Trading Index CFDs

[stow254]

Hey everyone. I'm new to the world of CFDs, so please bear with my noobiness

I'm quite interested in trading indexes and noticed that CFD providers, both mm and dma, offer commission free trading on indexes. Does this mean they profit from the spread, and if so, by the end of the trade (opening and closing), how much would i have lost from the spread?
The second question is particularly important as i like to know how much of a move i need in order to break even from paying the commission, but in this case paying for the spread.

Also, when trading indexes with DMA providers, will i be trading the indexes at the current market price, or prices they have set themselves?

If anyone has the time to answer my above questions, i would greatly appreciate it.

 

[beamstas]

1. You can't trade futures through a DMA CFD provider. Only MM Cfd providers will let you do this, if you want to buy the real thing (DMA) , then you'll have to buy SPI contracts through the SFE.

2. DMA prices are set by the market, MM prices generally follow the market very closely. The difference is normally in the fills. MM will give you a fill at the first level that will fully accomodate your trade, DMA will move through the order book until your order is filled. It is possible to get better fills with either, depending on the depth of the market. This doesn't apply to futures contracts.

3. They profit from the spread. Generally you'll pay brokerage for buying a real futures contract. I think the spread is around 2 points, or $50, for a full contract. You will need to make a 2 point profit to breakeven, and 3 points to be in profit.

 

[cutz]

1. You can't trade futures through a DMA CFD provider. Only MM Cfd providers will let you do this, if you want to buy the real thing (DMA) , then you'll have to buy SPI contracts through the SFE.

Hi Brad,

That may not actually be true, i've been keeping an eye on IQV6, it's an ASX200 CFD traded on the SFE, available through IB and Comsec amongst others.

Seems to track XJO fairly well with good liquidity, i can't really compare it to MM models as i've never seen the latter in action.

 

[beamstas]

Hi Brad,

That may not actually be true, i've been keeping an eye on IQV6, it's an ASX200 CFD traded on the SFE, available through IB and Comsec amongst others.

Seems to track XJO fairly well with good liquidity, i can't really compare it to MM models as i've never seen the latter in action.

Nice pickup, Cutz, Cheers
Brad

 

[Aussiest]

If you have >10k (or, is it 15?), you can trade the Australia 200 Cash and the Australia 200 Forward (amongst other things), which track the indicies, through IG Markets via DMA.

So, to my knowledge, yes, you can trade indices using CFDs.

 

[beamstas]

DMA suggests that they are buying the actual contract in the market, IG Markets do not do that,

Our Stock Indices are a special form of CFD that give a client exposure to changes in the value of a stock index but cannot result in the delivery of any share or instrument by or to the client.

Our Stock Indices are based on the cash price of the underlying index and we charge no commission on them; all you pay is the dealing spread. Based on the underlying market, spreads may vary to those specified in the Contract Details.

I am happy to be proven wrong!!

Brad

 

[Aussiest]

DMA suggests that they are buying the actual contract in the market, IG Markets do not do that,

I am happy to be proven wrong!!

Brad

Hmm, but isn't the nature of a CFD "not a real contract", eg, share CFDs track the price of a share (eg, CBA) directly (if DMA is activated). So, therefore an index CFD is like a share CFD > tracks the price of the relative index. I wasn't aware that DMA meant that a real order had to be placed in the market?

From a newbies point of view, does it matter if the order is not put into the market? Perhaps the OP wanted to know if he/she could place an order at "market price", using CFDs because it is easier, or the margin is less.

An experienced trader might like the actual order to be placed because:

1. More liquidity
2. Contribute to market depth
3. Get to see market depth
4. Move the market if volume large enough.

I hope i haven't confused anyone, that was quite a mouthful!!

 

[beamstas]

DMA cfd's are placed in the market and go through the course of sales.

If you have traded a DMA cfd, check the course of sales.. it should be there, if it isn't it's not a true DMA.

 

[Aussiest]

DMA cfd's are placed in the market and go through the course of sales.

If you have traded a DMA cfd, check the course of sales.. it should be there, if it isn't it's not a true DMA.

Hmm, that's interesting.

Sorry, a little off topic.

I traded a CFD with a certain provider earlier this week which was a supposed "DMA" CFD, and i didn't see it appear in the market depth. When i've traded CFDs with another provider, i've seen the orders go into the market. The first provider, btw, claims they are "DMA" CFDs.

For the sake of the OP though, he/she probably wouldn't mind if an order was not placed into the market, as long as the price reflected the current market price.

So, yes, you can trade CFDs that reflect the real market prices (they are sometimes a little off), but your order will not be placed into the real market. I hope that is not too confusing...

