Mythical Spread Bet bias?

[gmca686]

Am I missing something? I keep reading about traders complaining about Spread Bet bias and how it works against them. Regarding SB'ing Indices, the SB prices are based around the Futures prices, which oscillate around the relevant index price.
Like most people, I use technical analysis to reach my trading decisions, but I carry out the analysis on the real time spread bet price. D4F charting is based on the spread bet quotes. The FTSE Spread Bet Chart with 1 minute Candlesticks and 9 and 18 SMAs is a great trading display. I watch the real time index price for guidance, but the trading decisions are based on the spread bet prices.

For me, there is no bias to deal with. Am I missing something?

regards, GMCA 686

 

[Newtron Bomb]

Take a look at the dow jones cash and equivalent on cmc for starters and you will see what all the fuss is about.

I dont think you will see it so consistent (or notice it) on any of the other indicies. The cmc spread is rarely around the underlying dow cash price.

 

[darrenf]

I think what GMCA686 is getting at is that the cmc price is NOT linked directly to the DOW cash index, rather than the futures price, therefore the difference you see between the cmc price and the actual index is not down to bias particularly, but the differential between the actual index and the futures price.

SB bias has been very much discussed on these boards before. I have only traded with CMC before so I can't comment on any other SB company but I do not think that cmc dispaly any significant bias. (Look particularly at FX prices- their quote hardly ever varies from those of "proper" fx dealing platforms).

I do believe however, that where the SB spread is larger than the equivalent futures contract ie DOW, S&P, FTSE etc, then this does allow the SB company (again, I can only relate to CMC), to move their spread from one end of the underlying price to the other, thus creating a small element of bias, usually in the direction that the market is moving at the time.

Personally, my trades tend to last a few days, so a few points bias within the spread does not affect me. (greatly) However, if trading short term, particularly scalping, then the wider spread, plus the element of bias created by the swinging of the spread in this way, could certainly make the job much harder for the SB scalper (Even if using CMC charts). If I were trading in this way, I would probably look to open a real futures account as advocated by many on these boards. ie much lower spread and no bias.

I suspect that most who complain about bias probably are trading very short term and are therefore particularly adversely affected by it?

For longer term trading where the stop is 50+ points, it's not really a big deal. However, it is important imo to understand that when you see a big difference between say the actual DOW index and the dow SB price, then it is probably not bias (mostly) but down to the fact that the futures price is different to the actual index level.

SB bias seems to be one of those mythical subjects which everyone has their opinion on. However, my own observations from using CMC support the above views. (for what it's worth).

 

[spreadbet]

Please don't be offended but it's the first time I have heard it called mythical lol.

When I traded with D4F the spreads were ridiculous compared to either cash or index, perhaps things have changed.

I use IG with a spread of 11pts on the Dow, this spread will be apportioned around the index dependant upon IG's view of the market at any instant in time. Indeed at times eleven points above the cash is quiet a good short term contary indicator.

Cheers

spreadbet

 

[gmca686]

darrrenf has understood what I am trying to say.
Lets take the FTSE as an example. The D4F spread on rolling cash is 3 points. The price oscillates up and down following the futures. If I want to spread bet the FTSE I do not base my trading decisions on the actual FTSE, but on the D4F spread price. eg if I use a golden cross with a 9 period and a 18 period moving average on 1 minute candlesticks to go Long, I am tracking the change in the Spread Bet price for the FTSE, not the actual FTSE. In these circumstances there is no bias to worry about. This can work in your favour. eg I often notice the FTSE spike up a couple of points to trigger a potential buy, but if the Spread Bet price has not triggered the same condition I don't buy. In other conditions if the futures move first, I get an earlier trigger tracking the Spread Bet prices. The danger is one of being "whipsawed" if the triggers are too sensitive.
I like the bias that people complain about, when I can buy into weakness and sell into strength as the futures oscillate above and below the actual index price.
Am I making sense?
regards, GMCA686

 

[rossored]

I dont think you'll find that the futures oscillate ABOVE the "actual" index price...

Anyway, you do make sense (kind of) but I still think all the SB companies are robbing bar stewards!

 

[Oldun]

rossored,

Compare what they take with the charges made by the real pukka city chaps. I appreciate that one has to pay for the privilege of being a customer of real gentlemen - after all if one chooses 'wisely' one may become a customer of the coves who invest for the Windsors - but put it in context and the SB companies really are quite (very) cheap and efficient.

