The transition to Futures trading

[Trembling Hand]

That 1pt spread is $500

Yep twice thats $1000 for a free no commission trade.

 

[skc]

Here is a screen shot I just took from my cfd provider. The top one follows the spi, the other is their own composite index.

View attachment 56582

If I was to buy 25 cfds at market my commission would be $0, and the spread is 1 point.

How much does it cost round trip to trade 1 spi fut?

If the market doesn't move, you buy at 5136 and sell at 5135, costing your $25. There's no other way around it.

With SPI futures you have 4 possible scenarios (again assuming the market doesn't move). In each case round trip commission = $10.
1. You buy at the ask paying 5136, and sell at the bid getting 5135. You lost $25.
2. You buy at limit and get a fill at 5135, then sell at limit and get a fill at 5136. You made $25.
3. You buy at limit and get a fill at 5135, then sell at bid getting 5135. Your P&L = $0.
4. You buy at ask paying 5136, then sell at limit and get a fill at 5136. Your P&L = $0.

So depending on your trading style etc, you are able to improve your P&L under situation 2, 3 and 4, compared to trading CFDs. Let's say each situation has an equal probability of occurence, the average cost of entry/exit with the SPI would be the $10 commission round trip. As opposed to the $25 it costs you to cross the spread on the CFD.

$15 per contract per trade quickly adds up for those who trade regularly.

So for anyone who's trading bigger than one SPI contract, it really pays to migrate to the real futures market.

 

[beachlife]

If the market doesn't move, you buy at 5136 and sell at 5135, costing your $25. There's no other way around it.

With SPI futures you have 4 possible scenarios (again assuming the market doesn't move). In each case round trip commission = $10.
1. You buy at the ask paying 5136, and sell at the bid getting 5135. You lost $25.
2. You buy at limit and get a fill at 5135, then sell at limit and get a fill at 5136. You made $25.
3. You buy at limit and get a fill at 5135, then sell at bid getting 5135. Your P&L = $0.
4. You buy at ask paying 5136, then sell at limit and get a fill at 5136. Your P&L = $0.

So depending on your trading style etc, you are able to improve your P&L under situation 2, 3 and 4, compared to trading CFDs. Let's say each situation has an equal probability of occurence, the average cost of entry/exit with the SPI would be the $10 commission round trip. As opposed to the $25 it costs you to cross the spread on the CFD.

$15 per contract per trade quickly adds up for those who trade regularly.

So for anyone who's trading bigger than one SPI contract, it really pays to migrate to the real futures market.

How long does the market stay still for? But in any case you forgot to include the round trip costs in your examples.
1. Lost $35
2. made $15
3. lost $10
4. lost $10

And you have assumed a fill which is not guaranteed.

You can also buy at limit and sell at limit with cfd's. But there is a big difference. With cfd's if the spread gets to your price you are filled, with futs you might be filled if the depth is there, or you might not. When I was trading futs I have seen the market trade at my price and then reverse, but I wasnt filled because not all contracts were bought at that price. With cfds I have also seen the spread move and flick me out, and just miss a fill also. In both cases its not common.

Assuming the market is moving,
If I buy 25 spi cfds at 5000 and sell at 5030 I have made $750
If you buy 1 futs at 5000 and sell at 5030 you have made $10 less.

If the market just touches 5030 with 1 contract traded and then reverses, I may miss out because of the spread, you may miss out because of market depth.

If I buy at 5000 and sell at 4980 I have lost $500, you have lost $510.

For the majority of trades that either hit a stop or hit a target, the futs trader will pay more in fees in a case like the spi where both have the same spread.

Yep twice thats $1000 for a free no commission trade.

The spread is 1 pt, same as the fut. Why are you doubling it?.

 

[Trembling Hand]

My god you try to help someone and you just end up

beachlife just lol. Good luck punting away with that. Your clearly have it all worked out.

 

[cynic]

Beachlife.

Comparing spi cfds to futures might not highlight the diffences as distinctly as comparing FTSE or DAX cfds. For a FTSE 100 cfd equivalent of a futures contract (10 pounds per point) I have to pay 40 (10 X spread of 4) for a round trip. Slippage considerations aside, I believe that is still quite expensive.

 

[pavilion103]

Ok back to the interesting stuff.

Price on pre-open is around the same level as yesterday's open. Will be interested to see if it rejects this level of not. If it does and I get a clear entry I'm short

 

[CanOz]

Ok back to the interesting stuff.

Price on pre-open is around the same level as yesterday's open. Will be interested to see if it rejects this level of not. If it does and I get a clear entry I'm short

umm....no Its pre-cash trading has been above yesterdays post-cash closebut well below the open.

