Dodgy MM prices (CFDs & FX)

[Trembling Hand]

I have started this thread for people who trade MM CFDs & Forex and believe they are getting swept with dodgy prices. Personally I have not seen any evidence that that is what happens but If anyone would like to post a chart in here of the prices that your provider is quoting you I will check it against the Futures.

I can check most Asian, European and all US indexes and most Forex and Commodities. If you can do it within a week it will be a lot easier then I will not have to reload historical tick data.

I have been PMed about this and I think the big problem for MM traders is that they aren't seeing the underlying market so its easy to be a bit sceptical when you get hit.

 

[MichaelD]

Re: Dodgy MM prices

One thing that I'll mention here is that the way MM CFDs trade are not necessarily exactly the same as trading the underlying. This is not by definition dodgy, just a reflection that the market is a synthetic one and works by the MM's rules.

An example (I'll make up the numbers and widen the spread to make it easy to follow, but I have seen real trades of mine go this way).

Sell 100 XYZ at market.

Market Depth in the real market

BID - ASK
50 @ 1.00 -- 50 @ 2.00
100 @ 0.90 -- 100 @ 2.10

In the real market, this order would execute at an average price of 0.95 (50 @ 1.00 and 50 @ 0.90)

In a MM CFD provider synthetic market, this order would execute at 100 @ 0.90.

The MM close is at the highest price in the depth at which you'd get a complete fill.

Just one way a MM takes an extra haircut out of each trade.

 

[AMR]

Re: Dodgy MM prices (CFD's & FX)

TH, you mentioned before that MM's don't show the cash price because they added a spread. Does this have any effect on the use of candlestick analysis?

 

[Trembling Hand]

Re: Dodgy MM prices (CFD's & FX)

TH, you mentioned before that MM's don't show the cash price because they added a spread. Does this have any effect on the use of candlestick analysis?

Not sure I'm with you on this. But what they often do is not have their price at the same level as the cash market but it still moves by the same amount. for example CMC has been running their Aussie200 about 45 points lower than the spi for some weeks. But the movements is still tick for tick.

The only diff is that a CFD chart is normally the chart of the BID where a futures or stock chart is of the actual traded price that can make individual candles look different but depending on the instrument not a huge amount.

 

[>Apocalypto<]

Re: Dodgy MM prices (CFD's & FX)

I had a problem with CMC Markets.

I went long on PPT. There price was 20 cents different to my Sanford securities price. That really pissed my off. There reason PPt liquidity is very low had to widen the spread. I was looking at PPT market depth on Sanford buy and sell orders filled the board like normal. That was enough for me to close my 3 day old account.

 

[CFD]

Re: Dodgy MM prices (CFD's & FX)

Did this spike happen 4/4?

 

[happyjack]

Re: Dodgy MM prices (CFD's & FX)

Hi
Tremblinghand said

"The only diff is that a CFD chart is normally the chart of the BID"

There is a button at the top of the chart Ask/Offer so you just set it for what you want. Also I think I was once told that the daytime session on CMC AUSSIE 200 is from XJO and then later it goes over to SPI so the adjustment that was discussed could just be a way of keeping the indexes together so that their isn't a 45 point jump at 3 o'clock everyday. if there was we could all retire.

Happyjack

 

[happyjack]

Re: Dodgy MM prices (CFD's & FX)

Forgot to mention
I went into CMC just to confirm the ask /offer thing and all my desktops have gone,

I just remembered they sent an email saying that work would be done today, so if you have an accountr with CMC and a lot of desktops you may want to start early on Monday to put them all back in again

 

[Trembling Hand]

Re: Dodgy MM prices (CFD's & FX)

Also I think I was once told that the daytime session on CMC AUSSIE 200 is from XJO and then later it goes over to SPI so the adjustment that was discussed could just be a way of keeping the indexes together so that their isn't a 45 point jump at 3 o'clock everyday. if there was we could all retire.

No that is totally untrue. They CANNOT be linked to the indexes for two reasons.

The Exchanges don't quote indexes in real dynamic real-time. they only do snap shot quotes. Intervals vary from exchanges but they are normally every10-15 sec.

The second and most important reason is the index will always lag the Futures. It would create the biggest scalping arbitrage opportunity there EVERY was.

They don't tell you what they are linked to because you are trading against them. The more the punters are in the dark the better for them.

 

[Trembling Hand]

Re: Dodgy MM prices (CFD's & FX)

Did this spike happen 4/4?

Will check tomorrow when my trade-station is up and running.

 

[barney]

Re: Dodgy MM prices (CFD's & FX)

Will check tomorrow when my trade-station is up and running.

Howdy TH,

Here is a copy of part of an email I sent to IG markets on 2nd Jan 2008 regarding a nasty spike ............. They informed me that the trades were "errors" and would not have triggered stop losses ............. I had to take their word for it, but I've had a couple of other dodgy trades with them which makes me uneasy ................ I have not traded with them since (Various reasons as you know)

I guess if we are going to trade Indexes via CFD's, its buyer beware.

