This is getting boring
charliechan said:
yes please do explain as simply as you like.
why not give several examples -
1/ where the sb company has even bets on both sides
2/ where the sb company has a majority of long customers and the market is going up strongly
3/ where the sb company has a majority of customers on the wrong side of the market
while at it, you may also like to refer to my earlier post that socrates also sees as truth and not fairy tale stuff straight from the marketing blurb of the sb company.
thank you.
Thought you'd never ask!
1/ OK The SB co has for example at any one time 200 active trades on the FTSE say 100 long at a combined total of £5000 per point. It matches these trades against its client base to 100 short at the same £5000 per point. It's net position is zero. Let's say that the spread is 6 points. The SB has already made £5000 x half the spread i.e £15,000 when these clients opened their positions! Their liability has already been hedged from their own client base!
Now lets say that the market moves 100 points up and then comes down 100 points over a period of two weeks and everyone closes out their trades. All 200 punters would have made a small loss and the SB company would have made £30,000.
This is the cost of trading by SB and as in any market if you open and close at the same price you take a small loss.
In reality of course the SB firms books are a hive of activity with probably many hundreds of trades being opened and closed per hour on the same instrument. Great for the SB company as they are making on the spread on each and every transaction as long as they can match up opposing clients views.
In this case of course it doesn't matter to the SB co if the FTSE goes up non stop for weeks because their net position is zero. It is in effect just a transfer of wealth from those clients 'wrong' to those clients 'right'. The Sb co doesn't give **** as they have made their money anyway. (Just like in the DA market). So you see the SB makes money from those clients that WIN and those that LOSE. Actually it makes no difference to them at all!!
2/ Of course in a trending market that is going up strongly and most of the SB's client base are also long the SB co will simply hedge their position in the marketplace according to their own risk parameters. Ideally of course they would like an equal number of longs and shorts so they don't have to hedge but when their overall position is out of balance they hedge overall. I don't suppose for a minute that they care who has placed the trade or what their track record is, they simple monitor their overall position on a particular market and hedge accordingly.
Again with the dynanics of their customer base people are opening and closing positions at a rapid rate in real time and each and every time the SB co is making their spread money!
So in effect, even if the majority of their clients are 'winning' the SB co still make money!
3/ This is the reverse of 2 and the same applies. Can't be bothered to explain it all again.
The conclusion of all this is that the Spread betting firm does not give a toss if you win or lose so long as you trade!! Where possible your position is matched against another opposing position within their customer base,, if it is not then it will be hedged. (When it is worth doing)
How else do you think they do business? Just hope that all their customers lose and take their money? Doesn't seem very bright as a business model. Try taking that to the bank manager as a business proposition. But what about if you make money off every client whether they win or lose?
The job of the SB co is turnover, the number of trades per hour per day that they make their spread on, not the direction of the market. Funny that sounds a bit like Direct access to me!
Still it must be better because you have to pay commissions and pay the IR 40% of your winnings. Lovely.
As I have said before I have been successfully spread betting for almost four years and find it the perfect way to trade. If the SB firms hate winners so much why haven't my accounts been closed down? I'll tell you why, because they want me to trade, as much as possible, so I can be offset against others. I have made over £100K from several SB firms over the years and get great service from them. They want me as a customer because I trade a lot.
I have met these guys in their offices in America Square and had a tour of their offices and seen things in action in real time. I have been taken to lunch on many occasions, taken to sporting events gratis and even now have a 'tick back' arrangement whereby I am credited with one tick per trade I have made in the previous month! Do you think they would do that if they didn't value my business?!
SB is a good way to trade IMHO - that's it. If you don't agree then don't do it!
