly once, and doesn't mention it often, but it's true (that's 2% of the entire value of the bet).
I'm guessing the same logic will apply to the cost of carry element too, e.g. if the contango increases on a particular day the customer will be charged 102% of it, but if it decreased he would only be refunded 98% of it. Correction, I should say 102% of contango, but only 98% of backwardation. This means that the rolling bet will always be more expensive than the equivalent futures bet for sure, because you are paying the equivalent costs plus 2%. As always we can't know until the formula is published.

The above assumes the rolling cash is compared to the same futures contract that the cash bet is derived from. This would be the best case, and (if my assumptions are correct) you pay more on top as well. The firm gets to choose which contract to derive their bet from, the customer has no choice on this. When PC said

Can you tell me why it is important to you to want to bet quarterly and not cash
because I cannot see any technical reason why you would want to do this unless you wanted to play the interest rate/cost of carriage yield curve and then I suspect you wouldnt do this on cfd or spread bet contract but you would need to go through physical and interest rate swaps.

to you in another thread he was being completely disingenuous.
In fact when you take a futures bet you are NOT playing the yield curve, you pick a single future with a single contango at a single point on the yield curve. If you take a rolling cash bet you ARE playing the yield curve because the firm can move you around the yield curve at will. So with a cash bet, not only are you taking a bet on the price, you are betting on the yield curve, and, your bet on the yield curve is completely blind.

The reason I say this is, as I show in THIS thread, it would appear that when I held my crude position overnight, for the first few nights I was charged a small cost of carry which seemed in line with the near contract, but after a few nights it jumped dramatically. It was as if after a few days of holding the bet they decided I was going to hold forever and moved me onto a further contract with massive contango and charged accordingly. I had no control over this, and no explanation was given. If I take a futures bet I get to pick which contract and control my costs of carry, if I take a cash bet they get to pick the contract and vary my costs of carry, inevitably to the upside (and then take a cut on top I imagine, as they do with the financing).

Best regards,
Simon

 

[PC at CMC Markets]

Hi Simon
The cost of carriage is the cost of carriage whether it is calculated daily or rolled forward into the futures price. we are not making this up. It is to do with contango, interest rates, storage. etc.
The same cost of carriage applies to for example bullion but every body seems to trade cash bullion spread betting without the same arguements.

anyway if you want to come over to sit down, examine the maths happy to do that for you. then you can post your response on here independently.
thanks peter

Thanks for your reply peakoil.

While I agree that if you don't hold the bet overnight this is true, I can't really see any other circumstances when it might be (on the assumption you hold to expiry). Maybe my understanding is incorrect, if so maybe you could provide an example for me? Unfortunately, unless the exact method for how these rolling cash bets are made up is published it will always be guesswork!

As I explain HERE, the daily overnight charge is split into 2 parts, a financing fee and a fee for cost of carry. PC has already admitted on another thread that the financing fee charged on rolling cash bets is 2% more than a futures contract. He did quietly once, and doesn't mention it often, but it's true (that's 2% of the entire value of the bet).
I'm guessing the same logic will apply to the cost of carry element too, e.g. if the contango increases on a particular day the customer will be charged 102% of it, but if it decreased he would only be refunded 98% of it. This means that the rolling bet will always be more expensive than the equivalent futures bet for sure, because you are paying the equivalent costs plus 2%. As always we can't know until the formula is published.

The above assumes the rolling cash is compared to the same futures contract that the cash bet is derived from. This would be the best case, and (if my assumptions are correct) you pay more on top as well. The firm gets to choose which contract to derive their bet from, the customer has no choice on this. When PC said



to you in another thread he was being completely disingenuous.
In fact when you take a futures bet you are NOT playing the yield curve, you pick a single future with a single contango at a single point on the yield curve. If you take a rolling cash bet you ARE playing the yield curve because the firm can move you around the yield curve at will. So with a cash bet, not only are you taking a bet on the price, you are betting on the yield curve, and, your bet on the yield curve is completely blind.

The reason I say this is, as I show in THIS thread, it would appear that when I held my crude position overnight, for the first few nights I was charged a small cost of carry which seemed in line with the near contract, but after a few nights it jumped dramatically. It was as if after a few days of holding the bet they decided I was going to hold forever and moved me onto a further contract with massive contango and charged accordingly. I had no control over this, and no explanation was given. If I take a futures bet I get to pick which contract and control my costs of carry, if I take a cash bet they get to pick the contract and vary my costs of carry, inevitably to the upside (and then take a cut on top I imagine, as they do with the financing).

