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?

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.

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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.

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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.

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?

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.


Haha very good @ytsruh