so if i was to go long £1000 per pip of eurusd...the SB company would just automatically hedge this order against other order/s , so that they just keep gaining the spread? i always thought the SB business was about making money from the losers:|
Martinghoul
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If I were to guess, I'd say that, like other dealers, they hedge some of the exposure and keep some, but it would depend on whether it suits their "book".
Most SB business is on about six or ten main indices and FX crosses. The more punters they have, the less skewed their net position will tend to be and the less they'll have to hedge.
The tricky bit is when someone tries to put a large stake on something, particularly on an illiquid market. The majority of bets are for low stakes (I think a couple of quid on the Dow, maybe £5 on DAX/FTSE) so these can usually be filled automatically, letting the punter get on with losing. Anyone who demonstrates an ability to make a profit consistently will be screened and put on dealer referral, although the SB cos will deny this, of course. Those fond of conspiracy theories will also claim that all clients' betting patterns will be analysed so they know which ones never need to be hedged!
The tricky bit is when someone tries to put a large stake on something, particularly on an illiquid market. The majority of bets are for low stakes (I think a couple of quid on the Dow, maybe £5 on DAX/FTSE) so these can usually be filled automatically, letting the punter get on with losing. Anyone who demonstrates an ability to make a profit consistently will be screened and put on dealer referral, although the SB cos will deny this, of course. Those fond of conspiracy theories will also claim that all clients' betting patterns will be analysed so they know which ones never need to be hedged!
dick_dastardly
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