Best regards,
Simon

 

[peakoil]

Thank you Simon for your response to me. I did just want to say (as you'd guessed correctly) it is only because there are some (albeit few) examples of where a rolling contract is 'cheaper' than its quarterly cousin, and the most obvious example is of course if a customer wishes to hold his position for only a very short period such as twenty or so minutes, solely to take advantage of e.g., non farm price spike volatility, then, as I'm sure you'd quite agree, it makes all sense only to take a position with the slimmest spread (the daily/rolling cash) rather than a quarterly. At exactly what point in time it becomes more expensive to hold one as opposed to the other - does indeed depend on having access to all the figures, as you've said already. But it was just such a scenario which I had in mind, when I queried whether it was strictly correct just to close your excellent argument with "So rolling bets are definitely more expensive than futures bets." because you'd argued, as I understood, that that was true only insofar as if the futures bet was held to its expiry. That is, you hadn't strictly argued that rolling bets were more expensive than futures bets in all possible case! Nonetheless, please don't take such a minor quibble as anything but admiration for all else you've argued on this matter. Your posts on this matter have been absolutely first class, and I'm sure there are plenty of others who have appreciated them, as much as I have. Thank you sir!

As for PC's response to my earlier arguments, believe me, I didn't contentedly accept it either; and yet, I still very much respect the man; however, there is only so much I can openly complain about his wanting to withdraw futures bets on commodities without my appearing to be a 'troublemaker'. Leaving that issue with his last response to my arguments, was in my mind - striking the right balance between constructive criticism and my being a "pain in the A+". Which I certainly did not want PC to think I was!! lol (picturing Mr C. rolling his eyes...)

Moreover, I actually wished for someone who could put the arguments forward as well as you have & other mathematically minded others to take up this argument, at the very least so that PC might accept that doing so may prove most questionable in the long run. Your excellent responses to date have, I hope, stimulated further interest in this matter. Trust me, I was very much but still quietly incensed to be informed that because the majority of customers want cash commodities, why (1) should his firm bother offering futures bets any longer? &(2) would anyone anyone even want to bet on commodity futures!? Notwithstanding your excellent arguments, I can only hope that when interest rates rise and more start to question increased financing charges towards holding cash positions, that then there will be renewed demand for monthly/quarterly bets, which will not be ignored or at least met by the remaining Spread-betting firms.

 

[tar]

@ peakoil : I made a trade comaprsion between Crude June futures and CMC's cash oil and after 15 days the results is :

Long crude : CMC account provided better results = +40 points extra profit .

Short Crude : CMC account provided worse results = - 64 points extra loss .

http://www.trade2win.com/boards/spr...r-answers-your-questions-156.html#post1461484

the conclusion :
1-CMC's cash will cost you more in the long run even if u dont hold into expiry .
2-No transparency .

For day trading you could use daily futures which has the same spread 4 points and it moves with the futures contract cent by cent and it has the same price , on the other hand there is no underlying market to compare cmc's cash oil with , or at least for 99% of the clients . So as per your example if u want to day trade on NFP it would be a bad idea to do so on cmc's cash oil .

The question is : is there one advantage for trading cash commodities ?

 

[peakoil]

@ peakoil : I made a trade comaprsion between Crude June futures and CMC's cash oil and after 15 days the results is :

Long crude : CMC account provided better results = +40 points extra profit .

Short Crude : CMC account provided worse results = - 64 points extra loss .

http://www.trade2win.com/boards/spr...r-answers-your-questions-156.html#post1461484

the conclusion :
1-CMC's cash will cost you more in the long run even if u dont hold into expiry .
2- There is a skew/squeeze in the results as you see there is extra loss on the short side .

For day trading you could use daily futures which has the same spread 4 points and it moves with the futures contract cent by cent and it has the same price , on the other hand there is no underlying market to compare cmc's cash oil with , or at least for 99% of the clients . So as per your example if u want to day trade on NFP it would be a bad idea to do so on cmc's cash oil .

The question is : is there one advantage for trading cash commodities ?

@tar these too are excellent points, and my apologies, I meant no disrespect to you at all with my silence in the other thread. I felt your results spoke for themselves. Albeit, please forgive me for saying this though - I do feel you've presented them far better on this thread, as they perhaps were too nakedly/starkly presented in the other thread, and in need of the explanation which you've given them (and they certainly deserved) in this thread. I know you referred to your earlier post, but some will be new to the thread - and may perhaps not bother looking back through the thread to work out what they're reading in your later post. Nonetheless, as far as I'm concerned - well done to you too sir, for making the comparisons and presenting them for all of us to see, as quoted above.

 

[tar]

I will update the trades again later when crude price is far from the entry point , we will see .

Best regards