CFDs for trading indices

[Roller_1]

Wondering if anyone out there is trading any indices purely with CFD's? short to medium term day trading, 5, 15m charts etc. Using predominantly wyckoff & S/R zones. Not having volume obviously isn't ideal but the low entrance costs compared to futures for someone new to discretionary stuff is enticing and why i am asking.

Interested in everyone's thoughts on futures v CFDs. (Aus day session)

I currently trade a systematic MR that only takes 5 mins a day.

 

[InsvestoBoy]

You've got it backwards.

The built in spread on index CFDs make them, at least IMO, unfeasibly expensive for daytrading.

e.g. the XJO CFD on most platforms spread is 1point to get in and another to get out. That means every trade starts with a -2 point expectancy.

Futures or any ETF allow you to enter limit order on the index and very cheap brokerage on futures platform like IB. Brokerage in and out is much cheaper than 2 index points.

 

[Modest]

Definitely worth it if you’re starting out. I have had a great experience with CmC CFD Platform- I find myself using it on mobile frequently to get a feel for markets when I am out and about- their app is great.

 

[Roller_1]

You've got it backwards.

The built in spread on index CFDs make them, at least IMO, unfeasibly expensive for daytrading.

e.g. the XJO CFD on most platforms spread is 1point to get in and another to get out. That means every trade starts with a -2 point expectancy.

Futures or any ETF allow you to enter limit order on the index and very cheap brokerage on futures platform like IB. Brokerage in and out is much cheaper than 2 index points.

That's true, it is the tick value and position size that interests me with CFDs. How do you go about trading futures with a small account at $25 tick on the SPI?

Thanks modest, i've had a demo cmc account for a month or so that ive been using to get some screen time and practice some trades

 

[InsvestoBoy]

That's true, it is the tick value and position size that interests me with CFDs. How do you go about trading futures with a small account at $25 tick on the SPI?

Thanks modest, i've had a demo cmc account for a month or so that ive been using to get some screen time and practice some trades

There's a mini product "ASX MINI SPI", $5 per tick.

https://www.asx.com.au/products/index-derivatives/asx-index-futures-contract-specifications.htm

From what I've seen of @Modest trades on here, they're usually held for bigger swings, so if you are not making many trades a day then maybe you can make it work.

But if you wanna do MR on a 5min chart, you will be paying to cross the spread quite a few times per day. A simple MR strat on 5 min chart probably would have made ~15 trades today, maybe half that if you have a long only or short only bias.

 

[Roller_1]

Oh sorry I don’t want to do mean reversion trades, so I am not planning on doing that many a day. Mainly just leaning on S and R Zones for medium daily swings

I have seen that contract, I think I looked a while ago on IB and it didn’t look too heavily traded. I’ll have to look again.

 

[peter2]

@Roller_1 I also understood the description of your trading ("systematic MR") as a mean reversion methodology. If you're only doing one or two trades per day then the spread should not be a concern. I'd recommend using the CFD providers for training purposes as they're suitable for smaller account sizes. Once your trading size gets to the same size per tick as a futures contract then it's better to use futures instead of CFD products. CFD products have o'nite swap or interest charges and variable o'nite spreads whereas the futures products don't.

Futures accounts have monthly data subscriptions costs (one for each exchange) and require larger account sizes. The current high volatility in the oil, gold markets have caused the margin amounts to be increased. My CFD provider has increased the margin amount for their index CFDs from 0.5% to 5% of a position size (in AUD). This makes it more difficult for smaller account sizes to use them.

 

[Roller_1]

@Roller_1 I also understood the description of your trading ("systematic MR") as a mean reversion methodology. If you're only doing one or two trades per day then the spread should not be a concern. I'd recommend using the CFD providers for training purposes as they're suitable for smaller account sizes. Once your trading size gets to the same size per tick as a futures contract then it's better to use futures instead of CFD products. CFD products have o'nite swap or interest charges and variable o'nite spreads whereas the futures products don't.

Futures accounts have monthly data subscriptions costs (one for each exchange) and require larger account sizes. The current high volatility in the oil, gold markets have caused the margin amounts to be increased. My CFD provider has increased the margin amount for their index CFDs from 0.5% to 5% of a position size (in AUD). This makes it more difficult for smaller account sizes to use them.

Thanks peter for the info, appreciate it.

I'll have a bit more of a sus and look around.

 

[T0BY]

e.g. the XJO CFD on most platforms spread is 1point to get in and another to get out. That means every trade starts with a -2 point expectancy.

You only pay the spread once per round trip, not twice.

 

[InsvestoBoy]

You only pay the spread once per round trip, not twice.

Maybe I phrased it wrong.

If you want to go long a hypothetical index CFD with a 1 tick spread at 100 bid/101 ask, then you have to pay the ask at 101 and to get out you have to pay the bid at 100.

A futures trader can enter the bid queue at 100 once filled and immediately turn around and join the limit queue at 101.

Your profit: -1 tick
Futures trader proft: 1 tick

Delta: 2 ticks.

 

[T0BY]

lol, yeah maybe. Only if both limit orders actually get filled.

If the future trader buys and sells at market he's in the same boat (worse actually because of commission & clearing).

 

[T0BY]

CFD spread is 1 point (same as minimum tick on the SFE SPI 200 Index futures).lot size is 1/25th.
DoM is just made up by the Liquidity Provider/ Market Maker.
Only got tick volume (which alters from broker to broker, varies greatly in quality)
Futures you have real DoM on an exchange, real volumes, Time of Sale, and the charting capabilities these provide.
But obviously, the underlying cash market has much more volume during pit session. Algos won't let futures stray far.

I think if you're looking at order flow, better off looking at top 10 stocks (BHP, CBA,RIO.....)
Create an algo that collects the DoM of these top ten stocks based on market capitalization, smooshes them in together (properly weighed) and makes a cash DoM based on the actual underlying shares (ASX10 index).

because the futures are not the real market, and cfd's are even less of the real market (& more easily manipulated).

The large funds don't buy futures? they buy stocks and hedge using option strategies. Alright, I'm sure futures probably play an important part also..

anyway, probably rambled on long enough with me nonsense.

 

[quanttraderx]

An alternative can be to trade DMA CFD futures through Saxo or FPMarkets.