Freetrade/ roll-your-own index tracker


When fractional share buys are implemented, and US shares are available, and the stock universe if very large, it would, in theory, be possible to do what an index-tracking ETF does yourself.

Just look up the current proportions of what’s in the index every day and buy and sell accordingly.

You’d save on OFC and your performance would depend on your tracking error. (Do the iShares of this world have any significant advantage in being able to have a lower tracking error?)

If everyone did this, would that be damaging in any way to freetrade (having to do so many free buys and sells)?

Would freetrade ever be interested in getting in to the game themselves, offering ultra-low OFC tracking funds?

(Kenny Grant) #2

I like this idea, I particularly like the community-driven aspect of it and the make your own fund idea, just because it levels the playing field a bit for individuals which I think is no bad thing. Issues would probably be around trading costs as you say, but it would depend how often the ETF was balanced - maybe daily would be fine.

(Simran Cashyap) #3

It’s an interesting idea, for sure.

However, I think most index providers won’t allow you to use their index holdings commercially without the provider paying a premium.

(Chris) #4

Its a nice idea but honestly, I can’t imagine anybody doing this for cheaper than Vanguard or SPDR can. The time/cost of reindexing each quarter would be way above what the pro’s do.


I haven’t looked into how exactly you’d find that days weightings of holdings from them officially, but they all publish their methodology. So, in theory, you could figure it out yourself.

If Freetrade were to offer it, maybe they’d have to pay that premium none-the-less. But individuals doing it for themselves with some script that works out the daily holdings wouldn’t be doing so “commercially” and there’d be no way of an index provider knowing about it.


What do envisage as the costs of “reindexing” each quarter?

I’m imagining it would be free to work out what shares comprise an index, and updating that every quarter (or every day, to catch special circumstances) should also be free?

Freetrade then makes the trades necessary to rebalance free.

(Chris) #7

Its a time-cost not a real-cost. However on top of this you can find the composition of the index no problem but your tracking error would be thrown out if you you use basic trades as they execute at the close of business. So even if you find out the new index composition at 7am, you have to wait for that days trade to (almost) be over to execute on the rebalance. Of course you can use a normal trade but its likely that you’d incur upwards of 50 to do this.

However your biggest barrier is that the defence, airline and a small amount of others aren;t likely to be offered on Freetrade for a while due to the declarations involved.

All of the big ETF’s use robots to automate this now (why the costs are so low) so whilst you could theoretically do this, I’d still suggest its much cheaper and more efficient to buy from Vanguard or one of the other big players


Regarding time-cost, my proposition would be to make yourself a “robot” (a little script that scrapes some websites) to generate the composition, and if Freetrade had API access, even place the buy and sell orders.

Yes, there’d be that time delay waiting for 4pm. I’ve no idea how to assess how significant that would be though. I haven’t seen how much index composition really changes on a hourly or daily basis.

And yes, I think this idea would only be feasible with a relatively large cap index like the NASDAQ 100. No idea if any of its components would be difficult for Freetrade to offer.

BTW, does that page provide all the information you’d need to track this index yourself? You just need ticker and share volume, right? Or am I misinterpreting?

(Chris) #9

If you can do it programatically then yeah, I don’t see a reason why you couldn’t. But again, these big asset managers are much better at it than you or I.

Theyre buying power means the spread is infintely lower than what Freetrade can get on your behalf. Having worked in the industry for 3 years I can (unhappily) tell you that institutional investors have their benefits.

I have to limit this to indexing and passive funds. Active funds are no better than a monkey & dart board


Interesting, thanks. But I think it then depends on how much they charge to pass on those benefits.

I think it will be interesting to at least run an experiment, not using real money, to see how your own tracking would have performed vs a big player’s ETF.

I plan to run such an experiment once Freetrade have enough stocks to cover all of NASDAQ 100, or at least some high percentage of it.

(Chris) #11

Please do and post the results here. I’d honestly love to be wrong here & I would bet that even Jack Bogle himself would want you to be right too!

Not sure how sustainable this is, but Fidelity have recently gone ‘one up’ on Vanguard and launched fee free trackers -