At £1000+ Per Point, Which SB Company is Best for Intra-day Trading ?

[lurkerlurker]

Some companies give more re quotes than others - that is a fact - but if you lag on a price and the market moves how do they know you haven't got another feed watching the prices move in your favor before agreeing to deal and just printing pips through them?

Why don't they fix their feed if that is the case? Don't forget that delayed or incorrect prices work against clients too - for example when you cannot cover after a sharp move because the quote sticks and never actually prints the high (low) that the underlying printed and then you get requoted a dozen pips worse trying to cover in a fast market. I'd rather SB firms made sure there were no lags and therefore could fill clients below a certain size instantly. Requotes are pretty bad - I'd prefer some sort of option to force a trade, like a market order in the underlying, so you can get out when you need to, not when somebody makes you a new price.

Also, isn't the idea of clients scalping just another excuse trotted out by the SB firms for bad service - "we can't improve or people would try and rip us off". Take a price from a direct market feed, add a spread. How difficult can it be? If getting picked off by a faster feed is really such a concern (and financial liability) to these shops, they would invest in good technology and not suffer these problems.

I have several SB accounts, and haven't seen a lagging / incorrect price in quite some time. I think being able to "print pips" is a dead art, if indeed it was ever possible.

 

[grantx]

JK,

I know how hedging works. I’m looking for a specific example, and why SB and not a corresponding market: “If it can hedge efficiently...”

My second quote: what has your reply got to do with this: “I question your assertion re tax efficiency”? ie mitigation.

Grant.

 

[Jack o'Clubs]

You can hedge future currency exposure, shares without having to sell and pay tax for the current year, broad portfolio's via index's, corn growing in your field... the list goes on. It is all tax free and the margin requirements are the lowest around.

You would always want to hedge via the underlying market rather than a spreadbet because you would want to be able to offset the hedge loss (after all, you're assuming the chance it will be a loss, otherwise why hedge?) against the underlying gain for tax purposes. So hedge a share portfolio with an index future short instead, and if the index continues to rise you can offset the loss on your future short against the cap or trading gain on the portfolio. You couldn't do that if you just shorted the index, corn, fx, etc via a spreadbet. I think, in more detail, that's what Grantx is trying to say...

 

[TheMoneyMachine]

Themoneymachine,

CMC may be authorised by the FSA but spreadbetting per se does not fall under remit of the FSA.

To repeat, can you give an example of a firm hedging via a spreadbet?

“managing exchange rate exposure cost effectively”. If it can hedge effectively, why not initiate the position via SB?

I also question your assertion re tax efficiency – “hedging” , ie insurance would, I suggest, be a legitimate business expense and therefore not subject to tax. If the hedge generates a profit (possibly through infrequent maintenance of appropriate ratio) the opposite side will suffer an offsetting loss, resulting in a zero net, hence no tax due.

Then Goose,

What are the largest sizes your company takes? How do you hedge/offset the risk?


Grant.

Grant

Spread betting is a derivative and therefore falls under FSA guidelines but that was not the point i was making. CMC Markets operate a significant brokerage business with institutional clients and are unlikely to risk their reputation by operating their spread betting business in a way that some allude too.

As i am sure you are aware tax is extremely complex and each entities (business, individual etc) liability is dependant on a myriad of variables. As already stated occasionally a may use spread betting vehicles to neutralise my exchange rate exposure when holding foreign assets. If this is the case it's because it makes tax efficient sense for MY circumstances but as Jack'O'Clubs has pointed may not for somebody elses. I also have other situations were it's tax free status is useful and i am assuming this is why Paul (Trader333) is investigating it's feasibility.

From your contributions to this board you seem extremely intelligent and do not need me to set out how to hedge currency exposure via a spread bet!

Regards

TMM

 

[TheGoose]

Jack o'Clubs

I agree with your point but i'm not sure that's what he actually meant. I could be wronf but i'm taking it as though he means hedging the currency exposure from a large trade.

For instance £1000 of dow is 412 lots at the minute but if cable dropped to 1.90 that would become 380 lots, so you could use spread betting as a method of containing the exposure. Same as future property purchases.

Grantx, the simple truth is hedging depends on the client and book situation. Normally though a trade of that size would just be hedged like for like.

Ian

 

[lurkerlurker]

Jack o'Clubs

I agree with your point but i'm not sure that's what he actually meant. I could be wronf but i'm taking it as though he means hedging the currency exposure from a large trade.

For instance £1000 of dow is 412 lots at the minute but if cable dropped to 1.90 that would become 380 lots, so you could use spread betting as a method of containing the exposure. Same as future property purchases.

