Spreadbet bias - true or false

[NickW]

Whether it's the S&P, Dow or baked bean futures, they use the same method.

However I agree that the SB future price does not exactly follow the real future price either. Due to rounding errors and the fact that the spread on the real future constantly moves in and out from 0.1 upwards, and that the SB co's keep their spread fixed. It's not possible than it can.

To re-word the original question - does the SB future price fairly straddle the mid-price of the underlying future?

Other than conjecture, and pages of debate, it still hasn't been answered with any certainty one way or the other.

 

[mmillar]

Tray_Dar – Maybe you're right that my profits are not consistent enough to warrant the SB companies ‘marking’ me. However, on your other comments … … I’m afraid that ‘bias or no bias’ really IS the issue. That’s what the title of this post is about and what I and others have been trying to find out. It is interesting that you have seen a difference between SB prices and the real market price. Now if you can just find a real life example and post it here the question will be settled.

On the issue of SB companies treating their customers badly…

* I don’t think Tom Houggard is a good example. He is a professional and used to work for FinSpreads before moving to City Index. Going to work for the competition seems a pretty good reason to close his account to me.

* The only thing I have got out of the other post on this subject is lots of speculation. Riz, as far as I can tell, had his account closed because he wrote abusive comments about FinSpreads. Riz may have some other information but there is nothing in the other post that suggests otherwise.

* FinSpreads shutting down their website on purpose (taken from the other post). Clearly this is a mindset issue. I, perhaps naively, believe it is incompetence. Others, perhaps cynically, believe it is deliberate. Something that we’ll never know for sure.

* On the stuff about arbitrage and people having their accounts closed because of it. Again, I don’t think they are good examples of what we are looking for. Of course SB companies make mistakes on their prices. D4F had a technical glitch a few months ago where the CAC cash price got stuck. I arbitraged that ‘glitch’ against their futures price (which was moving OK). D4F also make mistakes after the markets close in the evenings. If I see those opportunities I arbitrage them. The difference between me and some others is that I accept that they are either technical or human errors and that some junior clerk is getting the b*ll*cking of their lives for making those errors. In each case I have seen of bad prices I have only taken between £100-£200 and D4F have never come back to me. If you take several thousand, as some people seem to in these situations, then of course the SB company is going to come and ask for their money back. And if you refuse what do you expect other then for them to close your account. On this point, you may have seen on the news last night that a family were jailed for taking money out of a cashpoint machine that was faulty. If you deliberately take advantage of someone else’s mistake then you are at fault, not them. You might not like that but it is the law.

Riz – There are lots of throwaway comments on this board about how terrible SB companies are. Things like ‘bias’ and having to ‘beat the bookie’ are all over the place. I, and a few others, have asked for people to back these comments up with some concrete facts. So far the only person who has is catsdad100. Surely, if you make accusations against someone you should be able to back them up with some facts and evidence. I have not made accusations against SB companies so I’m not sure what kind of evidence you think I should supply. I did use the word ‘paranoid’ in an earlier post which clearly upset you and I apologise for that. I haven’t however accused anyone of being losers – I merely made a comment about ‘blame the broker’ syndrome, which is bad for all of us, but particularly for beginners who come to this board to learn.

JonnyT – Can you tell us the day and time that D4F quoted their Dow future and cash prices more than 20 points away from the real market? We have been asking for evidence that this is happening – maybe you can provide this evidence now and settle this once and for all. I have to admit I was once stopped out by D4F when the real market got to within one point of my stop. I phoned them up however and they reinstated the trade. Did you try that?


I think in general I (and others) believe that people who say prices are ‘biased’ just don’t get that they are trading futures, not cash prices. As many others have said the SPX is never going to be the same as D4F’s cash price. It’s like comparing apples and oranges. Of course, to prove us wrong you just need to provide an example …

Anyway. Time for a cup of coffee.

 

[mmillar]

catsdad100 – Still can’t get my head around this. I would have thought, and this is pure speculation, that if D4F has a buy and a sell at the same price and for the same amount they are neutral and wouldn’t put any trade in the market. If that’s the case then with your style of trading (going against the trend) you would have thought that all you are doing is reducing the amount they have to hedge in the market i.e. 10 people went long, you went short, therefore they would only need to hedge 9 longs in the market, saving them money. I also agree with NickW that D4F have so few traders (who are really just execution clerks) that it’s difficult to believe they are making the kind of decisions you are describing across all the markets and instruments they cover. Saying that, D4F have a huge team of developers so it could be computerised.

