97% Spread Betters lose their money!

Buk

Established member
615 6
likewise, still run sb account (& always will), tend to utilise mine for more 'positional' plays now though.....there's nowt wrong with spreadbetting as a vehicle for trading, as somebody else highlighted.....used correctly, they're an extremely important part of a traders kit bag!
 

zigglewigler

Well-known member
346 50
Excessive leverage for your account size is trader's problem, not one created by SB companies. The appeal of options is that high leverage is possible, how you use it is down to you. Account management is your business, you expect the SBs to go 'tut,tut, that's a little unwise, don't you think'?

Spread bets are a derivative of sorts, they are riskier, if you come from a background of share buying, you may be in for a shock. All forms of future's trading have a high rate of attrition. Deal with it.

SB companies have some peculiarities, the spread hops about like a hoover, drawing in money, the same way bookmakers lengthen/shorten odds to balance their overround. This movement is akin to slippage in any other derivative.

Pro sports punters look for value in their market, SB users need to do the same for the own market. Tight spreads if short term, wider is acceptable on longer time frame in market that has larger moves. I don't think alot of daytraders initially grasp the importance of the risk/reward profile of a trade.

And don't think the Time's author grasped it either.

For example, a spread-betting firm might offer a spread of 10,500 to 10,515 on the price of America’s Dow Jones index in June. If you buy at £10 a point and the index is at 10,525 when you close your bet you would make £100. If the spread had been narrower, say 10,503 to 10,512, the firm would have been obliged to hand over £130.

So you take offer on June Dow at 10515 and close 10525!?! You have a 10 point target with a 15 point spread? Are you nuts???
This would explain why people go bust. This would have to be a failed trade or an ill conceived one that you were lucky to get out off ahead.

Sure this might just be an example to demonstrate the worth of tighter spreads, but it was offered up as an example of success, I don't believe the author sees the inherent weaknees there in.

The easy access to trading afforded by SB can mean, easy in, easy out! Thank heaven for SB companies. Your trading ability won't come so easy. Unless you take responsiblity for your crap trades, you'll be out. I've lost money because of what I did, the SB company didn't lose money for me.

capitalspreads:
The error in accusing the SB companies of bad faith in market practice is that for the main part it is the customers own failings that make them long term losers in the market.

Spread betting sounds like something you can 'do', 'hey, I'm a financial spread better, don't you know.' Wrong, you can't. It's an instrument. You trade because you are a trader.
 

twiggytwo

Active member
206 6
Hi Deskpro, I do not think you will get an answer to your question as some time back on this site we had a tax scare started for spread betters to worry about
I am sure it was started to upset the spreadbetters by one of the many losers, it did not hold water because of the high amount of losers but it may stop you getting an answer to your genuine question
twiggytwo
 

stevespray

Experienced member
1,289 154
Ziggle – Whilst I agree that disciplined and controlled trading is very much the traders problem I would have to suggest that some of the companies around don’t exactly help the customer by offering such large margined accounts. It is very easy to get an account where you can obtain a leverage of 20 times your deposit – this is often advertised as an advantage of the services offered.
Correct me if I am wrong, but wasn’t leveraged spread betting originally used by people who were interested in hedging off shares which they physically held in times of downturn ie ‘sell in may and go away’ etc etc. The fact is that spreadbetting has evolved from that situation into a business where people are more likely to have simple ‘naked’ exposure. The problem is that this ‘naked’ exposure is sometimes heavily leveraged and therefore directly threatens a customers capital which is unlike a spreadbet hedged against physically held stock where the customer would , to large degree, be either still net long of the stock or hedged flat. In that situation there is very little risk to the customers capital and all that can happen is that he misses out of profits if the stock continues to rise when he’d hedged for a pullback.

Steve.
 

zigglewigler

Well-known member
346 50
Derivatives are high leverage, that's their appeal. Spread bets were created in the 70's so city traders could hold positions in gold. SB's are not solely and intrinsically a hedging mechanism, that's a good use, but it's real power is in it's leverage potential.

Stevespray, I think what you imply is that SB companies offer easy-open high leverage accounts as a means of subtle deliberate fleecing. That point could be argued either way, but the unpalatable truth about the markets in general, is that the majority are fleeced so that the few may prosper. The fleecing comes about because their is no fiercer competition in the world.

That pool of liquidity has to come from somewhere, if everyone who spread bets was a net winner, there would be no SB companies in business. The SB companies put their disclaimers in small print, the truth about making money in the markets is not something to use in headlines.

I read somewhere that certain firms in US, I think bucket shops was the term, would offer easy access accounts, with minimal deposit, allowing hugely leveraged positions, so enticing victims/punters/ investors/dreamers to go with very tight stops, they'd get run and the bucket shop cleaned up, as long as they had a high turn over of clients they did well. This is not the same situation with SB companies. The bucket shops were a fraudulent operation, I see SB's as being a democratic development. But stupid people do get took!

