Does your spreadbetting firm want you to win?

[vergis92]

When I first got involved in spreadbetting I heard from finspreads
and igindex interviews that they indeed want their clients to win,
they make their money on the spread, and are always in the market
at better prices than the client is given,

if you win £100 your firm has automatically made £105
if you lose £100 your firm loses £95

so the more you win, the longer you will stay with them
and the more they will make from you,

But then why do we hear about price manipulation, unexecuted orders,
and a tendency to move the spread to their advantage
(as has been the case with deal4free.com on stakes over £20)

The only way to find this out is by watching a buyers and a sellers accounts
simultaneously...

 

[the blades]

When I first got involved in spreadbetting I heard from finspreads
and igindex interviews that they indeed want their clients to win,
they make their money on the spread, and are always in the market
at better prices than the client is given,

if you win £100 your firm has automatically made £105
if you lose £100 your firm loses £95

so the more you win, the longer you will stay with them
and the more they will make from you,

But then why do we hear about price manipulation, unexecuted orders,
and a tendency to move the spread to their advantage
(as has been the case with deal4free.com on stakes over £20)

The only way to find this out is by watching a buyers and a sellers accounts
simultaneously...

Hello vergis92,

I believe the firm will like winners who trade on a timeframe which allows them to monitor your actions (if successful) and then either hedge against you, or go with you.

It seems most of the complaints come from people who trade over shorter timeframes - you can imagine if they are very successful it would be difficult to manage for the firm, from who you'd be taking the money.

I'm a trend follower and hold bets for months. I had a good year this year (not difficult for a UK equity trader in 2006 mind) and have had spot on quotes and executions from CMC (mainly), with no skewing of prices.

For info, I also trade US stocks through interactive brokers, so I'm not defending the spreadbetting camp for any other reason than it's saving me money.

Happy New Year,
UTB

 

[Windowsill]

When I first got involved in spreadbetting I heard from finspreads
and igindex interviews that they indeed want their clients to win,
they make their money on the spread, and are always in the market
at better prices than the client is given,

if you win £100 your firm has automatically made £105
if you lose £100 your firm loses £95

so the more you win, the longer you will stay with them
and the more they will make from you,

But then why do we hear about price manipulation, unexecuted orders,
and a tendency to move the spread to their advantage
(as has been the case with deal4free.com on stakes over £20)

The only way to find this out is by watching a buyers and a sellers accounts
simultaneously...

Doubt if they would lose £95...If that was the case they would have been out of business years ago... at the point of birth!

 

[Directional]

if you win £100 your firm has automatically made £105
if you lose £100 your firm loses £95

wrong, the SB mmakes their own market so they are on the opposite side of your trade.

if you win $100 the SB firm has lost $100
if you lose $100 the SB firm has made $100

you do the maths on whether they really want you to win

 

[vergis92]

wrong, the SB mmakes their own market so they are on the opposite side of your trade.

if you win $100 the SB firm has lost $100
if you lose $100 the SB firm has made $100

you do the maths on whether they really want you to win

I don't think so, they must have the same profit regardless of you
winning or losing,

I don't know how they do it,
they may also place bets among themselves so they all come to a ballance
point making it hard for us to find arbitrage opportunities.


Another paradox is the credit accounts they offer to customers with
good credit rating, in essence they lend you money to trade with,

they know they will be making money on commissions you pay
through th spread, you make money that someone else out there
is losing, they may well want you to win and stick with them

 

[vergis92]

Doubt if they would lose £95...If that was the case they would have been out of business years ago... at the point of birth!

if they make 5% on every amount , or a certain amount of points
it amounts to a very big amount considering the volume of bets
and that is risk free for them

If you are unable to answer a big margin call they will be in a loss

 

[Splitlink]

Hello vergis92,

I believe the firm will like winners who trade on a timeframe which allows them to monitor your actions (if successful) and then either hedge against you, or go with you.

It seems most of the complaints come from people who trade over shorter timeframes - you can imagine if they are very successful it would be difficult to manage for the firm, from who you'd be taking the money.

I'm a trend follower and hold bets for months. I had a good year this year (not difficult for a UK equity trader in 2006 mind) and have had spot on quotes and executions from CMC (mainly), with no skewing of prices.

For info, I also trade US stocks through interactive brokers, so I'm not defending the spreadbetting camp for any other reason than it's saving me money.

Happy New Year,


UTB

!'ve never held a spreadbet for very long term so I was interested in your post. Last week I became interested in RAB Capital and checked with both Fins and my broker. I decided to buy a £2000 block (1903 shares) with the broker instead of having an equivalent £19 bet per share with Fins. I've forgotten the details but, at present, the broker's quote is 104.5-106.5 and Fins quote is 105.48-108.34 for March. I am, almost, at breakeven with my shares, as they have risen enough to cover the the spread and the commision and stamp duty. The problem that many traders betting on shares face is the bias that is placed on a trending one, that is where the companies make big profits. As for how they manage their risk, they must balance their books and any excess they hedge with brokers, otherwise they are taking tremendous risks, wouldn't you think?

