Get Smart

alan5616 · Nov 20, 2010

For those of you old enough to remember this TV series; join the club. Seriously, what I would like to do is to share some thoughts with fellow traders, particularly newbies. I'm based in the UK so, am writing this with current FSA regulations firmly in mind.

Please read every word of the following paragraph; if necessary, again and again and again.

"Your broker/spread betting company wants you to lose". They are, mostly, Market Makers and trading against you. They're the counter party in every trade you make. Your loss is their gain!! Ignore all their BS statements that they offset or hedge your trades in the market. They, usually, don't. READ IT AGAIN!

Let me preface this by saying that I'm not someone with a serious grievance against any SB Co or broker. I have been ripped off, in the past, but, that is water under the bridge. My trading experience is in excess of 10 years and I want to help those people who are just venturing out into these shark infested waters. My comments relate, specifically, to forex trading.

There is no centralised market (unlike S&P, Dow futures etc.) so, you have no independent point of reference for price verification, such as CME or CBOT. If your broker stops you out at a level that appears to be some way away from the market, what can you do? Quite frankly; nothing. They can tell you that one of the banks, they were getting quotes from, was quoting x price. It may have been the fictional Irish Bank of Zimbabwe but, this is their quote. They love to take out a whole cluster of stops, for example, on GBP/USD, at the Big Round Number of 1.6000. For those of you that don't know the term, it's called "stop hunting/running".

If you want to have a chance of making money then, you have to trade ECN. They don't give a **** whether you win or lose. You pay commission on every trade. The more lots; the better, as far as they are concerned. Don't get seduced by the Spread Bettors and Market Makers selling Snake Oil.

Unfortunately, retail forex trading, in the UK, has no regulatory body and the FSA will take 6-9 months to investigate a claim of malpractise against a MM or SB Co. If some of you reading this think that I am being over cynical; rest assured that I'm not. One of my close relatives worked in the back office of a major Market Maker. You wouldn't believe the strokes that these b*st*rds pull.

Black Swan · Nov 21, 2010

Alan, you've posted this in the forex strats and systems section, I have to say that anyone using SB to trade forex, on anything other than a position or a swing strat., needs to stop trading right now and go away and do some *learning*.

Whether SB firms are good or bad is irrelevant, their business model/s and set ups ensures you'll never win as consistently as you would with, for example, fxcm active trader; paying 0.5 spread on the Euro.

So (and I've repeated this ad nauseum) only SB if you need to trade securities not available through your broker, or if tax avoidance is something you need or are likely to enjoy. Can you make a very healthy living trading forex with an SB? without a doubt, but IMO only on longer TFs.

On the tax issue most allowances offer a ten grand limit, one fx account for you, one fx for the wife, means you could make 20K before it's an issue. Once you make 20K then move over to spread-betting THERE'S NEVER BEEN A GOOD REASON TO START OUT FX BY SPREADBETTING....EVER and I'll bet there's only a handful of active posters on T2W who get anywhere near to this (making 20K) being an issue.

Also and fwiw I use two sets of charts, pro real time (IG) and marketscope (DBFX & FXCM). I can tell you that I watch both sets of charts, (alarms/alerts better from PRT and it's much more flexible) and I've put in thousands of man hours on both and the price diff on them is a pip, IG is a pip *out*.

For a period of time I ran 2 accounts side by side; managing an SB account by power of attorney, I'd take the same fx trades on both the NDD/DMA platform and the SB platform. The cost of the trade was double with the SB firm every time not including and G.Stop. However, spikes were the same, slippage virtually non-existent and stop hunting? well is it stop hunting when there's huge price levels approaching such as 10,000, 14,000, or 16,000? There's no stop hunting going on there by SB firms, that's simply buyers and sellers (at the very top of the food chain) discovering price through participation.

I've yet to see one of these initially energetic *crusade* complaints that we see on T2W go anywhere and they never will; there's no evidence, no breach just incompetence on behalf of the spread-bettor. The irony is that the biggest issue consistent SB players could face is waking up one day soon to find their account is on hold and their funds cleaned out as ABC firm is liquidated overnight..now that'll be a story.

alan5616 · Nov 21, 2010

It is a strat or system, in a way

. I must have gone too far down, or up, the page when I started the thread!!

