Real Prices vs. Spread Bet Prices

[james6848]

Has anyone ever charted SB companies' daily prices, and then overlayed them over a 'real' chart?

I'd be really interested to see how they correlate (particularly FTSE 100).

Although still green round the gills, dare I say that this factor is more important than the actual spread.

 

[Roberto]

The FTSE-100 isn't a "real" instrument, James. The SB firms prices for the "cash index" are derived from the futures, with a "fair value" adjustment for the time difference. Failure to understand this point is the main reason for the perpetuation of people's beliefs of "bias" in SB prices. The point to appreciate is that if you use SB to trade an index like the FTSE, the difference between what you see on your "real" chart and the SB price will be exactly the same when you open your trade as when you close it. In other words, if there is a difference, it shouldn't be relevant to you anyway. If that isn't the case for you, then switch to a company like Capital Spreads where no prices have any "bias". Or trade by direct access if it works better for you and you don't mind paying 40% tax on your profits rather than having them tax-free.

Daily index prices are certainly not traditionally among the smallest spreads that you can get from SB firms, and it's not easy to believe that SB is a particularly viable medium for intraday scalping of indices. I think CS charge a 2-point spread on the FTSE-100, but some firms certainly charge a lot more.

 

[james6848]

The FTSE-100 isn't a "real" instrument, James. The SB firms prices for the "cash index" are derived from the futures, with a "fair value" adjustment for the time difference. Failure to understand this point is the main reason for the perpetuation of people's beliefs of "bias" in SB prices. The point to appreciate is that if you use SB to trade an index like the FTSE, the difference between what you see on your "real" chart and the SB price will be exactly the same when you open your trade as when you close it. In other words, if there is a difference, it shouldn't be relevant to you anyway. If that isn't the case for you, then switch to a company like Capital Spreads where no prices have any "bias". Or trade by direct access if it works better for you and you don't mind paying 40% tax on your profits rather than having them tax-free.

Daily index prices are certainly not traditionally among the smallest spreads that you can get from SB firms, and it's not easy to believe that SB is a particularly viable medium for intraday scalping of indices. I think CS charge a 2-point spread on the FTSE-100, but some firms certainly charge a lot more.

Thanks Roberto. I have indeed been using CS.

Forgive me if I have misunderstood you, but you mentioned that the difference between the real price and the SB price remains the same. I did a little test over half an hour comparing the the SB price changes with the 'real' index changes, and I am pretty sure that this wasn't the case - the difference between the two seemed to fluctuate between around 10 to 1 points.

It may be that am actually seeing delayed prices, but I was under the impression that my freebie set-up (ADVFN through Quote Tracker) was 'live'.

 

[peterpr]

Forgive me if I have misunderstood you, but you mentioned that the difference between the real price and the SB price remains the same. I did a little test over half an hour comparing the the SB price changes with the 'real' index changes, and I am pretty sure that this wasn't the case - the difference between the two seemed to fluctuate between around 10 to 1 points.

You make a good point and I don't think what you note is the result of delay.

Because SB instruments are - of necessity - hedged mainly in the corresponding futures market, they are indeed based on futures with the adjustment Roberto mentions. However, watch the futures quotes alongside the main index and you will see that the correlation requires more than JUST a 'fair value adjustment'. On fast moves (and even not so fast) the indices can be 2-10 points adrift AFTER fv adjustment - especially at the open and to some extent approaching main market close, with the futures usually leading the way. The reason is that the primary purpose of futures is to hedge the real thing (in theory anyway !) and therefore, by definition, there will always be timing differences in order placement and fulfillment etc. If they get too out of kilter, then arbitrage opportunities arise which pull them back smartly.

This does make SB's much less suited to intra-day 'scalping', but then trading the futures direct brings a whole set of different problems with it. It's horses for courses really and SB's certainly have a place - so long as you understand what it is you are trading.