Grantx, the simple truth is hedging depends on the client and book situation. Normally though a trade of that size would just be hedged like for like.

Ian

That is going to move the market 6 or so pips even on a liquid day. Don't even think about what the slippage would be selling into a falling market. Why would anyone not just use the S&P?

 

[Jack o'Clubs]

Jack o'Clubs

I agree with your point but i'm not sure that's what he actually meant. I could be wronf but i'm taking it as though he means hedging the currency exposure from a large trade.

For instance £1000 of dow is 412 lots at the minute but if cable dropped to 1.90 that would become 380 lots, so you could use spread betting as a method of containing the exposure. Same as future property purchases.

Grantx, the simple truth is hedging depends on the client and book situation. Normally though a trade of that size would just be hedged like for like.

Ian

Sure, but assuming that the Dow trade is futures and not a spreadbet, why wouldn't you hedge with cable futures so that if the hedge makes a loss you can offset it against the Dow position profit? I think we're coming from the same place though... In short, you'd want to hedge in an instrument with the same tax treatment as the underlying position - if in position with a spreadbet, hedge with a spreadbet, if in position with something that's taxable, hedge with similar.

 

[Jack o'Clubs]

That is going to move the market 6 or so pips even on a liquid day. Don't even think about what the slippage would be selling into a falling market. Why would anyone not just use the S&P?

Not sure Goose's figures refer to the futures.

YM is $10, full Dow contract is $25. So £1000/pt would be about 200 or 80 lots respectively which would go through the market reasonably easily.

But that's the whole thing that's misleading about this £1000/pt argument. On the Dow you're looking at an underlying exposure of £13.25m. On the S&P it's £1.5m. On a stock trading at 50p, its £50k. I've used > £1000/pt bets previously when taking positions in UK stocks, but that's very different exposure to £1000/pt on the Dow...

 

[lurkerlurker]

Not sure Goose's figures refer to the futures.

YM is $10, full Dow contract is $25. So £1000/pt would be about 200 or 80 lots respectively which would go through the market reasonably easily.

But that's the whole thing that's misleading about this £1000/pt argument. On the Dow you're looking at an underlying exposure of £13.25m. On the S&P it's £1.5m. On a stock trading at 50p, its £50k. I've used > £1000/pt bets previously when taking positions in UK stocks, but that's very different exposure to £1000/pt on the Dow...

Actually I think YM is $5, pit traded dow is $10, and "Big dow" futs are $25. Also, the YM isn't really that liquid to more than 30 contracts or so at one price. I agree it would most likely be done in the $10 pit dow as it would go through easier there, but it would still move the market. The DD $25 Dow trades about 10 lots a day and has a double digit spread according to the CBOT.

 

[TheGoose]

Lurker/Jack. Both excellent points. Jack, i agree but maybe one variable could when the trader actually manages the currency risk. It could be after the trade was place and therfore affects the decision... just a thought.

Lurker. We used to always urge clients to trade the S&P, but most are insistent on the Dow. We then tried advising them not to trade the cash but to trade the future. It makes it tricky when clients want a stop at a cash level when they don't understand we hedge in futures and when they don't understand fair value etc. That's solved now though because we don't take markets orders any more in the cash, only the future. That's not to say they can't trade the Daily!

If a client sells £1000 in the Dow, they don't really care if the trade goes into the market or not, they just want their 'bet' on. We would try and take care of all of it the YM but if we couldn't, we could run with some and of course the S&P is always an alternative. That always seems to go against us though!!!

Ian

 

[Jack o'Clubs]

We used to always urge clients to trade the S&P, but most are insistent on the Dow...

Yes - interesting that this forum has an 8500 post thread running on Dow trading, can't remember there being one on the S&P!

 

[lurkerlurker]

Not sure Goose's figures refer to the futures.

YM is $10, full Dow contract is $25. So £1000/pt would be about 200 or 80 lots respectively which would go through the market reasonably easily.

But that's the whole thing that's misleading about this £1000/pt argument. On the Dow you're looking at an underlying exposure of £13.25m. On the S&P it's £1.5m. On a stock trading at 50p, its £50k. I've used > £1000/pt bets previously when taking positions in UK stocks, but that's very different exposure to £1000/pt on the Dow...

Actually I think YM is $5, pit traded dow is $10, and "Big dow" futs are $25. Also, the YM isn't really that liquid to more than 30 contracts or so at one price. I agree it would most likely be done in the $10 pit dow as it would go through easier there, but it would still move the market. The DD $25 Dow trades about 10 lots a day and has a double digit spread according to the CBOT.