 

[delboy trotter]

Once again I am with mmillar on this. He has it spot on!

Set up a feed from eSignal using the S&P 500 Futures symbol ES H3 and compare it with D4F Dow 30 Cash prices. It is the same tick for tick. This is what D4F use to set their price for the Dow Cash. Now compare these figures to the actual dow Cash market, again using eSignal symbol $Indu and they are different. Not a bias, they are different because as mmillar says, we are talking about apples and oranges here. D4F use the futures prices to set their cash prices - end of story!

db-t

 

[sidinuk]

MMillar,

I'm very interested that D4F reinstated a trade for you when you were stopped out. That's sounds very fair of them. What were you trading at the time?

 

[mmillar]

sindinuk

It was quite a while ago and I can't remember exactly. It would have been one of the Dax, FTSE, S&P or Dow indices as these are all I trade. The thing is the price hadn't reached my stop, either on D4F's charts or on the real future (one point away). They didn't have a leg to stand on, so there was no argument. They just reinstated the trade immediately.

I have also had situations where I have traded 'by mistake' (bought when I meant to sell, traded the future instead of the cash, or thought I'd put a stop in when I hadn't - and got stuffed). If you phone them and speak to the head trader he will give you a really hard time (total b*stard) but has always been kind enough to reverse trades in these situations. Obviously they were for small amounts and when I was starting out a couple of years ago. I doubt they would let me away with things like that now!

cheers

 

[sidinuk]

Thanks for that, MMillar. It's obviously worth looking out for when a stop is 'just' hit.

I'm amazed that they let you off when the mistake has been yours. I bought when I meant to sell using City Index (which is very easy to do with their one touch system). When I phoned them the guy I spoke to was so slow that by the time I eventually got the position closed it had moved about 20 points! The only compensation I got was 'don't worry it happens all the time!'

A couple of times D4F have actually dealt a stop loss order when I clicked to cancelled it. Resulting in a trade miles away from the actual price. They always cancel it when asked but it gives you a bit of heart failure when it goes green instead of white!!

 

[JonnyT]

How do you explain a margin call for over £172,000 on a £5 per point bet long


Open Position : see Marketmaker Net Positions.

Margin required : GBP (22,623)

Equity balance : GBP (152,944)

Deficit : GBP (172,658)

Didn't even get a sorry for that and the bar stewards didn't let me do a short at the quoted price, someing like 95000p

JonnyT

 

[MORRIS2001]

Right, here goes:

A cash index does not exist as a tradeable entity. Therefore any company offering a quote called ‘cash’ cannot hedge it.

The way it works is that the near q fut is de-futted to create a synthetic cash index. i.e. remaining interest is stripped out and outstanding divi’s chucked back in.

This will create a figure that is generally bang on the cash in a slow market.

However, when the market moves, the fut will be the first to move and the cash will follow. This means that you will see the SB co’s cash move ahead because it is created from the fut, which is moving.

That solves that one.

Anyone who knows what a fut is can prove this using Excel and the world’s most basic maths.

The next important observation is that the Dow is a pile of archaic cr*p. A totally redundant index, badly calculated and just not used by anyone but the media.

And that is just it. Because the media use it all the time, we retail punters have grown up with the Dow not the S&P or any MSCI indices. The latter 2 are what are used in the market not the former. The Dow fut is very illiquid by comparison and slow to move.

That last point is the link into the final key to understanding how it all works.

The Dow lags the S&P. Therefore to simply quote the Dow would lead to financial ruin as a client would see the S&P move know that the Dow will moments later follow.

This lag has to be removed. It is removed by applying the movement of the S&P to the Dow quote.

And there you have it. The answer as to why, A) cash indices move ahead of the cash index. B) Why the Dow fut as a SB moves ahead of the Dow fut in the market.

At the end of the day, only a fool would trade the daily cash when they know how it works because it is the b*stard, retard brother of the near q fut. It won’t tally with charting signals.

What you need is either to ignore the Dow completely (it is a pile of sh*t) and stick to the S&P (via fut or SB) or trade the Daily Future. This is the near q fut on a daily spread. This will work for chartists.

Regarding the Dow and it’s cr*pness, this is due to only be a few shares that don’t represent the market as a whole very well but more importantly it is not calculated using market cap weightings but price weightings meaning that mathematically it has b*gger all meaning. That is why only small retail punters muck about with it.

Hope it helps.


