business model for spread betting company?

[kwickwool]

Hi All,

I was just wondering about a business model for a spread betting company, just a food for thought type thing.

What if you set up a spread betting company that worked in the following way,

You initially set up your exposure as virtually nil, ie on each instrument you always hedge any exsposure that is weighted to the sell/buy side and take your profit from the spread only.

Then you start setting status numbers to each account, say between 1 and 10, 1 for the least profitable account and 10 the most profitable. You would need a good software system to do this but then you could start reducing your 100% hedging by looking at each instrument, your exposure to the sell/buy side and by having a system that could calculate using account status and trade size which side of the trade it might be most attractive not to 100% hedge against?

ie simple equation to calculate using the status of each account, ratio of trade size to simply give a numerical value as to what is statistically the most probable side of the trade not to 100% hedge on?

Also what you could do is with the traders who are profitable on status 9 and 10, or even just the 10 status, you set up another sub team within the spread betting firm that deals with all of these accounts and you for example double the stake when they enter into a trade. You make sure that these accounts are well managed in terms of no requotes, quick fills etc because you want these traders to be more than happy with the spread betting firm, you want to keep them because they are making you money.

It may be some time to build up the model but this model makes it very attractive to have not only big loser accounts but also big winners as well so you could make the firm very attractive to all traders?


Not that i am thinking of setting my own firm up, or even know anything about the real dynamics of a spread betting company, just something that occured to me and wanted others opinion.


cheers all,


Christian

 

[WallStreetHero]

might be helpfull

Comparing Spread Betting to Forex Trading

Trade and Tested Ltd


also check these out

Humble Student of the Markets: A new hedge fund business model

Hedge Fund Business Model Discussion

http://www.trade2win.com/boards/trading-arcades/17269-prop-firm-business-model.html

 

[demeanor]

hi there

Gnu offers a bet which is just like the spread bet called Basic Bet. This is how the basic bet works there. we need to click the ‘Basic Bet’ tab and decide whether the market will be higher or lower in the future and then we should choose our bet amount (eg, £10.) A playing chip icon will appear, showing our bet amount and the potential payout is shown next to it. Next, decide how long we want the trade to remain open. If you agree with the trade, then press confirm. The trade automatically closes after the time you set has passed.

I enjoy this kind of bet, as this reaped many benefits to me. thanks basic bet and thanx gnu

 

[ns1000]

Hi All,

I was just wondering about a business model for a spread betting company, just a food for thought type thing.

What if you set up a spread betting company that worked in the following way,

You initially set up your exposure as virtually nil, ie on each instrument you always hedge any exsposure that is weighted to the sell/buy side and take your profit from the spread only.

Then you start setting status numbers to each account, say between 1 and 10, 1 for the least profitable account and 10 the most profitable. You would need a good software system to do this but then you could start reducing your 100% hedging by looking at each instrument, your exposure to the sell/buy side and by having a system that could calculate using account status and trade size which side of the trade it might be most attractive not to 100% hedge against?

ie simple equation to calculate using the status of each account, ratio of trade size to simply give a numerical value as to what is statistically the most probable side of the trade not to 100% hedge on?

Also what you could do is with the traders who are profitable on status 9 and 10, or even just the 10 status, you set up another sub team within the spread betting firm that deals with all of these accounts and you for example double the stake when they enter into a trade. You make sure that these accounts are well managed in terms of no requotes, quick fills etc because you want these traders to be more than happy with the spread betting firm, you want to keep them because they are making you money.

It may be some time to build up the model but this model makes it very attractive to have not only big loser accounts but also big winners as well so you could make the firm very attractive to all traders?


Not that i am thinking of setting my own firm up, or even know anything about the real dynamics of a spread betting company, just something that occured to me and wanted others opinion.


cheers all,


Christian

Your real problem is in identifying the winners / losers. First, when someone opens an account, you have no idea whether they will be a 'profitable' account. You could hedge 100% and see but that has its own problems. Secondly, how do you hedge scalpers? By definition they're in and out very quickly - generally faster than you could hedge (an automatic hedge would slow down the dealing process considerably). Thirdly, you have the credit risk; a client is a consistent winner in a bull market and is hedged 100%; the market turns and they owe you £100k, but can't pay. You need sufficient profit margins to allow for the bad debt risk. Lastly, you have to get the business on better terms that your clients are paying. 1 pip spreads on indices and FX are often loss leaders that cannot be hedged 1-for-1 profitably.