Split

 

[chump]

It all comes back to you are playing the player who is playing the game and not simply playing the game itself. .Before I am accused of being pointlessly profound what this means is you have to play both the market and the SB who stands between you and the market in terms of the fact that they will derive income from the process ,or disappear. So your strategy has to account for the SB firms need to make money. Hence ,the logic of Blades comment in that the SB can hedge you in the market to nullify your effect on their bottomlne when you stay in the market for longer periods. Very short term they will have to nullify you through bias on the prices offered. Your strategy whatever you choose must account for what the SB firm will need to do before you actually play the market. For more thought on this subject it is worth looking at the experiences of Livermore and the bucketshops as per The Stock Operator.

 

[the blades]

!'ve never held a spreadbet for very long term so I was interested in your post. Last week I became interested in RAB Capital and checked with both Fins and my broker. I decided to buy a £2000 block (1903 shares) with the broker instead of having an equivalent £19 bet per share with Fins. I've forgotten the details but, at present, the broker's quote is 104.5-106.5 and Fins quote is 105.48-108.34 for March. I am, almost, at breakeven with my shares, as they have risen enough to cover the the spread and the commision and stamp duty. The problem that many traders betting on shares face is the bias that is placed on a trending one, that is where the companies make big profits. As for how they manage their risk, they must balance their books and any excess they hedge with brokers, otherwise they are taking tremendous risks, wouldn't you think?

Split

Eyup Split,

The thing is (as I see it) that the Fins quote contains the interest charge. You've now tied up £2000 in shares that you could be getting 5.5% on in the bank, if spreadbetting. This is what is factored in to the price.

I only buy strongly trending stocks. Yet if you take the shares market price, add LIBOR and subtract any dividend due, you have mid price of the quote from Fins (and IG, and CMC). My point is that even for strongly trending shares, in my experience the prices aren't skewed.

I actually bet over the phone, so they aren't aware of my account. I could have creamed them in the last month (rarely the case, sadly ), yet they still quote the price without knowledge of who I am.

The extra spread needs to be offset against the commission you pay your broker. If it costs you £10 to deal both sides, you've already adde 1% with a broker. Then add 0.5% stamp duty and you've got a 1.5% effective spread saving with betting - more than the 0.9% that Fins would add. And CMC would probably have charged you less than 0.5% (sometines almost zero if the stocks very liquid )

Chump,

Good points well made. However, I'm not actually convinced that this happens on short term deals. My quotes are always fair, and the bookie doesn't know how long I plan to hold the deal. I suspect if you had an account that they couldn't hedge against because of they way you trade, they make it difficult for you in other ways - like referring you to dealers rather than auto-executing your trade (see Laptop's recent grievance with Worldspreads).

I must qualify all this by declaring I only trade shares (and the odd currecny / indeces hedge) so I don't know what games might be played with other bet types.

Anyway - Ive just watched my team beat Arsenal - so I'm ecstatic (though don't ask me why that's relevant )


Happy New Year everyone,
UTB

 

[counter_violent]

A look at The Baptist's journal and spreadsheet Spread Betting CMC should tell everyone everything they need to know. He seems to do very nicely thank you.

CV

 

[Splitlink]

Eyup Split,

The thing is (as I see it) that the Fins quote contains the interest charge. You've now tied up £2000 in shares that you could be getting 5.5% on in the bank, if spreadbetting. This is what is factored in to the price.

I only buy strongly trending stocks. Yet if you take the shares market price, add LIBOR and subtract any dividend due, you have mid price of the quote from Fins (and IG, and CMC). My point is that even for strongly trending shares, in my experience the prices aren't skewed.

I actually bet over the phone, so they aren't aware of my account. I could have creamed them in the last month (rarely the case, sadly ), yet they still quote the price without knowledge of who I am.

The extra spread needs to be offset against the commission you pay your broker. If it costs you £10 to deal both sides, you've already adde 1% with a broker. Then add 0.5% stamp duty and you've got a 1.5% effective spread saving with betting - more than the 0.9% that Fins would add. And CMC would probably have charged you less than 0.5% (sometines almost zero if the stocks very liquid )

Chump,

Good points well made. However, I'm not actually convinced that this happens on short term deals. My quotes are always fair, and the bookie doesn't know how long I plan to hold the deal. I suspect if you had an account that they couldn't hedge against because of they way you trade, they make it difficult for you in other ways - like referring you to dealers rather than auto-executing your trade (see Laptop's recent grievance with Worldspreads).