 

[Roberto]

Peter makes some very good points here. It is possible actually to take advantage of some of these situations, you know ... but that depends very much on the type of trading you're doing, James. Certainly it's horses for courses. I must say that for the style of trading I do, intraday index scalping would rule out SB as a trading medium. (I used to do intraday trades of the FTSE, Dow and Dax indices by SB, I admit, but it was nothing that you'd call "scalping".)

 

[james6848]

Thanks guys.
I think one of the problems you have shown I have is that I am coming at the subject from an unhelpful angle, i.e. I don't have a detailed knowledge of the futures market to relate things to. There's certainly a lot more basic things I need to learn!

Thanks.
J.

 

[wisestguy]

repeat topic here . do a search.

but in a nut : the SB's can make the bias as near or far from the futures as they like , a lot of the time it will not match the what the cash is itself.
this contrary to popular but mistaken belief , is not detrimental to traders , no more so than playing poker against the dealer.

SB's quote you the price of cash with the bias , up to you to accept .

a lot of times they get it wrong , and that's when it HELPS you . you get extra points due to their misread of the market.

cash = 4678 . SB = 4688 - 92 . you think cash gonna drop , so ....... big clue what do you doooo ?

buy ? nah just kidding , course sell the mother . sell @88 ,cash then moves to 4665 , SB panicks , new Q = 4662-66 . you in the money by 22 pts in a short time.

someting like that .

 

[james6848]

repeat topic here . do a search.

but in a nut : the SB's can make the bias as near or far from the futures as they like , a lot of the time it will not match the what the cash is itself.
this contrary to popular but mistaken belief , is not detrimental to traders , no more so than playing poker against the dealer.

SB's quote you the price of cash with the bias , up to you to accept .

a lot of times they get it wrong , and that's when it HELPS you . you get extra points due to their misread of the market.

cash = 4678 . SB = 4688 - 92 . you think cash gonna drop , so ....... big clue what do you doooo ?

buy ? nah just kidding , course sell the mother . sell @88 ,cash then moves to 4665 , SB panicks , new Q = 4662-66 . you in the money by 22 pts in a short time.

someting like that .

Sorry, should have searched. My faux pas . There are some interesting things to look at.
While I have been virtually trading, I have found I could take advantage of this difference to an extent, but I was thinking to myself 'this can't be right, little 'ol me reading the market better than them!'. :cheesy: I tell you what, if I could get 22 pts off the FTSE regularly I'd be very happy.
I'll see how it goes now I know more about what is going on.

Thanks
J.

 

[wisestguy]

of course , mine is an exagerrated version of what could happen , but you see the point.

quite often they misprice the index in this way , not uncommon . the SB staff are not true traders nor do many of them come from a pure trading background. so there is no reason whatsoever why a well trained trader should not take advantage of this whenever possible.

 

[Roberto]

of course , mine is an exagerrated version of what could happen , but you see the point. quite often they misprice the index in this way , not uncommon . the SB staff are not true traders nor do many of them come from a pure trading background. so there is no reason whatsoever why a well trained trader should not take advantage of this whenever possible.

Absolutely. Couldn't agree more. The other thing worth bearing in mind is that they quote on 3000+ instruments every day, so it shouldn't be a surprise that sometimes they get something wrong.

 

[james6848]

Absolutely. Couldn't agree more. The other thing worth bearing in mind is that they quote on 3000+ instruments every day, so it shouldn't be a surprise that sometimes they get something wrong.

Let's hope so!

 

[wisestguy]

Absolutely. Couldn't agree more. The other thing worth bearing in mind is that they quote on 3000+ instruments every day, so it shouldn't be a surprise that sometimes they get something wrong.

I don't know about 3000 , but they have their hands full , yes.

obviously sometimes it's better to refuse quotes which you believe are too far out of line with the cash . It's your own judgement that counts . more often than not I find that when my gut tells me to reject the quote as it is too far out , then usually I find I am right .

of course would be better for one to decide BEFORE you ask for a Quote what range you would accept as your maximum .