Above 6405 we could see some short covering....not expecting a big trend day today though....likely be a record breaker now

 

[pavilion103]

Sorry not the open. Misread it.

It's near a high volume area that's all.

 

[CanOz]

Sorry not the open. Misread it.

It's near a high volume area that's all.

Yeah, agree its not far off balance...could be choppy if it gets stuck in that muck...

 

[tech/a]

6405 what you guys looking at?

Looking for test of 6437/27
DAX 62/26

 

[CanOz]

Good luck lads, off to New Years dinner soon!

 

[MichaelD]

Still Off Topic (sorry Pav):
1. Regarding CFD providers shutting you down...

Reading through the various links provided by other posters, it would appear that CFD providers will basically slow your execution, widen your spread and increase your slippage if they don't like what you are doing.

I did not see any reference to them specifically closing down accounts, just making life even harder for you.

Would that be a fair summary of what happens?


2. Briefly read the Interactive Brokers website today and it would seem that by opening an account I can get a real time SPI data feed with market depth which they won't charge for (apart from plonking down $10,000 USD in capital), even if I don't trade with them just yet.

Something for (sort-of) free sounds a bit suspicious to me...or am I too cynical?


On Topic:
Not much for me at the moment in the current market. 1 contract, +5 points today is my lot. Chicken scratchings only. Need the market to move out of the current range before I can make anything significant.

 

[skyQuake]

If the market just touches 5030 with 1 contract traded and then reverses, I may miss out because of the spread, you may miss out because of market depth.

No. Thats not now it works. There is a guarantee you will miss out. When it comes to 5029bid 5030 ask, that is what the cfd provider will display. If 500 contracts trade at 5030 but it stays at those bid and ask figures, your CFD 5030 limit will not get filled but a futures limit will, only when it goes to 5030bid will your CFD sell limit get filled. That's where you lose out on your 1 tick.

For the majority of trades that either hit a stop or hit a target, the futs trader will pay more in fees in a case like the spi where both have the same spread.
.

Seems strange everyone trades the futures then doesn't it?

Also counterparty risk is a significant issue with CFDs, as its you against the provider. Sonray and MFG come to mind

-----------------------------

On topic - Are my charts wonked or does the FTSE open 5minutes earlier than before? I have a bar at 6:55pm instead of 7pm (syd time)

 

[beachlife]

No. Thats not now it works. There is a guarantee you will miss out. When it comes to 5029bid 5030 ask, that is what the cfd provider will display. If 500 contracts trade at 5030 but it stays at those bid and ask figures, your CFD 5030 limit will not get filled but a futures limit will,

CFD's agree - happens rearely. Futs, disagree, will only be filled if depth is there. Happened to me last night on oil fut - yes a real fut. It traded at ask price, but not enough to fill my order, and then reversed and I wasnt filled. Also happens rarely.


For most trades where the orders are placed somewhere other than what turns out to be a turning point, cfds (from my provider) are the same but without the fees. No software or data fees either.

Beachlife.

Comparing spi cfds to futures might not highlight the diffences as distinctly as comparing FTSE or DAX cfds. For a FTSE 100 cfd equivalent of a futures contract (10 pounds per point) I have to pay 40 (10 X spread of 4) for a round trip. Slippage considerations aside, I believe that is still quite expensive.

1 point spread on UK and Dax also.



The obessession with futs for small position index trading is beyond me.

As for Sonray, their futures traders probably lost more because they had more margin lodged with them.

Anyway my point is really for Michael, to say that if what you are doing is working for you there is no need to change to futures just for the sake of it.

 

[pavilion103]

What just happened then?
Taking out all the shorts?
Is it going to crash down now?

 

[Caveroute]

6405 what you guys looking at?

Looking for test of 6437/27
DAX 62/26

A difficult night for me, a few singes, no scorch marks, could have been a lot worse ..........................

In retrospect, poor judgment on my part, sometimes I see what I want to see and not what is really there.

Eh well, onward and upwards.

 

[cynic]

...
1 point spread on UK and Dax also.

View attachment 56592
...

As I type this post, the spreads on the March futures are 4 points for both the Germany 30 and the UK 100 cfds (FSP:City Index).
There are additional charges associated with the 1 point spread cfds that you mention(i.e debits and credits in respect to dividends and interest). If holding beyond 24 hours the 3 point saving on spread can quickly erode!

 

[skc]

How long does the market stay still for? But in any case you forgot to include the round trip costs in your examples.
1. Lost $35
2. made $15
3. lost $10
4. lost $10

Yes I have included $10 commission. The average P&L (before commission) of the 4 situations is $0. So the average cost including commission is precisely $10. This applies whether the market is standing still or moving rapidly.

