Unusually large spreads

[Richard.W]

If you have time I would enjoy reading an essay from you @chantal about experience with CFDs. I am particularly interested to know

1. How does a CFD business work? What does overnight interest actually pay for? What and how does the provider hedge? Does the provider make more money if clients close losing positions compared to closing profitably? Or does hedging make the provider indifferent?

2. Can CFDs be of any occasional use to investors who are principally not short term traders?

3. What is the right strategy for depositing funds: only enough to open the position, or more than enough to give yourself a comfortable buffer?

4. Is the figure about 76% clients losing money as bad as it sounds? It might be that we are seeing 76% lose an average of £1000, but 24% profitably making on average £5000.

5. Many providers offer CFDs but with greatly varying fee structure, on spread, fx, transaction fee and platform ease of use. This makes it very hard to say which is best to use. Why do you like Trading 212?

[Supraman]

I’m very interested in this information too.

I was planning to write a similar post, so you’ve saved me the bother @Richard.W!

[ffp3_mask]

Okay.

How to Tell if Your Broker is Trading Against You

I could tolerate trading in T212 CFD previously. But my strategy will not profit given current “climate”. We could all use common sense in applying “current market conditions” and the changes made on this platform. Do they have a choice? Hedging is already extremely difficult on their end.

[chantal]

I don’t know all that information. But I can write a sort of a beginner 101 of what to look at to reduce your risk.

[SteF]

Could you tell me what the other two apps in your screenshots are please.

Looks like I need a new account. Thanks

[amansoor1995]

Still amazing how the staff are ignoring this thread and replying to others.

[amansoor1995]

[Supraman]

Yesterday, in my practice account, I bought 1,000 shares in McDonalds @ $229.30 for about £35K. Due to the spread, I was instantly £15K down!

[pipo]

@Supraman

I was instantly £15K down!

Are you using pro leverage in the settings? Practice mode by default is 1:500 leverage or something ridiculous.

[Supraman]

You made me look! Nope, it’s a retail account with 20% margin.

The value of the position is about £175,000 though so that exaggerates everything.

Just to repeat, this was just me playing in my practice account to fully appreciate the impact of these spreads.

[profx21]

Short position opened:

As price goes higher (against my trade position), spreads becomes smaller --> Loss gets smaller
As price goes lower (toward my trade position), spreads becomes bigger --> Loss gets bigger

I am just wondering how big the spread could potentially become if market continues going toward my position?

3 screenshots in less than 10 seconds!

[amansoor1995]

[amansoor1995]

I’m bemused as to why no one is telling us why the spread is being kept so high !

[amansoor1995]

Seriously, this is crazy

[Richard.W]

I just did experiment in practice accounts. Sold 1000 Cineworld and then immediately closed. Lost £11.80. Did the same thing in IG practice account, lost £28 (including £10 transaction fee each way). Did same with Plus 500, lost £27.

The difference is that IG and Plus 500 also allowed me to go long. Trading 212 has 0 long available.

With bigger position of 10000. IG would have lost me £100, whereas T212 would lost £118.

[Hectares]

some links to other post which may assist. unfortunately there are a lot of post about wide spreads, staff have replied with the same answer.

@PeterA

We have what is called a floating spread - meaning that it reacts to the current market conditions such as volatility and liquidity and might be increased or decreased, depending on their current state. The target spread is what the spread would be under “normal” market conditions.

@David

The spread markup is in % & doesn’t vary wildly.

It’s just more noticeable with small caps as they have quite a large base spread as a % of their price compared to other companies.
Example: Microsoft, a $220+ stock usually has a 1-3 cents spread. BRQS, a $1.2 stock’s spread also swings between 1-3 cents.

We’re working on reducing the spread for all CFD instruments but hedging exposure for these small caps is quite difficult & costly.

It’s not a coincidence that no other CFD broker has Borqs Technologies.

@David

@Hectares It is a fixed % but depends on the underlying base/raw exchange spread. In my previous statement where I compared Microsoft to BRQS, I was referring to their raw exchange spread - the one before any markup.

I just wanted to point out that BRQS has the same raw/base spread as a $220 company.

@PeterA

Spread is a dynamic value - might get increased if the volatility is increased or the liquidity dries out. You can read more on it here:

Trading 212

What is spread and how it works?

Generally the spread is the difference between the Buy (ask) and the Sell (bid) prices. Depending on the market conditions (volatility and liquidity), the spread can vary throughout the day 'Floati…

[Supraman]

This is interesting information. Thanks for gathering it together. I think I need to get my head around this if I’m going to continue trading on the CFD platform.

• Does the concept of “floating” and “fixed” modes for spreads only apply to CFD? If so, how do spreads work for ISA/INVEST?
• Are these “floating” and “fixed” modes for the spread set at an individual instrument level or are they set globally for all instruments?
• Are all instruments set to “fixed” mode subject to exactly the same spread percentage? What is that percentage?
• Are all instruments set to “floating” mode subject to exactly the same spread percentage? What is that percentage?
• Is there a way to determine what mode an instrument is currently using?
• Is it possible to see a graph of the spread over time for an individual instrument in ISA/INVEST and/or CFD?
• What are my options for seeing the “base spread”? Does ISA/INVEST use the base spread directly (i.e. no markup)?

Finally, @David, can you provide an example, using actual figures, of how the two modes would be applied to real world examples please?

[pipo]

I think as the users here continue to trade and their trading knowledge starts to increase exponentially, they are eventually going to want answers to these sorts of questions. Especially if they want to plan trades at an OCD level like the pro Youtube guys.

Situations like the recent “Spreadening” and random shifting of goalposts will make this difficult. Difficult enough that they may jump ship.

It makes me wonder if that’s a legitimate and intended customer journey. Noobies join T212, get good at trading, and eventually realize it’s difficult to trade on the platform due to the randomly changing rules. They move somewhere else like Interactive Brokers where they’re at a level they can handle IB’s fee structure in return for more stationary goalposts. By then T212 would have made some profit off them, and they’ll be replaced by a fresh batch of new traders anyway to repeat the cycle.

There are obviously some users who join up, try CFD (sometimes by accident) then go onto ISA or Invest. They won’t care. Maybe that’s the majority. Who knows.

What has become obvious after the big incident though is that there are many more CFD traders here than I thought. They exploded out of nowhere during the panic. Many of them thinking that they own actual shares too.

[Brissles1]

This issue seems to really have been overshadowed by the margin changes. I hope more people bring this up/hope this gets addressed formally.

[amansoor1995]

100%, this and the increase in swap interest