Sunday, May 18, 2008

City Index

Here's another idea in my ongoing quest to trade stock indices cheaply, in small size, and at times which are convenient for my time zone. City Index is a CFD - contracts for difference - provider. These are like futures contracts but there is no expiry date and interest and dividends are paid in cash over time rather than being paid up front in the contract price as in the case of futures. They're illegal in the US by the way - they are very much like the bucket shops described by Jesse Livermore. The attractions for trading the ASX 200 index through this provider:

1. Minimum trade is $1 times the index vs. $25 times the index for the SPI futures. I'm looking to trade $25,000 or so initially.

2. Commission is one point of spread - i.e. their bid ask spread is one point wider than the SPI futures. This is two and a half times what Interactive Brokers charge for trading the futures contract but much less than commissions on trading warrants through CommSec (and barrier warrants have a spread equivalent to 8 index points!) and for trading a futures option with a delta of 0.25 through IB the commission is effectively the same. Anyway, its a good deal for trades of the size I want to do.

3. Unlike using options (but in common with barrier warrants and futures) there is no time premium to erode.

4. Unlike any ASX listed products but in common with SPI futures the CFD can be traded out of market hours (as long as the futures market is open).

They have a seminar in Canberra on Thursday. I'm going along to find out more. Their commissions for trading stock CFDs begin to make daytrading Australian stocks a practical proposition too.

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