So depending on your trading style etc, you are able to improve your P&L under situation 2, 3 and 4, compared to trading CFDs. Let's say each situation has an equal probability of occurence, the average cost of entry/exit with the SPI would be the $10 commission round trip.

And you have assumed a fill which is not guaranteed.

No. I have not assumed a fill. The above calculation shows you 4 different situations where you get a fill in both entry and exit, entry only, exit only or neither.

The key here is that the real future contract gives you the opportunity for a fill without crossing the spread. CFDs do not give you that opportunity. Depending on your trading style, the costs can be very significant.

The obessession with futs for small position index trading is beyond me. Anyway my point is really for Michael, to say that if what you are doing is working for you there is no need to change to futures just for the sake of it.

MichaelD is trading a size where he begins to experience liquidity issues with the CFD provider. That's why the real traders here are telling him to prepare a move the the real futures market where you can access real liquidity AND be skillful enough to save the spread cost.

If you are trading sub 1 contract size, or scaling in/out is that important to you, then I have nothing against CFDs. But you need to recognise that they are the more expensive option.

 

[MichaelD]

I thank the real futures traders here for their invaluable input. It has broadened my knowledge base considerably. Looking back at old threads from when I was last here has been very illuminating. If only I'd known then what I now know. I'll probably say the same about this thread in a few years time.


Looking at the downsides/upsides of the Australia 200 Cash CFD vs the downsides/upsides of the SPI has been most illuminating.

I mentioned earlier that I have become used to the instrument I trade & that even though I trade it daily, I do so very differently to many of you and more particularly I have adapted my style to accommodate both the advantages and disadvantages of CFDs.

I could not directly transfer my current trading style to the SPI.

Differences between the way the Australia 200 Cash trades and the way the SPI trades:

1. Margin requirements. To move to the SPI at the same size would require around about 5x the capital I currently need.

2. Contract size. I am able to currently work with 0.2 of a contract with ease. This is not possible with the SPI below a contract size of 1.

3. The spread. The way I trade is not harmed substantially by having to cross the spread. Occasionally I will not get a fill which I would have got on the real SPI, so I miss an occasional trade. The bulk of my profits come from riding & scaling a position for 30+ points for all it is worth & I usually manage to get several of these per week. Real traders will fully understand what this is worth in $ terms. 1 tick makes very little difference to the big picture for me.

4. Scaling in and scaling out of positions is essential to my edge. I am not currently hampered by needing to pay attention to contract expiry dates, which would become relevant if I were to trade the SPI directly.


Yes, I have to pay handsomely for the way I trade in interest costs & occasional slippage & all the other unique market maker tricks.

Yes, I think to take my trading to the next level of return I will need to move to futures.

Just not quite yet.

I will add real market DOM information to my trading, as this will help me transition to the SPI.


ps I am reminded of Jesse Livermore's story. He could make a killing in the bucket shops, but failed miserably any time he tried to trade the underlying market.

 

[CanOz]

A couple of interesting thoughts for those willing to spend some quiet time looking at charts. Rather than looking for patterns like triangles and flags, a useful way to look for trade locations is to open up a chart of you favorite future and look for overnight highs and low and how the market reacts to those locations and then put the current session into a new context based on that activity.

The market definitely considers these areas a point of support or resistance. It has been said that this is mostly the locals or retails traders that use these levels, a big commercial hedger doesn't give two tosses about these levels.

Never the less, these levels and the Prior day OPEN, HIGH, LOW and CLOSE are pretty important references as well. On the European markets, due to the length of the session, the Overnight High and Lows ( highs and lows outside of the cash equity market hours) are really not as relevant. So prior day OHLC can be of more relevance.

On the SPI, and the US markets however, these Overnight levels are a great place to look for activity, in the Depth of Market, a volume ladder or a bid/ask indicator. Think about who could be holding postions from previous sessions and time frames.

You can imagine if the market tests this level and rejects it, there are now stops there and if the markets retests it, there could be a reasonable stop run that ensues. Great place to watch for trapped traders.

Anyway, pull up chart, make sure you have a session template that indicates the RTH and ETH sessions (Regular and extended trading hours) and then make the Overnight Highs and Lows as you go through a month or so of activity.

Once you get better at putting prior sessions in this context, around these levels, you can also begin to think about what might happen around news releases. I recall watching the S&P 500 erupt in a massive short covering rally at the highs on news one evening. After i looked over the activity around the highs it was understandable that lots of new shorts had built up and they got absolutely reamed out as they scrambled to get out and new longs got in...fighting against for each other for every price on the offer....These are great trades to on the right side of, but miserable trends to try and fade.

The chart below also show an RTH gap fill. Another important bit of info, in this case likely even more important than an overnight high..