 

[stow254]

Thanks for the replies guys!

Sorry for the confusion, I don't really care whether the order goes into the market (as with dma share cfds), i really only care about two things:
1) a cfd that reflects the current market price of an index
2) a cfd provider that hedges their position

I think i was confused with 2) as the general consesus i have been told is that market makers tend to profit from you losing and will engage in dubious practice in order to make this happen. Hence, the reason i was was aiming for a DMA provider or one that hedges their positions.

So anyway, when a DMA provider (such as GNItouch) supplies index cfds, is this a market maker procedure?

Also, what is the liquidity like on index cfds? Would i be able to fill a large order without requote?

 

[GMS]

Stow254,

If you are concerned, about market makers, the spread, and liquidity for filling reasonable volume, then consider the equity index futures contracts.

You pay exchange royalty fees for live prices if you want online access, although spreads can be the market tick size minimum eg 0.5 or 1 point especially when there is liquidity, and you are trading in a public exchange regulated market.

Cheers.

 

[skc]

Hi Brad,

That may not actually be true, i've been keeping an eye on IQV6, it's an ASX200 CFD traded on the SFE, available through IB and Comsec amongst others.

Seems to track XJO fairly well with good liquidity, i can't really compare it to MM models as i've never seen the latter in action.

Cutz, I can't find IQV6 on my IB? Is there a special trading permission or something like that for it to appear?

 

[cutz]

Cutz, I can't find IQV6 on my IB? Is there a special trading permission or something like that for it to appear?

Hi skc,

On an order management row type in SPI >> enter >> in menu box select CFD (5th from top).

 

[skc]

Hi skc,

On an order management row type in SPI >> enter >> in menu box select CFD (5th from top).

Found it thanks. Spread of 3.8 points a bit steep, plus commission..

 

[stow254]

Thanks for the help guys!

Stow254,

If you are concerned, about market makers, the spread, and liquidity for filling reasonable volume, then consider the equity index futures contracts.

You pay exchange royalty fees for live prices if you want online access, although spreads can be the market tick size minimum eg 0.5 or 1 point especially when there is liquidity, and you are trading in a public exchange regulated market.

Cheers.

I have been considering the futures market, but as far as i know, you cannot do much with low capital. In fact, i have heard from people that you need at least 10-15k. This is why i am quite attracted to cfds, as it offers very decent leverage for low capital traders.

In terms of trading costs and commissions, would the futures market be cheaper than cfds?

 

[skyQuake]

Thanks for the help guys!



I have been considering the futures market, but as far as i know, you cannot do much with low capital. In fact, i have heard from people that you need at least 10-15k. This is why i am quite attracted to cfds, as it offers very decent leverage for low capital traders.

In terms of trading costs and commissions, would the futures market be cheaper than cfds?

Mate, if you're gonna learn, Do that on sims. IB + Ninjatrader.

IG markets CFDs also decent to learn on, $AUD 1 Contracts for all the popular futs. (ie $1 a point)
Good learning platform.

 

[Bobby]

Stow ,
As SkyQuake said start on a demo A/C , you could try IG markets Aussie 200 micro contract to start $1 a point , it follows the XJO , don't try trading it when the actual market is closed

Try placing your stops the extra 10th of a point , e.g. say the buy - sell is 4300 / 4302 & your going short with the minimum 4 point stop , type in 4.1 in the stop box .

 

[jono1887]

With IG Markets is the spread for ASX200 2pts for buy and sell for 2pt in total?

ie. do you need to gain 2pt or 4pt to break even?

http://www.igmarkets.com.au/cfd/cd-indices.html\

edit: i logged into their demo thing and for asx200 its 4339.5/4343.5 so isn't that a spread of 4 pts each way?? so 8pts to break even??

 

[beamstas]

With IG Markets is the spread for ASX200 2pts for buy and sell for 2pt in total?

ie. do you need to gain 2pt or 4pt to break even?

http://www.igmarkets.com.au/cfd/cd-indices.html\

edit: i logged into their demo thing and for asx200 its 4339.5/4343.5 so isn't that a spread of 4 pts each way?? so 8pts to break even??

It's not 4 points each way, it's 4 points total.

You can buy for 4339.5 and then sell for 4343.5 immediatly, meaning you lose 4pts. It's not like brokerage where you "pay" a spread, it just means that the ask will always be 4 points higher than the bid, so every time you buy/sell you are going to miss out on 4 points, which is $100 on a normal SPI contract.

 

[stow254]

So a fixed 4 point spread would be analogous to paying 0.2% in commissions (total)?
By that i mean the break even would be the same.