capitalspreads said:
General Comment
the point about missing trades on adverse market moves will always be with us. As clients demand ever tighter and tighter 'spreads' such that the word 'spread betting' in many markets is becoming a misnomer. In many of the main markets we quote there is virtually no actual profitable spread to play with and we must in certain circumstances be sure about the levels at which trades go through. If i was quoting 5 points wide on GBP/USD then almost every trade would be 'fair' (from my point of view) as the spread would have taken out any posible price variation.
But, as with the real markets it is much easier to buy than sell into a falling market or sell than buy into a rising one. In the real world if you click the trade button to sell your 1 contract of FTSE at 6350 (let us assume that you can see 10 contracts on the bid) if somebody else gets there before you then "sorrreee mate" you've missed the trade and will have to trade at the next price 6349 (if you can get that) and if you miss that then 6348 etc etc.
But if you had put a buy order at the same price 6351 then of course you will be filled there and then as there will always be somebody happy to sell at your bid price.
If you convert this to the spread betting markets you can see the same effect. You will often get filled on an adverse price move because my dealers (being the market makers) are happy to take the trade (as is the case above in the FTSE futures) but if the market moves the other way (especially in times of volatility) they may reject it along the same argument as with the missed price in the example above.
My dealers were feeling very sore about this comment theme as they feel that clients do not appreciate that they work under the same constraints. As an example we had a big sell order in the FTSE and they tried to sell the futures only to miss the price twice (of course they, as with you, are not sure for a few secs as to whether they got the trade which added to the losing move). By the time they got the hedge on the market was 4 points lower and the trade book £2000 worse off. The client still got the trade we got the loss.
This is just 'the markets' .
Of course the advantage my dealers have is that thay can make a 'market' order to basically sell at the best price possible. But in general they do not like doing this. A spread beting client cannot make a 'market order' action.
Our clients can, almost, replicate a 'market' order but only via a new/limit/stop order. In these cases here CS will fill at the first tradable level open to us.
Simon
Thanks Simon for your comment on this subject.
First of all I wish to point out that it is the spread betting company that offers a "tight" spread betting product, and the client who makes a decision to take on that offer if he finds it interesting. It is a mutual agreement between two parties, and both agree to the conditions set forth. Yes I understand, there might be a problem in handling a very tight spread. After introducing a tight spread the spread betting company should not take deliberate dealer action to make that spread more than it actually is. I am in no way saying that CS is any way partaking in such a manipulation of the spread. On the contrary I have found so far while trading the FTSE that CS is giving a swift execution and a fair price. The market for the spread betting industry is changing quickly, it tends to move towards the DMA. A 'fair' price from the traders point of view, is to get the price you are offering in the quote. Every traders knows that there might be some diversion from this general standpoint, but the overall trading experience should be, that you are getting the price quoted.
I honestly don't fully understand your comment on moving markets. From a traders point of view, it doesn't matter at all if you buy in favor of the short term trend. The quote given by the SB should be honoured as genuine. As mentioned before, as you are saying, in an extremely volatile market, there is a diversion from this. In the real market, every trader knows that if you quickly buy on a bid you will get it. I regard the quote given by the SB as a bid price, and from my standpoint a bit should be treated as such. Of course if the price moves before the order has actually reached you, a new price will be quoted. I don't see any contradiction in this at all. The real problem appears when a dealer is waiting to feel where the wind is blowing, and takes advantage of this, and thus, trading against the trader. Again this is not my impression with CS overall, but the trader must be aware of this possibility as the spread is tightening, because this does happen sometimes.
Now a few words on your comment, about your dealers feeling sore about this comment theme. Well Simon, don't forget that the traders hard earned money is also on the line here. Sorry, If your dealers can't view this as balanced and sound discussion, on a board for which subjects like this are brought forth. From a traders point of view this is an important subject to discuss. If good language is used and the tone is good, I really don't understand why they feel sore about it. It is an established fact that at the end of the year, the SB company will have a very good profit. This is not the case with most of the spread betting clients, so it is only natural for the traders to be careful of his/her investment with the spread betting companies.