Oldun

 

[rossored]

Yes in some cases they might appear cheap, I agree. One of the positions I took last week would actually have made more profit(marginally) spreadbetting after I'd taken the tax and commissions out. The other 25-odd trades would have lost money, of course....but the thing I don't like about SB is the way they swing the prices about like a......erm, lady of ill repute's underwear.

Anyway, no-one should really take any notice of what I say about SB companies because they've had my trousers down, greased me up and aimed for penetration so many times I am completely biased against them (pun intended).

 

[Oldun]

Owwwwch!

Better though perhaps than being rogered (lubricated or not) by the chaps from ************** or other Upper Class twits operating in the square mile.

Could it be that the American brokers actually have it over the true blue bloods?

 

[darrenf]

gmca686

With the trading methods you speak of. ie buying on weakness/ selling on strength, you will actually benefit from the bias within the spread. No wonder you're not complaining.

However, I would still say that for short term scalping, the lower spread on futures will also come into the equation. But then you need larger positions for futures? Ho Hum.....

This subject could go on and on.. As it has done previously. Everyone has their own opinion based on their own experiences.

 

[sidinuk]

good traders use futures and don't complain. Bad traders use SB's and are more than happy to blame the 'bias' for their diminishing account rather than their own inadequate trading skills.

 

[Skimbleshanks]

Good one Sid. :cheesy:

 

[Trader333]

Sidinuk,

I dont trade futures or use SB companies so where do I fit in to the category of traders ?


Paul

 

[spreadbet]

good traders use futures and don't complain. Bad traders use SB's and are more than happy to blame the 'bias' for their diminishing account rather than their own inadequate trading skills

Sorry sidnuk but thats cobblers. Please see the thread on making one to two grand a month using spreadbetting. It will tell you exactly why I spreadbet. If all futures traders are by default good traders then nobody looses and there is no pool of dosh to pay out to the winners.

As for attaching blame to the bias then to an extent this may be true for people starting out. If they sit back and learn the bias can work in their favor.


Cheers

spreadbet

 

[davelong]

Sidinuk,

I don,t know if you have ever thought of joining the Civil Service,
but I would recomend that you did not try to join the Diplomatic Corp.

 

[sidinuk]

I didn't say all futures traders were good traders and all spreadbet traders were bad traders. Just that a good trader will recognise the benefits of trading futures as opposed to spreadbetting.

As they say 'a bad workman always blames his tools.' It amazes me how many people complain about the so called spreadbet bias and yet continue to use spreadbet companies! Why spreadbet when you think the bookie is ripping you off? They are, but not because the prices offered are specifically biased against you.

 

[JonnyT]

I think there are plausible reasons for using spreadbets.

The two instances are:

1) Swing/Position trading
2) A single day trade i.e a system that looks to capture the days main move.

For normal day trading then I would trade futures and take the tax hit as you are likely to make more that way.

JonnyT

 

[darrenf]

I agree with JonnyT.

It's pointless saying futures are better than SB's across the board. It depends on your style of trading, time horizon, position size etc.

The reasons I use SB's are:-

1. My positions tend to remain open at leat a few days and my profit targets are usually 150 points plus. The spread and 'bias' is not really an issue for me.

2. I don't consider my capital base to be of sufficient size to warrant minimum position size for futures. (Strictly speaking it is, but I would not meet my money management criteria).

3. Ability to trade a wide range of markets from one account.

If I ever grow my account to a sufficient size to pack in the day job and trade intraday, I would probably open a futures account and/or explore direct access trading. But for me that's a way off yet.

As for good traders realising futures are the way forward, again this may well be true for very short term, intraday trading. However, for my style of trading and circumstances, I would maintain SB's are my best option.

 

[rossored]

So then, to sum up :

we've all agreed that there probably IS a bias, it just doesnt matter to some of us, right?

And we've also agreed that futures work for some people, and not others, right? And SB works just fine for the ones who dont want to do futures, right?

So, have we learned anything? NO!!!!!! Didnt we all already know this?? YES!!!!

Let that be an end to it!!!!! :cheesy:

 

[sidinuk]

darrenf, I agree with you there. For the longer term trading that you describe SB is a good enough vehicle to use.

Also if you want to trade UK shares for capital gains then SB is much much better value than actually trading the shares themselves considering the leverage, lack of commission and lack of stamp duty.

For more active traders though, who trade more than once or twice a day, direct access should provide a much better return in the long run.