How our markets are priced

Cryptocurrencies

We derive our cryptocurrency prices by taking sell and buy prices from various well-known cryptocurrency exchanges. We then aggregate these prices to give us a consolidated mid-price which we then use to wrap a fixed spread around. This provides a much more stable spread through different times of the day.

Shares

For our shares pricing, we take the underlying exchange sell and buy prices of each stock and then apply a markup to these prices. This means you’re trading on the ‘true’ prices from the underlying market with just a small adjustment for our fee. It also means our price will reflect fluctuations in the underlying market spread due to changes in liquidity.

Forex and spot metals

Unlike the rest of our offerings, spot forex and metals are not traded on a centralised exchange in the underlying market. This means there’s no central reference point for brokers to derive their price from and so typically prices are calculated through a range of OTC (over-the-counter) counterparties. These can range from investment banks to other brokers.

These prices are subject to variable spreads depending on market conditions. At Capital.com, we aggregate them and subsequently add a small additional spread (our transaction fee) depending on the market.

Indices

Our cash index pricing is derived from our price providers’ mid-price and subtracting/adding spread.

We fix our index spreads based on times throughout the day, usually to reflect changes in the underlying liquidity of the market. Our spread will typically be widest when the underlying futures market is closed, and tightest during the main share-trading session.

As cash indices are tradeable in the underlying market.Many price providers, including ours, will derive their cash price by taking the futures price and adjusting for fair value, which is expected dividends of the constituent stocks and the relevant market interest rates.

Fair value represents what the index should be worth in a perfect market without arbitrage opportunities.

Commodities and the VIX index

You can trade on both commodity spot prices (also sometimes called ‘undated commodities’) and commodity futures with us.

How we price commodity spot markets

We determine prices for our spot commodity markets using the two nearest futures contracts of a commodity, as these are usually the most traded.

Over time, our undated price gradually shifts from the price of the nearest contract to the next one to avoid the need for an expiry date (sometimes called a rollover date).

In our system:

• The ‘front month contract’ (the one that expires soonest) is called ‘A’.
• The ‘back month contract’ (the one that expires second soonest) is called ‘B’.
• Our price (P0 and P1 in the diagram below) gradually moves from the price of ‘A’ towards the price of ‘B’ between these two expiry points.
• The price of ‘B’ can be higher or lower than the price of ‘A’, though in the example below, it’s higher.

When the front month contract ‘A’ expires, we transition to the next set of contracts. This means ‘B’ becomes the new ‘A’, and the contract that expires after the new ‘A’ becomes the new ‘B’. This process continues, so there is always a smooth transition from one contract to the next.

This means that when we transition, our pricing will be based 100% on the front month contract, and then move in a linear fashion towards the back month.

When trading these (as with other markets), you’ll pay an overnight holding cost, which has two parts:

1. Admin fee: This is a fixed fee of 0.01096% charged daily.
2. Daily premium adjustment: This reflects the daily movement of our price from the front month (A) to the back month (B). You will either pay or receive this adjustment, based on the direction of your trade.

When the price difference between A and B is larger, the daily adjustment is also larger.

The price difference between the two contracts can vary greatly depending on the market conditions, most obviously in commodities that are affected by seasonal demand (e.g natural gas).

Natural Gas CFD example

To calculate the overnight adjustment for Natural Gas, we consider the daily movement between the two futures (the ‘daily premium adjustment’ or ‘DPA’) and the admin fee (‘AF’).

AF is calculated as: Price x 0.01096%

DPA is calculated as: (B - A) / (T2 - T1) x 1 / A x 100

Where:
- T1 is the previous expiry date (27/05/24 for this example)
- T2 is the current expiry date (24/06/24 for this example)
- A is the price of the front-month future
- B is the price of the back future

In this case T2 - T1 gives 28 days.

Example data

The cost to hold a long position overnight would therefore be 0.0711%, comprising the daily premium adjustment and the admin fee. If you were short Natural Gas, you would receive 0.0601% and pay 0.01096%, resulting in a net credit of 0.0492%.

These percentages represent the daily cost or credit for holding a Natural Gas position overnight, based on the example data. The rates will fluctuate as the prices of the two contracts converge or diverge.