 

[stevespray]

Hi Ian, Good to have someone from ‘the other side of the fence’ on the thread.

I wonder if I could ask you a few questions.

Firstly, even if you charge a 3 point leg in and a 3 point leg out you still have significant costs to yourselves if you need to hedge the trade off and then get back out? Even if the spread in the underlying is one point and fully supports your size then it is still 33% of your potential ‘profit’ before you consider your dealing costs. You could of course ‘run’ it a bit to see if you could get a better hedge but if your dealers were good at that then they’d be traders themselves and not working for Spreadex?

Of course, on top of that there will not be anywhere near enough volume showing on the YM order book to support the number of contracts which you would need to either buy or sell to fully hedge £1,000 per point.

Ultimately therefore, if you allowed your client into a position at £1,000 per point, based on a quotation supplied to your client either by phone or via the internet, before actually hedging the position off into the underlying then you would, in effect be allowing your client ‘efficiency’ over you. You would be, in effect, be consistently allowing your client to trade at a better price than was really available.

Over time this would add up and surely be detrimental to your business as you would be slowing giving away packets of ‘value’?

Even though the basic maths appears to show that your 3+3 point spread is worth £6,000 to you I think that you would be hard pushed not to make a significant loss on each round trip if you allowed you client to enter by means of a quotation and then leave by either means of an expiry or by a client set stop loss.

You say that you wouldn’t try and annoy such a client but that is not what people are actually suggesting. We are not suggesting that you would deliberately annoy a client just to cause him / her a problem but that ‘annoyance’ would occur once it became clear to your ‘bean counter’ that your ‘3 in / 3 out’ method was being financially compromised and was therefore causing you loss.

Steve.

 

[lurkerlurker]

Lurker/Jack. Both excellent points. Jack, i agree but maybe one variable could when the trader actually manages the currency risk. It could be after the trade was place and therfore affects the decision... just a thought.

Lurker. We used to always urge clients to trade the S&P, but most are insistent on the Dow. We then tried advising them not to trade the cash but to trade the future. It makes it tricky when clients want a stop at a cash level when they don't understand we hedge in futures and when they don't understand fair value etc. That's solved now though because we don't take markets orders any more in the cash, only the future. That's not to say they can't trade the Daily!

If a client sells £1000 in the Dow, they don't really care if the trade goes into the market or not, they just want their 'bet' on. We would try and take care of all of it the YM but if we couldn't, we could run with some and of course the S&P is always an alternative. That always seems to go against us though!!!

Ian

I've never traded a "cash" price where a daily future contract was available. I don't really understand why companies even quote "cash" markets which can't be traded. (oh yes, Joe Punter wants to trade the numbers he reads in the morning paper and is too lazy to learn about FV, yet expects to make money at the expense of other traders)

What are your spreads on the daily ES? That might be the reason. 4 on each is about as tight as it gets, but if you are quoting the ES wider than 4 that may be the reason. Also, the ES has some pretty nerve jolting moves and is more volatile than the Dow, so there might be some reluctance due to that.

 

[TheGoose]

Lurker, I agree with you but there's many reasons people trade the cash. Tighter spreads and lower margins are the normal reasons but yes, of course the cash close is reported every day online, in the press, the news, teletext etc and that's what people have come to know.

Also, we no longer offer the S&P cash, only the futures.

Steve,
Blimey, a bit of a large post there.

First things first, and this probably puts some of your post into perspective, we don't actually just lay £1000. We would take £500 and try and work the balance.

The spread clearly gives us a good edge, even with slippage. Using figures I see now, let's say a client sells the Dow for £500 at 13279, when its trading 83 in the market, i could easily cover half down to 80/81 ish and then run the rest and drip feed it in. It's now 87, so i could hit a little bit of that.

We wouldn' t take the business if it wasn't good but yes, you're right sometimes it moves straight for the client and we get stung. I think we have to take the rough with the smooth though as that's how we operate (it's now 91-93. i'd be liking this!!!)

As i said before though, the option of trading the S&P is always there. A fill on fill basis is the best as there is no risk for us, but it requires the client to leave an order. With that in mind, the figures hold up and it's brilliant business.

Back down to 84. Don't forget when clients do enter/exit the majority of the times it's not necessarily at pivot points and if the sell into weakness, that's great for us.

Just going back to the orginal post, i know we would be good for people like Paul. We could do the fill on fill orders or take half and work half. I want the business so excection is key.