 

[twiggytwo]

Has anyone ever charted SB companies' daily prices, and then overlayed them over a 'real' chart?

I'd be really interested to see how they correlate (particularly FTSE 100).

Although still green round the gills, dare I say that this factor is more important than the actual spread.

Hi James , have a look at putting in an order for the S./B price you want
if you do this you will only enter the trade at the price you want, to suit your R / R
if you do not get this price, you stay out and stay safe, as the Futures market moves about it may give you the price you want and you do not need to sit in front of your screen all day.
Regards

 

[james6848]

Hi James , have a look at putting in an order for the S./B price you want
if you do this you will only enter the trade at the price you want, to suit your R / R
if you do not get this price, you stay out and stay safe, as the Futures market moves about it may give you the price you want and you do not need to sit in front of your screen all day.
Regards

Hi twiggy,
Yep, this is a good idea - I've certainly discovered that sitting in front of a screen all day is not for me!
It would be good to have access to the realtime futures' prices though, just so I know what ballpark figures I am looking for. Any ideas? Yahoo maybe?
Having looked at other threads, I'm not surprised that so many people fail with SB if they don't even know that the indices are calculated from the futures' prices! It's not obvious if you are a novice like me...

J.

 

[LevII]

it's not their job to quote entirely in line all the time

How then do you expect to place trades with these people? Even trading EOD you cannot rely on their price v. the market.

Have a look at this post and then reconsider whether or not you should be trading direct access or SB.

http://www.trade2win.com/boards/showthread.php?p=161864#post161864

 

[james6848]

How then do you expect to place trades with these people? Even trading EOD you cannot rely on their price v. the market.

Have a look at this post and then reconsider whether or not you should be trading direct access or SB.

http://www.trade2win.com/boards/showthread.php?p=161864#post161864

I am sure direct access is the way to go, but surely you have to have quite a lot of money to do this?

 

[LevII]

I am sure direct access is the way to go, but surely you have to have quite a lot of money to do this?

Yes, margin is only 2 times (US Stocks) on trades held overnight, nil on UK stocks whereas the SB firms will give you enormous margin.

Problem, even though trading EOD you get your stop knocked out by 'non market' moves such as that illustrated on the above thread.

Answer - trade smaler size or have your money removed?

 

[the blades]

Yes, margin is only 2 times (US Stocks) on trades held overnight, nil on UK stocks whereas the SB firms will give you enormous margin.

Problem, even though trading EOD you get your stop knocked out by 'non market' moves such as that illustrated on the above thread.

Answer - trade smaler size or have your money removed?

Some SB providers allow stops to be triggered on the market price rather than their own.

My two penneth, FWIW (which is evidently bugger all giver the number of times I've posted it ) is that the SB prices are very predictable and easy to work with - I'd suggest these glitches are few on far between.

Still, you speak as you find.

UTB

 

[Roberto]

Some SB providers allow stops to be triggered on the market price rather than their own. My two penneth, FWIW (which is evidently bugger all giver the number of times I've posted it ) is that the SB prices are very predictable and easy to work with - I'd suggest these glitches are few on far between.

Likewise; completely agree. Very few and very far between in my experience.

Still, you speak as you find.

Some do; yes (including everyone in this thread, I'm sure). Unfortunately when this subject comes up in some other threads, some people speak without even looking, never mind finding!

 

[twiggytwo]

Hi twiggy,
Yep, this is a good idea - I've certainly discovered that sitting in front of a screen all day is not for me!
It would be good to have access to the realtime futures' prices though, just so I know what ballpark figures I am looking for. Any ideas? Yahoo maybe?
Having looked at other threads, I'm not surprised that so many people fail with SB if they don't even know that the indices are calculated from the futures' prices! It's not obvious if you are a novice like me...

J.

Hi James, try CSI it's an E.O. D. futures feed
regards