Should I be trading the cash or futures?

[deve]

Hi

As a novice, I've been having a play around with a demo cfd centurion account at kinetic securities. From what I've seen this looks pretty similar to other similar accounts from IG markets and CMC markets. (Is that an accurate call? Should I be using one of these or something else? I'm hoping to eventually be able to trade indicies such as the SPI, DAX and S&P)

Anyhow, I've noticed that when trading, the spreads on the futures markets are a lot larger than the cash markets. eg:

Germany 30 - 2 pt spread
Germany 30 Forward - 6 pt spread

US SPX500 ($50 mini contract) - 0.7 pt spread
US SPX500 Forward ($50 mini contract) - 1 pt spread


As I see it, the larger the spread, the harder it is to make a profit. Is there a reason I should be looking at trading the futures rather than the cash charts, when they are more expensive?

I realise these aren't cash charts as such - but are created by the market maker based on the cash charts - is that right too?

Cheers
Steve

 

[skyQuake]

Futures are ripoff, just do cash.
I suggest however, you do at least 100 trades on the demo; and if you are consistently profitable (ie not all ur winnings come from 2 or 3 leveraged trades...), then move on trading with real money, but tiny amounts first. See if the demo matches what their real platform is like.
Keep in mind 80% of new CFD players blow their acct in the first few months, 95% in the first yr.
Good Luck.

 

[Bort]

Cfd providers make a market in the cash markets so they will generally offer tighter spreads. It's their market so they would prefer you to trade these. If you are trading in the physical futures contracts the spreads and fills can be just as good but when you trade them through a CFD market maker you're dealing with the middle man.

Unless you are planning on building a track record to trade on a prop desk, trade away in the cash market!

 

[Wysiwyg]

Cfd providers make a market in the cash markets so they will generally offer tighter spreads. It's their market so they would prefer you to trade these.

Yes during trading hours the spread on AUS200 index is 1 point but widens to 4 points after hours. I still get dividends credited and debited for longer term holds. The AUS200 price closely matches the S&P/ASX200 (XJO) while the SPI200 price differs considerably but matches the movement generally. I used to think there was foul play going on but realise the effort of moving markets against traders is massive and would only advantage traders going with any adverse movements. Just have to understand that price will move sharply against one trader that benefits another trader.

 

[cynic]

Yes during trading hours the spread on AUS200 index is 1 point but widens to 4 points after hours. I still get dividends credited and debited for longer term holds. The AUS200 price closely matches the S&P/ASX200 (XJO) while the SPI200 price differs considerably but matches the movement generally. I used to think there was foul play going on but realise the effort of moving markets against traders is massive and would only advantage traders going with any adverse movements. Just have to understand that price will move sharply against one trader that benefits another trader.

Yes. Interest credits and debits are an important consideration if looking to do anything other than intraday trading of the "cash" CFD. Interest debits on long positions can quickly erode the advantages of the smaller spread.

Also, an examination of the PDS and associated client agreement documentation will often reveal clauses that enable providers of OTC (Over the Counter) CFDs to profit at the expense of their clients. Increased vigilance is warranted when availing oneself of such products.

 

[ASTA]

Hi

As I see it, the larger the spread, the harder it is to make a profit.

Cheers
Steve

Nonsense!!

 

[Valued]

Nonsense!!

The larger the spread the more you pay in commission so it does get harder to generate a profit as the spread increases. Further, any potential profits are going to be decreased by the increased spread.

 

[ASTA]

The larger the spread the more you pay in commission so it does get harder to generate a profit as the spread increases. Further, any potential profits are going to be decreased by the increased spread.

If the "spread" is going to make a large % difference in the P&L then 1. your in the wrong trade or, 2. See 1.

If you think you can scalp for a few points and pick consistent winners, then do the maths,
Take out the Bro and the spread and slippage.... in simple terms every trade has to be 4 points in your favour to break even..then add back the losers that have to be made up....

If your taking a futures position, do the analysis work and trade for 20+ points, then the Bro and spread and slippage become a small factor of doing business.. Sometimes ya just have to wait for the trade to come to you, do that and you save yourself a lot of heartache and grief...and less explaining to do at the dinner table.

 

[lawnmower79]

If the "spread" is going to make a large % difference in the P&L then 1. your in the wrong trade or, 2. See 1.

If you think you can scalp for a few points and pick consistent winners, then do the maths,
Take out the Bro and the spread and slippage.... in simple terms every trade has to be 4 points in your favour to break even..then add back the losers that have to be made up....

If your taking a futures position, do the analysis work and trade for 20+ points, then the Bro and spread and slippage become a small factor of doing business.. Sometimes ya just have to wait for the trade to come to you, do that and you save yourself a lot of heartache and grief...and less explaining to do at the dinner table.

What Valued said is still relevant though. Some CFD contracts have a big spread and it should come into your consideration. Getting the trade right is a different issue altogether, you shouldn't mix it up with calculating spreads and slippages. You need to consider BOTH when trading, because there's no way you can get the trade right often enough that you can ignore spreads and slippages altogether.