I must qualify all this by declaring I only trade shares (and the odd currecny / indeces hedge) so I don't know what games might be played with other bet types.

Anyway - Ive just watched my team beat Arsenal - so I'm ecstatic (though don't ask me why that's relevant )

Happy New Year everyone,

UTB

I think there's a psychological thing with me here. I have traded London stocks for many years, with reasonable success, but do not feel happy with placing very large amounts for long periods. On the other hand, I am happy to buy shares as an investment and hold for as long as it takes. I use FA for my portfolio and TA for trading. I only have four stocks in the portfolio. They are SUY, holding bought 8/6/05 and showing an increase of 44%; GLD (a speculative one), holding bought 23/6/05 showing an increase of 6%; HYD bought 19/12/05 showing an increase of 50%; RAD bought 28/12/06 and is at B/E.

This portfolio is successful but not greatly so, There are lots of investors doing much better than that but, nevertheless, it's better than 5% in the bank and the dividend does not come into the calculation. I'm not sure that LIBOR would not come to a healthy deduction over a year.

Maybe, the problem with trading is that one is inclined to look at the rise and fall of the price, get seasick and close the trade, therefore losing some good opportunities. That is, certainly, my case and I rarely hold a bet more than a few days. I cut my losses fast- I've got that bit right-- but, also, miss some good rises. Holding the shares does not seem to do that to me.

No, you are right, beating my team is not relevant

Split

 

[the blades]

I think there's a psychological thing with me here. I have traded London stocks for many years, with reasonable success, but do not feel happy with placing very large amounts for long periods. On the other hand, I am happy to buy shares as an investment and hold for as long as it takes. I use FA for my portfolio and TA for trading. I only have four stocks in the portfolio. They are SUY, holding bought 8/6/05 and showing an increase of 44%; GLD (a speculative one), holding bought 23/6/05 showing an increase of 6%; HYD bought 19/12/05 showing an increase of 50%; RAD bought 28/12/06 and is at B/E.

This portfolio is successful but not greatly so, There are lots of investors doing much better than that but, nevertheless, it's better than 5% in the bank and the dividend does not come into the calculation. I'm not sure that LIBOR would not come to a healthy deduction over a year.

Maybe, the problem with trading is that one is inclined to look at the rise and fall of the price, get seasick and close the trade, therefore losing some good opportunities. That is, certainly, my case and I rarely hold a bet more than a few days. I cut my losses fast- I've got that bit right-- but, also, miss some good rises. Holding the shares does not seem to do that to me.

No, you are right, beating my team is not relevant

Split

Fair do's Split. But just a point about the interest - it's about 5% per year with a spreadbet firm on a quarterly bet. I certainly do better than that with the money that's then not tied up. You can see my figures in the "cost of spreadbetting" thread, download the spreadheet at the end of the thread.

Cheers,
UTB

PS - sorry about your team, but our need is greater

 

[Splitlink]

Fair do's Split. But just a point about the interest - it's about 5% per year with a spreadbet firm on a quarterly bet. I certainly do better than that with the money that's then not tied up. You can see my figures in the "cost of spreadbetting" thread, download the spreadheet at the end of the thread.

Cheers,
UTB

PS - sorry about your team, but our need is greater

Yes, it is very acceptable. I suppose that watching it on a daily basis makes me think it's more, especially on a bad day. :| One way of doing it could be to trade the shares in the portfolio as soon as they make 5%.

I need a psychologist, but there are some funny ones on the T2W thread- it doesn't do to bare one's soul over there!

Split

 

[chump]

Split,
I just try to do more of what works for me. Putting that into context in your case your short term activites sound as though they are playing to your weaknesses rather than your strengths. Have you thought about it? It's just a rhetorical question.

Blades,
The SB knows your track history of business so in a sense they 'know' the probability of whether you are playing intraday , or over longer periods so they know how to manage your business. None of what I have said suggests it is impossible to make money from SB. Clearly you know some who do and may be one of them yourself. In other words this is not a delusional (are you reading out there and you know who you are - insider joke) conspiracy theory that the SB is out to get 'you'. It is a statement that the SB makes money from this process and it is within their ability to ensure any players activity is dealt with to ensure that that happens. That action might be at the margin with a generic 1 or 2 pt slip associated with market volatility plumping up the transaction costs according to market , or it might be individual where an individual has size and a record for 'winning'. That edge will be there otherwise they wouldn't be there.
What I am saying is if you choose to use SB it's pointless whingeing about this 'reality' when the solution is simple to make sure your strategy still works inspite of it. Your winning friends have done that either knowingly ,or unknowingly.