Oh, and regards the brokers: If a client wins all the time they will just hedge that client instantly rather than waiting to see if they can lay it off internally with other order flow. His means that there will be a delay similar to go direct to the market. Not many brokers would want to get rid of that client. If you take that as gospel then you will be able to work out how the co’s that do shut down accounts work.

 

[sidinuk]

OK! Hopefully this will resolve the debate as to whether there is or there isn't a bias in the prices that the SB co's use compared to the underlying futures.

I have compared the S&P500 March contract from CMC and the E-Mini S&P500 March futures contract for the period 2.00pm to 3.15pm today. This is the most volatile time of day especially today with news coming out as well. Prime time for a bit of SB bias I would have thought.

Attached are actual screen shots. One shows CMC's quote and the other shows the E-mini quote via Lycos. Please take your time in examining the two for any signs of bias!

 

[sidinuk]

Deal 4 Free:

 

[sidinuk]

Lycos S&P500 Mar E-Mini:

 

[JonnyT]

Have you compared the cash price to the emini futures?

That is where the real bias is.

JonnyT

 

[mmillar]

JonnyT - your post with the £177k margin call is very funny It made me laugh. You clearly have a stronger heart than me. If I had received that I would be dead before I hit the floor. However, it is clearly a mistake rather than bias.

Your second post gets to the crux of this issue. There is no such thing as a 'cash' price. You cannot trade a 'cash' price. When D4F (or any other SB company) talk about a 'cash' price what they are giving you is the futures price +/- fair value. If you look at D4F's 'cash' price on the S&P today, for example, you will see it is 0.8 above the futures price. 0.8 is the fair value for today. If you understand that then you will see that there is no 'bias'.

 

[madasafish]

"If you look at D4F's 'cash' price on the S&P today, for example, you will see it is 0.8 above the futures price. 0.8 is the fair value for today. If you understand that then you will see that there is no 'bias'."

Hmm CityIndex and IG Index on Daily Spoos have their price set so the middle of the spread = futures price. i.e NO bias.

0.8 above futures price in my view = bias..


There's a FACT for all who claim there is no bias..

 

[JonnyT]

I remember a year or so ago that Deal4Free told me that the Dax cash price was always 16pts difference to the underlying future. Not sure wether this is true today or not.

The point is if it's fixed it's fair. It it moves to the SB companies benefit then that is bias and obvious money making tactics.

JonnyT

 

[mmillar]

Fair Value is a calculated number using time, volatility etc. It is not made up by D4F or any other SB company. Just watch Bloomberg TV everyday and they will tell you the S&P Fair Value. It changes on a daily basis. I think (futures experts please chip in here) that futures should expire at the 'cash' price. Futures that are far away from expiry have a big difference with the 'cash' price (because of the time value) whereas those that are about to expire have a small difference from the ‘cash’ price.

JonnyT – I think what we have been trying to get to is if D4F and the other SBs change their Fair Value numbers through the day. If they do then I would clearly agree that there is ‘bias’ - which is unfair to us. If they don’t then there is no ‘bias’. It is incorrect of D4F to tell you that the Dax cash price is ALWAYS 16 points away from the futures price because of the reasons set out above.

Madasafish – Are you saying that City and IG have exactly the same price on their Cash and Futures prices? I don’t have access to their systems. That surprises me a lot. FinSpreads have different prices between their cash and futures. On the question of ‘bias’ then I suppose it depends on your definition of ‘bias’. If you mean a ‘difference’ between the cash and futures price then there clearly is a difference. I think most of us use the word ‘bias’ to mean the SB companies are varying price independently of the market to try and screw us. We have still seen no evidence of this.

 

[madasafish]

IG and City do not have a "Cash" index.. only futures..

So wysiwyg.. daily ES is exactly based on S&P March futures with +0.5 points for spread on either side = 1 point spread in total bid vs ask.


No bias..and scrolling quotes (unlike fins) so you can deal at a price that suits you, not wait while the Fins software whirrs and takes 20 secs to give a quote which you have to accept in 3 seconds..

Know nutting about D4F...

 

[mmillar]

Madasafish

Sorry to contradict you but I have just looked at City Index's web page. They are quoting the 'Daily Wall St' at 8562-8570 and the 'March 03 Wall St' at 8542-8554. The difference between the 'Daily' (cash) and the 'March 03' (future) is the Fair Value.

 

[madasafish]

I am quoting the S&P.. as said further above, the Dow is a bastaaard index..