Spreadbetting - Implicit Commisions are massive

Hi,

I have just realized that I paid £ 5,000 in implicit commisions to Spreadbetting companies over the last 2 months (spread). I still made a decent profit, but the amount stunned me, as I normally doing around 5 trades/day, no hyperactive scalping.

Especially in commodity space 5 points for oil, 0.5 points for Gold and 3 points for Silber have been the biggest hits, as these account for 90% of my trades.

Do you have any suggestions how to reduce the commission? Would it make sense to start trading futures and pay CGT rather than feeding commisions to SB companies?

Which Spreads can I expect on Gold/Silver/oil futures and are there any mini-contracts?
What do you think about Prospreads as an alternative?

Thanks,
Yuppie

Do you have any suggestions how to reduce the commission?

Click to expand...

I would look into using direct market access (DMA).


Paul

Hi Trader333,

Thanks for the reply. Do you know any good DMA brokers for commodities which offer mini-contracts? I don't trade FX, 90% of trades are in gold, silver and oil, occasionally some stocks and indices.

Cheers,
Yuppie

See what Interactivebrokers.co.uk offer re cash Gold trading, it's new and I think it will be right up your alley. Don't know about Silver or Crude though, although I think the exchanges offer mini-contracts but the bid-offer will probably be wide though.

The tightest spreads I know of are:
Gold - 0.4 points
Oil - 0.4 points

Yuppie...

Obviously no one here knows your financial situation with regard to account size or trading size. However, you mention that you feel that you've paid around £5,000 in spreads over the last two months alone.

Fag packet maths... 5,000 in two months equals £30,000 in a 12 month period assuming uniform trading patterns.

This implies that you do trade pretty large size (from a spreadbetting perspective).

You say that you're making reasonable money so one assumes that you're talking six figure sums given that your spreads cost you 30k.

You're almost certainly going to be better off sticking with SB'ing. Firstly the CGT allowance isn't very big so you're going to be paying CGT on most of your winnings if you go the DMA path.

Secondly, DMA is not always as 'cheap' as it first appears. People are talking like DMA is spread free when it's not. You will still have a spread and although this is often narrower than SB it can sometimes be wider. Then you have commissions to your broker for each contract traded. You also need to consider that it's very common to slip a few points on entry since the price you see on your screen is slightly stale - by the time your order hits the market this price is sometimes different.

Thirdly you have to consider slippage when using Stop Loss orders. If you choose your SB Co carefully then you'll get a far better deal in this respect than using a DMA platform. Some SB Co's fill stops at first available tick - with DMA it's far more random and generally costs you more money and sometimes loads more money.

In my opinion Spreadbetting has come along way over the last four or five years and it's worth shopping around the different houses to find the best deals on the instruments which you trade. You may well find that you can split your business between two or three firms.

Hope this helps,
Steve.

stevespray said:

Thirdly you have to consider slippage when using Stop Loss orders. If you choose your SB Co carefully then you'll get a far better deal in this respect than using a DMA platform. Some SB Co's fill stops at first available tick - with DMA it's far more random and generally costs you more money and sometimes loads more money.

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:-0

Can not agree with that. Most SB firms cannot be trusted to give you a good stop loss fill around large price spikes.

Your own thread from just 2 years ago is good example:

http://www.trade2win.com/boards/spread-betting/70236-ig-index-huge-gbpusd-slippage.html

This implies that you do trade pretty large size (from a spreadbetting perspective)

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Not necessarily as it could be a large number of trades in which case DMA is more cost effective.


Paul

I wish I'd only paid £5k in commission the last 2 months...

It's a fact of life. How many trades did you do? If you're trading DMA size then deffo look into DMA. Also check out prospreads for a combo of the two.

Trader333 said:

Not necessarily as it could be a large number of trades in which case DMA is more cost effective.


Paul

Click to expand...

But he clearly states in Post#1 that he's only doing around five trades per day.

stevespray said:

But he clearly states in Post#1 that he's only doing around five trades per day.

Click to expand...

5 trades per day at 5 ticks spread = 6250 ticks needed a year just to break even.

At 10 pound per tick = 62,500 pounds have to be made just to break even.

And you cant really make good money betting at £10 per point either, thats only 1 and a half lots.

To make decent money you got be trading £50 a point minimum, probably even more.. so we talking more than £300,000 a year paid in spread at that size.

donaldduke said:

5 trades per day at 5 ticks spread = 6250 ticks needed a year just to break even.

At 10 pound per tick = 62,500 pounds have to be made just to break even.

And you cant really make good money betting at £10 per point either, thats only 1 and a half lots.

To make decent money you got be trading £50 a point minimum, probably even more.. so we talking more than £300,000 a year paid in spread at that size.

Click to expand...

In his first post he said that he'd paid £5,000 in two months. Hence my 'fag packet' maths which bought me to £30,000 in a year. Not sure how you're arriving at £62,500 when that 'variable' appears to be stated in the original question?

I'd assumed (in my calcs) that he'd be making at least three or four times his trading costs in profits.


Steve.

one has to assume that you have calculated the full bid/offer spread as 'commision' which is a very curious way of calculating commission. You would not do this when you trade on an exchange so why so it with a spread bet?

The SB company does not make this full spread (i wish we did) unless somebody comes on and trades in the other direction in the same size at the same time (and even then only if both parties exit in the same manner). When an SB company 'hedges' in the open market then they will also pay the quoted spread on the exchange to get in and out of the trade. In most cases (in oil for instance) the actual bid offer in the open market is never 1 pip it is often three, four or even more. In the S&P as an example the 'minimum spread' is 2.5 pips and then you pay commission on top of this on both the buy and the sell and with most brokers you would be putting up huge margin (i.e when the SB company hedges they are paying this 2.5 spread plus comms) with SB the spread is 4 (at least with Capital Spreads it is) this makes it marginally more expensive on an outright level but the difference is very small.

In markets such as Eur/Usd where the spread is just 1 point 24hrs a day (or GBP/USD at 2 pips) the calculations go much more i the clients favour as even the best platforms will generally not give such a tight price (especially when you add in comms).

Simon