 

[Splitlink]

Split,
I just try to do more of what works for me. Putting that into context in your case your short term activites sound as though they are playing to your weaknesses rather than your strengths. Have you thought about it? It's just a rhetorical question.

Blades,
The SB knows your track history of business so in a sense they 'know' the probability of whether you are playing intraday , or over longer periods so they know how to manage your business. None of what I have said suggests it is impossible to make money from SB. Clearly you know some who do and may be one of them yourself. In other words this is not a delusional (are you reading out there and you know who you are - insider joke) conspiracy theory that the SB is out to get 'you'. It is a statement that the SB makes money from this process and it is within their ability to ensure any players activity is dealt with to ensure that that happens. That action might be at the margin with a generic 1 or 2 pt slip associated with market volatility plumping up the transaction costs according to market , or it might be individual where an individual has size and a record for 'winning'. That edge will be there otherwise they wouldn't be there.
What I am saying is if you choose to use SB it's pointless whingeing about this 'reality' when the solution is simple to make sure your strategy still works inspite of it. Your winning friends have done that either knowingly ,or unknowingly.

Blades did say he used the telephone. That must be beneficial in keeping them in the dark until the trade is executed. I'd never thought of it, but how can they know under those circumstances?

Split

 

[the blades]

Blades did say he used the telephone. That must be beneficial in keeping them in the dark until the trade is executed. I'd never thought of it, but how can they know under those circumstances?

Split

that's right - I ask for a quote for the roling price and next contract quarter, record it, and place the deal. I'm then asked for my account details. I then check the market price at the time using iii delayed quotes, and back check that I got the correct price.

UTB

 

[new_trader]

Doubt if they would lose £95...If that was the case they would have been out of business years ago... at the point of birth!

I agree. Maybe I am ill-informed but I thought SB companies hedge their bets in the "real" markets.

ie/ If I place a BUY bet on the SPX500 with a SB firm, they will BUY a mini-ES contract. So if the market goes up we both make money. They SELL their contract and pay me the proceeds minus their SPREAD. If the market goes down, we both lose money, but the SB firm recoups their losses through my deposit plus their spread.

I can't see why a SB firm cares whether I win or lose?

 

[vergis92]

I agree. Maybe I am ill-informed but I thought SB companies hedge their bets in the "real" markets.

ie/ If I place a BUY bet on the SPX500 with a SB firm, they will BUY a mini-ES contract. So if the market goes up we both make money. They SELL their contract and pay me the proceeds minus their SPREAD. If the market goes down, we both lose money, but the SB firm recoups their losses through my deposit plus their spread.

I can't see why a SB firm cares whether I win or lose?

In my experience, I was referred to a seminar by a SB firm that changed my trading for the better, just like a real friend would,
I don't think they just picked a seminar at random, very few are good,

I think they are not allowed to give you direct advice, but I really feel
they want you to stay with them, my experience with stock brokers
is the exact opposite, their recomendations are nothing more than
marketing techniques,
my most recent example is advice from 'Bentwood group'
if you want to opn an dealing account you got to buy a stock,
they did insist to me on buying (ALKS) last year on what they called
'privilleged info',

in short, They refused to open me an account because I didn't want
to buy their recommended crap which was $23 back then, with
no real intrisic value at all, no trend, no nothing,

had I followed their advice I'd be left with 3400 euros today
out of the 6000 invested,


stock brokers work in a different manner, we don't trust them
because they are nothing more than salesmen

speadbetting firms are not pushing you to buy on 'privilleged info''

 

[Tubbs]

I have an interview with Alexander Benjamin - a well respected trader. At the time of the interview he was working for the risk department of a spread betting firm in London - don't know which of course. He openly admitted to the practises used by these places - if I may call them bucket shops.

He said that most clients were not hedged because there was no point they would lose their money anyway. The larger clients are hedged as they have to be. If you follow the logic then Remeniscences of A Stock Operator gives you the rest of the story with the fact that they actually are making a slightly different market - i.e. there is no delay necessary to give a quote as they ARE their market. They do still give a delay on the quote though don't they? So obviously they are looking for slight advantages. The other thing is that most short termers probably have too close stops and that accounts for most of the losses.

In short I don't trust 'em but as long as that is the case I will trade with them. Until there is a better alternative.

 

[new_trader]

speadbetting firms are not pushing you to buy on 'privilleged info''

This is possibly true, but either way I can't see what a SB firm has to gain from influencing a decision to BUY or SELL. Surely they only make money from the transaction (spread) of a trade and not it's direction. I can't see how trading can be a zero sum game otherwise...
I compare the quotes of the S&P500 on igindex and they track precisely the quotes I get from my direct access broker for the ES (E-mini 500). I don't see any fudging whatsoever.