A lot of complaints seem to come from the daytrading crowd. I don't daytrade anymore. A couple of years ago I was quite happy scalping the Dow for 10 to 30 points even with a sometimes 8 point spread. You could happily do that with the daily ranges and ebb and flow that existed. Along comes Iraq and the Dow puts in regular 60 point daily ranges and flip flop moves. Much harder to scalp profits even with 4 point spread. I moved on to greener pastures. I swing trade 2 to 10 day cycles, looking for 200 to 400 point targets(not Wall Street). I frankly don't care if I don't get the exact price I wanted everytime, so the 5 point spread becomes a little bigger all of a sudden, I don't care, I have a risk/reward profile I'm happy with. A handfull of points less on larger targets is something I accept. If you're going to chase small points with comparitively large spreads, knowing that price execution is not exact, well you're asking for it.

Now this bit of personal history highlights one important thing, ADAPT! You don't have to be loyal to one SB company, nor one type of trading, nor one market. The opportunities are there, take advantage of the benefits afforded by spread betting, be selective, find value, and people, stop bitching.
 

TheBramble

Legendary member
8,394 1,170
zigglewigler said:
[...] this bit of personal history highlights one important thing, ADAPT! You don't have to be loyal to one SB company, nor one type of trading, nor one market. The opportunities are there, take advantage of the benefits afforded by spread betting, be selective, find value, and people, stop bitching.

Good post ZW.

One that mirrors another elsewhere this morning on the need to be constantly reviewing not only your strategies and methods, but also your platforms, datafeeds, comfort levels, rrisk:eward expectations and; the sharp end of our business - our brokers.
 

DESKPRO

Active member
120 0
Zigglewigler

Out of interest what are you trading now instead of the Dow. I to am trading the Dow but investigating trying the Forex.
 

zigglewigler

Well-known member
346 50
Deskpro
Ftse 350 Sectors. I haven't looked in depth at Forex, but I don't think that market would suit my style.
 

stevespray

Experienced member
1,289 154
Yes, good post ZW. I read with interest your reference to ‘bucket shops’. A few years ago I actually spent quite along time studying the subject of ‘bucket shops’ after reading some comments made by Jessie L Livermore in one of the books which covered his life. Mr Livermore points out several times that an advantage can be gained over the real market by using one of these ‘parallel markets’ if you know how to play it.
The ‘Bucket Shops’ were born in the 1880’s in several larger cities on the US east coast. Most of the larger ones were based in New York and Boston. They were known as ‘Bucket Shops’ because they seldom hedged their customers positions into the market but preferred to simply keep customers excepted orders in buckets behind the counter hence ‘Bucket Shops’. These shops were not illegal but were initially unregulated at first. As time past a certain amount of regulation was introduced and a degree of hedging was introduced. Despite all of this the ‘Bucket Shops’ still targeted what were termed as ‘shoestring traders’. The were named as such because of their methods of trading. Generally a ‘Shoestring’ would gather together a stake and then risk the whole lot on one trade. For example, if a trader came in with $100 he / she would be encouraged to take a larger position (obviously using big leverage) in a stock of his / her choosing. The position would be such that it would only require a tiny movement the wrong way in the market to wipe out the $100. Once the market moved against the trader by the set amount the order was closed and his / her ticket became worthless.
Traders like Jessie Livermore used these ‘Bucket Shops’ on a regular basis until the shops either banned them (because they kept winning) or introduced sharp practices such as delaying order opening / closing and increasing spreads. After a while it got so bad that successful traders were forced to employ runners to place the bets but after a honeymoon period that failed to as faces became known to the shops.
In my opinion there are comparisons that can be made between the bucket shops of the late 1800’s / early 1900’s and today’s spreadbetting companies.

Steve.
 

waytogo

Active member
162 0
Some great posts on this thread

ZW - out of interest, which broker do you use for FTSE 350 sectors?
 

zigglewigler

Well-known member
346 50
Waytogo & Rainmaker- D4F UK SECTOR INDEX BETS.

Thanks Stevespray, it's fascinating to hear the history behind that one, though my reference came from something a succesful SP futures' trader said about practices in the 1970's! Things don't change much.

Although I still believe that SB firms' approach is one of honesty, fronting a wilful glee to relieve the pockets of the novice. It is sheep that are fleeced, that's the shepard's job, we have to be wolves!
 

bracke

Experienced member
1,286 12
zigglewigler

If my questions appear naive please accept my apologies.

Which ftse 350 sectors move by 200-400 points in 2-10 days?

Do you employ standard indicator/price action to determine your trades or is another approach required to trade sectors?

Regards

bracke
 

darrenf

Well-known member
481 3
z

It is sheep that are fleeced, that's the shepard's job, we have to be wolves!

sheep? Shepherds? blah. That sounds like someone who disappeared from these boards some time ago after making claims about being able to predict the future etc etc. You're not the infamous Lord Jamla are you?
 
 
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