Just out of curiousity TH ..... Which Co. do you get your data feeds from ........ Obviously CFD providers don't have Volume data on their Index's etc. which makes it a bit difficult.................

Who would be your preferred provider when weighing up cost and service etc?? Cheers, Barney.

EMAIL:

I was wondering if you could explain to me the ramifications of the two rogue trades on the FTSE at 7.06 and 7.09 pm Australian time tonight on your platform which were over 250 points outside the real market ............ These trades did not show up on my other providers, and if I had trades running on the FTSE with stop losses set well below the market, can you tell me if they would have been triggered??

 

[julius]

Re: Dodgy MM prices (CFD's & FX)

I don't really understand how they could get away with this...

If they let the contract prices drift any significant distance from the underlier wouldn't they open themselves up for arbitrage ?

 

[Trembling Hand]

Re: Dodgy MM prices (CFD's & FX)

Howdy TH,

Here is a copy of part of an email I sent to IG markets on 2nd Jan 2008 regarding a nasty spike ............. They informed me that the trades were "errors" and would not have triggered stop losses ............. I had to take their word for it, but I've had a couple of other dodgy trades with them which makes me uneasy ................ I have not traded with them since (Various reasons as you know)

I guess if we are going to trade Indexes via CFD's, its buyer beware.

Actually the bad trades were REAL. It happened on the migration of about 6 major Futures contracts from CBOT to CME. Someone obviously had a large BOT running that didn't have the migration programed in and sent most markets nuts on the European week open, from memory.
The Futures exchanges all over the world had to scratch the trades to correct the problem. just more evidence that they don't link to cash markets but the FUTs.

As Julius is saying if they did move from the futures market we would have the biggest Arb oppertunity.

 

[barney]

Re: Dodgy MM prices (CFD's & FX)

I don't really understand how they could get away with this...

If they let the contract prices drift any significant distance from the underlier wouldn't they open themselves up for arbitrage ?

Hi Julius, The two trades I mentioned were tic trades which then immediately returned to the "normal" price, so there was no time for punters to take advantage, but they were 3 minutes apart. As I say, IG did state that they would not have taken out stop losses, but I'm glad I wasn't holding a position to find out. Cheers.


PS Thanks for the info TH.

 

[Timmy]

Re: Dodgy MM prices (CFD's & FX)

I don't really understand how they could get away with this...

If they let the contract prices drift any significant distance from the underlier wouldn't they open themselves up for arbitrage ?

I suppose theoretically they would ... but when you trade a CFD with a particular firm it is not fungible with other instruments? Maybe if the CFD could be cash settled ... maybe someone could work out how to do it but I can't see a method? Any thoughts anyone?

 

[Timmy]

Re: Dodgy MM prices (CFD's & FX)

IG did state that they would not have taken out stop losses,

Yeah, right.

 

[barney]

Re: Dodgy MM prices (CFD's & FX)

Yeah, right.

Lol, ........... My feelings exactly Tim ................ A healthy dose of scepticism is a pre-requisite with IG. I've found the staff at City Index a lot more "user friendly"

 

[julius]

Re: Dodgy MM prices (CFD's & FX)

Tim: it would just be a non-directional bet on convergence - short the underlier at a premium, long the contract at discount.

Dutch book the suckers basically.

 

[Trembling Hand]

Re: Dodgy MM prices (CFD's & FX)

I suppose theoretically they would ... but when you trade a CFD with a particular firm it is not fungible with other instruments? Maybe if the CFD could be cash settled ... maybe someone could work out how to do it but I can't see a method? Any thoughts anyone?

Tim: it would just be a non-directional bet on convergence - short the underlier at a premium, long the contract at discount.

Dutch book the suckers basically.

Yes it would be a simple Arb trade. Long the lower one short the higher one, close when they re-align. But I have not seen it happen.

 

[barney]

Re: Dodgy MM prices (CFD's & FX)

Tim: it would just be a non-directional bet on convergence - short the underlier at a premium, long the contract at discount.

Dutch book the suckers basically.

Appreciate what you and TH are stating here, and as TH pointed out, the trades were "real", so in this case no issues ........... but I was actually more concerned that because we are dealing with the market maker and not the "real" futures Index, does IG or any provider have the ability to manipulate their own book so to speak?

For eg. I have seen lots of times when the market is getting a "bit hot", IG will simply go off the air for a short period of time so that no trades are possible ........... If that is the case, do they also have the ability to put a couple of false tick trades on their own platform to take out the stops and "clean the slate" so to speak ......... (Also there is no volume data to verify the trades on their platforms)

Just thinking out aloud here for educational purposes, but because of limited capital, I am only able to trade minis with market makers at this stage, so these are the kinds of issues I need to clear up. Cheers.