The FSA are, currently, investigating a number of complaints, from retail traders, against various Market Makers. Unfortunately, the FSA take months to carry out such investigations. I'm sure I'm not alone in wishing to see an efficient, powerful regulatory body established, solely, for the supervision of SB companies and the like.

FX Bandit · Nov 21, 2010

alan5616 said:
For those of you old enough to remember this TV series; join the club. Seriously, what I would like to do is to share some thoughts with fellow traders, particularly newbies. I'm based in the UK so, am writing this with current FSA regulations firmly in mind.

Please read every word of the following paragraph; if necessary, again and again and again.

"Your broker/spread betting company wants you to lose". They are, mostly, Market Makers and trading against you. They're the counter party in every trade you make. Your loss is their gain!! Ignore all their BS statements that they offset or hedge your trades in the market. They, usually, don't. READ IT AGAIN!

Let me preface this by saying that I'm not someone with a serious grievance against any SB Co or broker. I have been ripped off, in the past, but, that is water under the bridge. My trading experience is in excess of 10 years and I want to help those people who are just venturing out into these shark infested waters. My comments relate, specifically, to forex trading.

There is no centralised market (unlike S&P, Dow futures etc.) so, you have no independent point of reference for price verification, such as CME or CBOT. If your broker stops you out at a level that appears to be some way away from the market, what can you do? Quite frankly; nothing. They can tell you that one of the banks, they were getting quotes from, was quoting x price. It may have been the fictional Irish Bank of Zimbabwe but, this is their quote. They love to take out a whole cluster of stops, for example, on GBP/USD, at the Big Round Number of 1.6000. For those of you that don't know the term, it's called "stop hunting/running".

If you want to have a chance of making money then, you have to trade ECN. They don't give a **** whether you win or lose. You pay commission on every trade. The more lots; the better, as far as they are concerned. Don't get seduced by the Spread Bettors and Market Makers selling Snake Oil.

Unfortunately, retail forex trading, in the UK, has no regulatory body and the FSA will take 6-9 months to investigate a claim of malpractise against a MM or SB Co. If some of you reading this think that I am being over cynical; rest assured that I'm not. One of my close relatives worked in the back office of a major Market Maker. You wouldn't believe the strokes that these b*st*rds pull.

Hi Alan,

Just to clarify, are you talking about FX only? Presumably, your principal issue of invented prices based on a quote from the "Irish Bank of Zimbabwe"

lol:

) would not apply where one is spread betting something based on futures contracts such as the eminis? Or are you saying that it does?

Like Black Swan, I have had charts from an SB company and a regular futures broker simultaneously. I have noticed no real difference other than a very slight lag on the SB chart - certainly nothing that would affect most traders.

Is this fair do you think, or would you apply your comments to all SB instruments, regardless of whether they are based on things traded on centralised exchanges. I just wonder because if there was a major discrepancy between IG's price and the CBOT price, for example, surely IG would not have a leg to stand on.

I'd be interested to hear your thoughts.

FX Bandit · Nov 21, 2010

HI BS,

I would agree with almost of all of what you're saying. I would though say that I can see many advantages in starting out with an SB firm such as IG (who in my experience, which is not small, are perfectly reputable).

The range of instruments is good, the platform simple and user-friendly, a good charting package (in my opinion), the ability to make small and straightforward bets, the ability to use highly precise position sizing with limited resources, etc etc.

Black Swan said:
Alan, you've posted this in the forex strats and systems section, I have to say that anyone using SB to trade forex, on anything other than a position or a swing strat., needs to stop trading right now and go away and do some *learning*.

Whether SB firms are good or bad is irrelevant, their business model/s and set ups ensures you'll never win as consistently as you would with, for example, fxcm active trader; paying 0.5 spread on the Euro.

So (and I've repeated this ad nauseum) only SB if you need to trade securities not available through your broker, or if tax avoidance is something you need or are likely to enjoy. Can you make a very healthy living trading forex with an SB? without a doubt, but IMO only on longer TFs.

