I have been trading index binaries for quite some time now. I have traded the Germany 30 and Wall St. but mainly the Aus Index.
I have been concerned now for some time regarding pricing, timing and charting included in the binary information. For the purposes of this discussion I will refer exclusively to the Aus Index.
Apologies in advance for the length of this, however, I have been attempting to trade the binaries for quite some time with some degree of success but also failure in certain areas. I have provided as much detail as I possibly can so that my areas of concern can be addressed.
These are the concerns that I have:
1. The spread.
I understand the need for a spread, however, the amount of the spread seems to me to be somewhat random and, frankly, far too wide. Given that the price will vary between zero and 100 I have often witnessed spreads such as 18 and 27, a nine-point spread (and sometimes greater). When looked at as a percentage nine as a percentage of 18 is 50%. This is a very significant spread. It seems to me that most often the spread is in the vicinity of 7 points. I query why it is necessary to have such a large spread particularly when you have a pricing of, say, 1 and 8. Given that 4.5 is the median point why could the pricing not be, for instance 3.5 and 5.5. Two points is still a significant percentage spread in such a market. Times of extremely high volatility can obviously affect spreads but in a highly traded market even volatility should not affect the spread.
2. The percentage change figures in the "Prices" window.
There are two markets for binaries on the Australian index, the 20 min market and the hourly market.
The first thing is that there is a lack of consistency in the prices window for these two markets. In the hourlies the "percentage change” column has an indicative digital figure of the index such as "5234.5” but in the 20 min market the "percentage change" column has a figure such as plus or -2. The hourly market also has a plus or minus figure in the "change" column. The only exception to this is between midday and 1 PM where the "percentage change" column of the 20 min market has the same as the hourly market, an indicative digital figure of the index. At all other times of the day the "percentage change" column of the 20 min binary just has a plus or minus figure not an actual price estimation of the index. Interestingly, in the 20 min market the "change" column and the "percentage change" column has slightly different figures in that the percentage column is to 2 decimal places.
However, if you look at the relatively recently created charts for the binaries they have a moving line and a digital figure corresponding with the value at any particular point. I have noticed, however, that this digital value can be significantly different to the digital value given in the prices screen when presumably both are supposed to be indicative figures. I cannot for the life of me understand how or why these two figures could be different. I have seen a variation of up to 14 points in times of high volatility and even five points when not so volatile. Given that the strike prices may be as little as five or seven points apart this is a very significant error in the representation of the price. Let's face it one of the two prices has to be wrong if not both. I believe that it is so significant that one or other or perhaps both of the indicative prices are effectively meaningless. One cannot tell which one could possibly be correct. In fact I have seen on the chart a particular price a second before the expiry of the binary to be a particular figure and then the close price can be up to 3 or four points different where there appears to be no significant move at the time in the underlying market.
Given that one 10th of a point can make the difference between a binary expiring at 100 or zero I believe that these figures should be more accurate than just merely some approximation.
The other interesting point about the indicative prices given is that they are not the Bloomberg prices which is the price at which the settled price is determined. They are some compilation of an indicative feed of the SPI and other factors as I understand it from IG support.
3. Closure of binaries before expiry.
The 20 min binaries and the hourlies close 1 min before expiry. I have noticed, however, that they very frequently close a few seconds before the 1 min. I have seen them close up to 6 or 8 seconds early on a very regular basis and have on a number of occasions been locked out of closing a trade with a few seconds to go. It is completely unacceptable if the "rules" state that the market closes 1 min before expiry but it in fact closes 1 min and 6 seconds or 1 min and 8 seconds before expiry. That sort of thing should never happen but it does happen constantly. A market should not be closed before it is actually supposed to be closed.
4. Final pricing (settled basis).
The final settled price is supposed to be the price as reported by Bloomberg. However, in discussions with IG support they have informed me that they could not afford to provide the streamed Bloomberg figures during trading. I agree with the underlying premise that an independent authority (such as Bloomberg) should set the final settlement price. However, I do not believe that you should have a situation where that authority’s figures are not available on the same trading platform to be viewed during the course of trading. The indicative figures as stated above have no real bearing on the Bloomberg figure. To this I say there are many different authorities (for example Morningstar) who could set the final price for the purposes of the IG index trading but I am sure that they would be prepared to negotiate a very reasonable fee (if Bloomberg isn't) to provide the feed to IG so that it could be displayed in conjunction with the binary prices so that it is quite clear what the real and actual price is rather than some inaccurate conglomeration.
In view of all the above I am not at all convinced that the provision of the Aus Index as a binary product is a product of merchantable quality and therefore should not be represented as such.
I do believe, however, that if substantial changes are made such as some of those indicated above, the product could be a good product. At the moment I don't believe that it is.
All products sold or available for sale in Australia are required to be of merchantable quality under the provisions of the Competition and Consumer Act 2010. I don't believe some of the index binary products are. I believe that changes as described above need to be made or I believe, unfortunately, the product should probably be withdrawn until such time as it can be fixed. I would like to keep trading them but I think I and anyone else would be a fool to do so believing that they would make a profit over time given the uncertainties and anomalies.