GoSeigen wrote:hiriskpaul wrote: The annual cost of holding CSP1 in this way is just under 1% and the cost of holding CS51 about 1.1%.
Hi Paul, couple of questions. First, I'm curious as to why you use bets on the above ETF rather than directly on the S&P futures. Presumably you have calculated that the ETFs are cheaper? In doing the calculation, did you take account of dividend handling in arriving at the annual cost of 1%?
Second, and slightly OT, have you managed to figure out what the major changes are to IG's recently revised terms? Anything I should be wary of as a spreadbetting customer? I haven't gathered the courage yet to dive into the details!!
GS
Futures are fine. I used to get exposure to the S&P 500 by going long the future and short the GBP/USD forward. The short on GBP/USD is required in order to gain the correct currency exposure as without it the futures position would behave like a GBP hedged tracker. e.g. 1% fall in GBP/USD, with no change in the S&P would be expected to deliver a 1% rise in an S&P 500 tracker priced in pounds, but the future would barely move. This is quite cheap to do, but when I spotted that IG offered CSP1, which is priced in GBP, with a low spread this was a simpler way to go. In some ways the future and FX forward route is better in that the underlying interest rates are set by the market rather than IG, however the prices IG make for the CSP1 forward cannot be too far out of line otherwise it would present an arbitrage opportunity (CSP1 can be shorted). The rate IG are currently using to make their forward prices is about 0.75%.
Sometimes you might actually want to hedge out currency risk. I am currently doing this with long bets I have on US corporate bond ETFs, LQDE and IHYU. These are priced in USD, but I have GBP bets with no FX forward bet to match the currency exposure.
I did look through the latest terms and could not see anything particularly onerous. There is a section on “Manifest Error” that I don't remember seeing before. This I think is to cover a situation where something goes wrong at IG and they publish a very silly price, way out of line with the market. In that situation they will unwind trades so that you cannot profit from them! So no point looking for large arbitrage opportunities.