On the tax issue most allowances offer a ten grand limit, one fx account for you, one fx for the wife, means you could make 20K before it's an issue. Once you make 20K then move over to spread-betting THERE'S NEVER BEEN A GOOD REASON TO START OUT FX BY SPREADBETTING....EVER and I'll bet there's only a handful of active posters on T2W who get anywhere near to this (making 20K) being an issue.

Also and fwiw I use two sets of charts, pro real time (IG) and marketscope (DBFX & FXCM). I can tell you that I watch both sets of charts, (alarms/alerts better from PRT and it's much more flexible) and I've put in thousands of man hours on both and the price diff on them is a pip, IG is a pip *out*.

For a period of time I ran 2 accounts side by side; managing an SB account by power of attorney, I'd take the same fx trades on both the NDD/DMA platform and the SB platform. The cost of the trade was double with the SB firm every time not including and G.Stop. However, spikes were the same, slippage virtually non-existent and stop hunting? well is it stop hunting when there's huge price levels approaching such as 10,000, 14,000, or 16,000? There's no stop hunting going on there by SB firms, that's simply buyers and sellers (at the very top of the food chain) discovering price through participation.

I've yet to see one of these initially energetic *crusade* complaints that we see on T2W go anywhere and they never will; there's no evidence, no breach just incompetence on behalf of the spread-bettor. The irony is that the biggest issue consistent SB players could face is waking up one day soon to find their account is on hold and their funds cleaned out as ABC firm is liquidated overnight..now that'll be a story.

alan5616 · Nov 21, 2010

FX Bandit said:
Hi Alan,

Just to clarify, are you talking about FX only? Presumably, your principal issue of invented prices based on a quote from the "Irish Bank of Zimbabwe" lol:) would not apply where one is spread betting something based on futures contracts such as the eminis? Or are you saying that it does?

Like Black Swan, I have had charts from an SB company and a regular futures broker simultaneously. I have noticed no real difference other than a very slight lag on the SB chart - certainly nothing that would affect most traders.

Is this fair do you think, or would you apply your comments to all SB instruments, regardless of whether they are based on things traded on centralised exchanges. I just wonder because if there was a major discrepancy between IG's price and the CBOT price, for example, surely IG would not have a leg to stand on.

I'd be interested to hear your thoughts.

I was talking, purely, about the forex spot market.

Unlike Futures and Commodities, there is no centralised exchange with whom prices can be verified.

FX Bandit · Nov 21, 2010

alan5616 said:
I was talking, purely, about the forex spot market.

Unlike Futures and Commodities, there is no centralised exchange with whom prices can be verified.

OK, I thought that was what you meant. By the way I've tried forex with different bucket shops, and there are some that I think are worse than others.

NVP · Nov 23, 2010

Hi Alan

so for the many many newbies out there that are gaggin to throw their money to the wind on forex........

where should they be putting their hard earned deposits to trade the forex markets ?

N

alan5616 · Nov 24, 2010

NVP said:
Hi Alan

so for the many many newbies out there that are gaggin to throw their money to the wind on forex........

where should they be putting their hard earned deposits to trade the forex markets ?

N

Without a doubt, the best way of trading forex is with an ECN broker. They want you to win because, the longer you stay around, the more money you will make them by way of commissions charged. The prices you are quoted are the direct market prices currently, being quoted by the major forex banks

A few years ago, in order to have an account with an ECN broker, you needed to deposit a fairly hefty sum. Often, that meant a minimum of £10k, because they didn't offer the leverage available by SB companies and Market Makers. That has changed and deposit requirements are much less now (with many brokers).

The reason for my warning about MMs, is that they will be the counterparty to the trades that you place. They will do their best to offset your trade against that placed by another client but, that might not be possible, especially if their execution speed is less than 1 second. Therefore, if you are trading in micro or mini lots, your broker will take the risk on themselves. If you win; they lose and vice versa.

Shakone · Nov 24, 2010

Which ECN-broker do you use?

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