Also (turning into an essay!!), you say why wouldn't i just not work for Spreadex and go solo. Maybe one day but everyone here knows trading is tough, but believe me unless you're in complete control of your emotions it's far easier with someone elses' money and even easier when you're trading around other peoples' positions. That said, it is still a skill and hopefully i have found mine!

Not looked at the 1min graph but don't think it has actually traded 79 yet.

 

[TheGoose]

Just before anyone picks me up on it, i meant to say if they sell into strength!!!

 

[stevespray]

Just before anyone picks me up on it, i meant to say if they sell into strength!!!

I was justing starting to type!



Steve.

 

[tightstops]

Originally Posted by tightstops
when making a trade was exhilirating:
click/buy, we cant give you that price how about this one 3 pips worse? no thanks
click/buy, 5 second delay, am i filled arent i (this is so exciting) we cant give you that price how about this one 3 pips worse? no thanks
click/buy, 5 second delay, (ooh im 1 pip in profit already) we cant give you that price how about this one 4 pips worse, ok (click) ill take it. sorry not filled.
no wonder tradings boring these days if i want to buy i click and am filled in a fraction of a second and if i want to sell it 2 seconds later im out in a fraction of a second - wheres the fun in that?
im thinking of going back to cmc for day trading they give you twice the bang for your buck not only are you gambling on the market but also whether youll have a position after youve decided to take a trade.
fsa know the score theyre not going to get involved here people are having to much fun

Judging by your name I think it is safe to say you use ''tight stops'' and have come together with various forms of conspiracy theories in regards to spreadbetting and the intentions of the firms.

Some companies give more re quotes than others - that is a fact - but if you lag on a price and the market moves how do they know you haven't got another feed watching the prices move in your favor before agreeing to deal and just printing pips through them?

Your argument belongs on another thread and you clearly have no experience in trading large size - this is a different subject and has been answered quite thoroughly on this thread.

JK
jk obviously i use tight stops.
im not interested in conspiracy theories and have no interest in watching various spreadbetting feeds in the hope of stealing a pip when there out of alignment. i have never done this and have no desire to. i do not have theories regards to the intentions of spreadbetting firms either. the above post i made is neither a conspiracy or as machine says nonsence. these trades were real trades. though not the 500 or 1000 i have spreadbetted 3 figures per pip on the euro and believe my experiences with some spreadbetting companies are relevent to this thread. (how can terrible fills and execution not be relevent to someone deciding where best to make his trades - this would be among my main concerns) why you and the machine are so keen to gloss over the downsides of spreadbetting for a day trader im not sure. my main point is that for frequent day trading imho spread betting isnt the best option.
its nice to hear the perspective from the other side from thegoose and the clearer picture he can give to the workings and obstacles they face.
maybe the best idea would be to consider that a good percentage of money will be saved because of tax relief and because of this future gain can justify risking a few percent of the account just trading through spreadbetting (after arranging the best deal with them) now if the service lives up to your expectations alls well. if/when theres occurences that non spreadbettors dont experience youll have to decide then whether these are problematic enough to pay tax for.
may i suggest you do a couple of sums before you make your decision. something like trades per day times difference in spread. work out an average trade size and multiply. by the end of the year you may be looking at percentages you wouldnt believe.

 

[grantx]

Jack,

Good points re what separation of trade – initiation and hedging. As you say, the net is two separate trades – taxed on the gain, hit on the loss (no write-off). Another significant aspect is the requirement for double margin – clearer’s and SB’s.

TMM,

I stand corrected on the SB FSA authorisation.

“how to hedge currency exposure via a spread bet!” Again, when is the advantage compared to the originating market?

Goose,

Thank you for the clarification. What would be the procedure if a client wants trade at £1000 per point?

SteveSpray,

Good points.

Grant.

 

[jkplay]

You would always want to hedge via the underlying market rather than a spreadbet because you would want to be able to offset the hedge loss (after all, you're assuming the chance it will be a loss, otherwise why hedge?) against the underlying gain for tax purposes. So hedge a share portfolio with an index future short instead, and if the index continues to rise you can offset the loss on your future short against the cap or trading gain on the portfolio. You couldn't do that if you just shorted the index, corn, fx, etc via a spreadbet. I think, in more detail, that's what Grantx is trying to say...

I am having some problems making sense of your post...

Are you saying you should be hedging directly in the futures market instead of through a spreadbetting firm? I think it is mainly fx and individual shares that people hedge via SB's - and I can't think of any argument to hedge either of those anywhere else, maybe you could explain in more detail?

JK