Shall We All Just Close Our Spread Bet Accounts??

[libertas]

I'm not suggesting what SBs do is wrong (caveat emptor), it's just for the naive and unwary the games they get up to will make learning to trade almost impossible. An SB is there to make money out of it's customers by them being wrong and losing money whereas a DMA broker makes money from it's commissions and other lending facilities. Knowing this simple fact, who would you trust with your trade executions?

 

[gle101]

I'm not suggesting what SBs do is wrong (caveat emptor), it's just for the naive and unwary the games they get up to will make learning to trade almost impossible. An SB is there to make money out of it's customers by them being wrong and losing money whereas a DMA broker makes money from it's commissions and other lending facilities. Knowing this simple fact, who would you trust with your trade executions?

I absolutely do not agree, I think you got this simple fact wrong. SB's make most of the money out of spread and money flow.

 

[tar]

I'm not suggesting what SBs do is wrong (caveat emptor), it's just for the naive and unwary the games they get up to will make learning to trade almost impossible. An SB is there to make money out of it's customers by them being wrong and losing money whereas a DMA broker makes money from it's commissions and other lending facilities. Knowing this simple fact, who would you trust with your trade executions?

http://www.telegraph.co.uk/finance/...inject-70m-as-City-Index-clients-default.html

 

[tar]

I absolutely do not agree, I think you got this simple fact wrong. SB's make most of the money out of spread and money flow.

mmm i am not sure about that

 

[libertas]

I absolutely do not agree, I think you got this simple fact wrong. SB's make most of the money out of spread and money flow.

I'm not arguing that they don't make money from the spread, they obviously do. What I am saying is that an SB will make far more money out of it's customers if they are wrong. The competitiveness of the industry nowadays has reduced spreads to their absolute minimum meaning the revenues available through the spread are greatly reduced.

For example:

If a customer takes a trade at £10pp on an instrument with a one point spread the SB will earn £10 for the spread no matter what. Now if that trader is wrong and he is stopped out at say 15 points away from his entry, which I'm assuming is fairly average for this example, the SB will earn £150. Now as you stated back in post 41, correctly in my view, that 90%-95% of traders lose money, surely it is obvious that the greater portion of the SB's revenue will come from these losing trades.

I realize I'm making some assumptions here but the numbers are so overwhelming I think I am safe in doing so.

 

[gle101]

I'm not arguing that they don't make money from the spread, they obviously do. What I am saying is that an SB will make far more money out of it's customers if they are wrong. The competitiveness of the industry nowadays has reduced spreads to their absolute minimum meaning the revenues available through the spread are greatly reduced.

For example:

If a customer takes a trade at £10pp on an instrument with a one point spread the SB will earn £10 for the spread no matter what. Now if that trader is wrong and he is stopped out at say 15 points away from his entry, which I'm assuming is fairly average for this example, the SB will earn £150. Now as you stated back in post 41, correctly in my view, that 90%-95% of traders lose money, surely it is obvious that the greater portion of the SB's revenue will come from these losing trades.

I realize I'm making some assumptions here but the numbers are so overwhelming I think I am safe in doing so.

The SB have an internal Risk management strategy, I do not think for a minute they will put the company at risk doing business this way.

 

[gle101]

mmm i am not sure about that

So where is their source of income?

 

[libertas]

The SB have an internal Risk management strategy, I do not think for a minute they will put the company at risk doing business this way.

I can't see how this is putting the company at risk unless you assume all their customers will suddenly become proficient traders all at once and make a killing. As you stated earlier large 'bets' will be hedged so it would take a change of fortune or skill level on mass for their to be any significant effect on their bottom line.

 

[Splitlink]

What I find curious is the surmising that goes on on these threads. It must be a very well kept secret, no matter what they do. Maybe it's a job for Wikileaks?

 

[Ross Spur]

I'd say that SBs used to make a large chunk of their profits from clients' losing trades rather than spread, but less so now. Which could be partly why they make less profit nowadays.

 

[brewski1984]

I was always under the impression that SB was bad because of the high cost compared to real trading? Or is that not the case anymore? Is it purely because you're against them that they'll try loads of tricks to take your money from you?

 

[gle101]

I'd say that SBs used to make a large chunk of their profits from clients' losing trades rather than spread, but less so now. Which could be partly why they make less profit nowadays.

Well, the spread is much tighter now and yes they played more games 5 years ago. It want work as, the competition is fierce today. The client is more mobile and the cost for obtaining new clients is much higher today.

 

[gle101]

I was always under the impression that SB was bad because of the high cost compared to real trading? Or is that not the case anymore? Is it purely because you're against them that they'll try loads of tricks to take your money from you?

I would sat today it is the other way around, it is really cheap trading SB. That the SB play against you is a myth that some traders like to express, but holds no true value today.

 

[Ross Spur]

I would sat today it is the other way around, it is really cheap trading SB. That the SB play against you is a myth that some traders like to express, but holds no true value today.

Yes, compare the cost of trading the 'real' market with SB, Dow in particular, where you get a narrower spread than the underlying YM future, yet no commission, far smaller margin and can trade with any size stake instead of increments of $5. Really the only thing missing is a decent platform like NinjaTrader.

 

[gle101]

Yes, compare the cost of trading the 'real' market with SB, Dow in particular, where you get a narrower spread than the underlying YM future, yet no commission, far smaller margin and can trade with any size stake instead of increments of $5. Really the only thing missing is a decent platform like NinjaTrader.

Yes correct, I bet you that many from the US would like to daytrade SB, with this kind of spread and margin.

 

[Truth Seeker]

Yes correct, I bet you that many from the US would like to daytrade SB, with this kind of spread and margin.

You are forgetting that you get much worse fills when trading SB compared to the real market - in my experience anyway.

 

[Splitlink]

You are forgetting that you get much worse fills when trading SB compared to the real market - in my experience anyway.

Sometimes, perhaps. Most times my fills are quick enough for me, but I'm not by nature a scalper. Would you believe that, after all these years, I am not 100% sure what a tick is worth? You will, always, see anything I refer to in a post in points. I think that much sums up the trader who uses SB companies. We don't want to stake as much as a contract, on a trade, so we don't use a broker. All we ask for is a degree of fairness. I think that I get that. You don't? I'm sorry, so you have to look for something else. What else can be said?

 

[Pat494]

IB used to need a $5,000 deposit, which is too much for me

Like Splitt I like points - mine is on the S&P 500. When I can "almost" guarantee success I will consider US style brokers. Why did the US ban SBs ? 'Cos the competition was too much for their system, just like poker online - scotched by the Las Vegas casinos.

 

[Splitlink]

IB used to need a $5,000 deposit, which is too much for me

Like Splitt I like points - mine is on the S&P 500. When I can "almost" guarantee success I will consider US style brokers. Why did the US ban SBs ? 'Cos the competition was too much for their system, just like poker online - scotched by the Las Vegas casinos.

Confession

I, too, went to IB.

I lost the lot.

It's water under the bridge, more than ten years ago and I've made it up with SB companies. It takes time to get that back, so, would-be new traders, think it over carefully, preferably, before you start.

 

[uk dave]

I can't see how this is putting the company at risk unless you assume all their customers will suddenly become proficient traders all at once and make a killing. As you stated earlier large 'bets' will be hedged so it would take a change of fortune or skill level on mass for their to be any significant effect on their bottom line.

They don't bother to hedge that often as most traders lose.