Very inaccurate Quote prices on the Volatility Index

[Geremy]

Hi Guys, 

First post here, sorry if this is all just incorrect, but before I lodge a proper support ticket I just wanted to see if anyone from IG or the community could explain this to me.

I went long on the Volatility index 2 days ago, as it was at a low price and I was anticipating losses on the S&P 500.

When I was writing my trading plan I could not find anywhere on the IG website where is categorically stated that this Index was the VIX. So I rang IG to confirm and they emailed me in writing that it was "The VIX".

When I bought the price withing the next day I was down about $1000 USD which did not match my calculations.
I then noticed the difference in price between the IG product and other charts and index price data.

I rang and chatted to IG enquiring why the prices were different.

After discussing with someone on the phone we came to the conclusion it was because the data from IG is "Live" and what I was looking at was delayed by 15min. Ok awesome, problem solved. Use IG data.

Then yesterday I went Long again for similar money at an even lower price.

I have watched in anticipation as the S&P has fallen over 1% today and was expecting my Position to be just over 10k.

When it only breached 5k at 15 points I was very confused.

What I have now discovered is that the pricing mismatch on the live quote, while different by 15 minutes from the index price data available on the internet, was grossly different from the underlying index price.

I have gone back and done a comparison of the prices when I purchased and the prices as they are currently.

IG's price is currently UNDER-QUOTING the index price by approx 1%. Not fantastic in my opinion, but explainable by different data sources and aggregation points.

IG's price when I bought the stocks, were OVER-QUOTING by 14.8% and 19.8% respectively.

I have attached screenshots of all the pricing and my calculations. I'm simply not sure how I have missed out on my first large windfall with IG.

Sorry the calculations are a screenshot, I could not upload an Excel File.

Thanks

Geremy

Edited October 4, 2018 by Geremy
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[Caseynotes]

Hi @Geremy, just a small but important point to be aware of is that when considering 'live' prices the only live prices you should be concerned with are the live prices provided by your broker. Sometimes those prices maybe better or worse than those quoted on an exchange, none of us are big enough to trade directly on an exchange so we use a broker.

[Geremy]

Thanks for the information Caseynotes, my only concern here would be:

a) That I rang IG and asked about the difference and both explainations and our shared conclusions are not explained by these figures.

b) I was told that it is the VIX index.

c) No-one would buy something that's sitting 20% above the underlying asset - Especially if as soon as the asset moved in their favor, the same "Quote Margin" was reduced to almost nothing. This defeats the purpose of derivative products like CFD's. How can I trust that IG is telling me the truth if the price they quote in the morning is 20% higher than the underlying asset and then they quote later on and it's less than 1% accurate. Does this mean that I have to check every trade to make sure the actual price that the spread is placed around the contract is not inaccurate to the value of 1/5th the marketed equity? a 20% gain on any trade is fantastic, except in this case, it moved by up to almost 35% over the day and I'm lucky it didn't move 20% in the other direction..

e) IG publish their margins, fees and spreads, if they wanted to cover a position, as per my understanding they would offer the buy at 20% over value and the sell 20% under. In this case, the spread was 5 pips either side.

[Geremy]

Also, in addition to this, as per this link:

https://www.ig.com/au/derived-prices

IG claim that the order is executed at the underlying exchange price.. so if the quote was wrong, then it should have come back with the correct price.

What exchange is ranging from 14-19% inaccurate over a 24hr period on the worlds most well known volatility index?

[Caseynotes]

Correct  but it is IG's representation of the Vix index that they provide for retail clients, they get prices from the exchange, institutions,and banks plus sometimes market make themselves. Spreads, margins and are changeable depending on market open/close and price availability.

I think the key word there is 'derived' repeating that IG is not an exchange, sometimes prices are simply not available except way outside the exchange prices. And yes you do have to check every trade to make sure it is reasonable, sometimes the pricing algos, which can only deal with what they can get, will give unreasonable quotes. It's the same in all the other asset classes, sometimes the price or spread or margin or stop level makes the trade untenable. You want to compare brokers, not comparing brokers to exchanges. 

[Geremy]

Very Interesting,

So basically, what you're saying is that IG can advertise a market, based on an index, equity, whatever and then introduce or withdraw artificial price movements, moderations or exaggerations while a contract is in place above or below the advertised margin, spread, interest and commissions, correct?

[Caseynotes]

Spreads, interest and margins are variable by nature and commissions will be too if based on any of them. Maintenance margin is also variable which means any trade is always susceptible to a margin call. All prices are 'indicative', it reminds us so on the bottom of every chart, the price is whatever the broker says it is. You may well have a case to argue that should be looked into, I'm just happy to oblige and keep  'to and froing' to keep the thread alive as IG staff are less likely to respond if it is unanswered and buried dozens back before tomorrow morning.

[Geremy]

Thanks

I'm honestly more just interested in what their explanation is and where it's documented.

If it's just a mistake or an error, I'm not interested in the missing margin, I would just want the position edited as I was planning to hold anyway.

Would you recommend I just wait here for an answer or should I call or email them?

Thanks again,

Geremy

[Caseynotes]

I would hope for a response here on the forum but they don't usually look to respond to overnight questions til past 10ish am and before then there is forum traffic that pushes old stuff back further still. Might be worth simplifying, condensing the original post and presenting it in this same thread as a query about that time.

Best of luck. 

[Geremy]

Thanks heaps!

[JamesIG]

Hey @Geremy - I suspect that this is related to the difference between the Spot VIX price and the Futures VIX. The first is purely an indication of the expected volatility in S&P options and is purely an index price which you can't buy or sell. 

The VIX futures are different, however they are the only tradable instrument which we can buy/sell in the underlying market. They are priced as an expectation of volatility at the point of settlement, which can be weeks or months in the future depending on that particular asset you are trading. 

You can see different VIX futures below and see that they are all the same thing, just with different expiry prices and therefore prices. For this reason there can be a difference between the Spot and Future VIX.

Let me know if you'd like a deeper dive into this concept.  

[Geremy]

Hi James,

Thank you so for mucj for getting back to me.

Before I posted today, I too had the same thought, I'm aware the futures and options are the actual tradable, so I checked the october futures prices for the same times and they had similar results. I even checked the November futures which were approximately 1 point or about 8-9% higher. Not 14 and 19 percent.

Should I raise a support request? If it's not an error, I just want to understand what happened to avoid it in the future. IG is becoming my preferred CFD platform, but in this case, I would have been better off buying almost anywhere else.

Thanks,

Geremy