reconcile: existence of spread betting firms and consistently successful traders

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spearchew

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Hi

Playing devils advocate here
If I were a consistently successful spread better, I would steadily increase my leverage and cripple all the spread betting firms on the high street inside 3 years.
Therefore, the persistence of spread betting firms is conclusive evidence that the 'game' cannot be won.
Have you ever personally met anyone who makes a living from spread betting? I haven't. Similarly I have read through multiple pages from threads on trade2win titled "anyone a successful trader?". I have yet to see definite "yes" replies - at best the response will be "I have heard of a guy..."

/debate
 
spearchew said:
Hi

Playing devils advocate here
If I were a consistently successful spread better, I would steadily increase my leverage and cripple all the spread betting firms on the high street inside 3 years.
Therefore, the persistence of spread betting firms is conclusive evidence that the 'game' cannot be won.
Click to expand...
This argument makes no sense, due to, I suspect, a couple of erroneous assumptions... Why would a consistently successful spreadbetter cripple all the spreadbetting firms?
 
Mayhaps my assumptions are erroneous, you'll have to help me out here. My thought is; if you are a consistently successful spreadbetter the inevitable outcome is surely the end of all spreadbetting firms. For the sake of argument, let me put forth a simplistic idea - if I know from past proven experience that I am likely to be "up" 30 points each month on average (based on a statistically significant length of trading history), I will raise my stakes on each point. Yes my losses increase, but so long as I am, on average, ending the month 30 points ahead, I can keep going and building up increasingly massive account... ? no?
 
spearchew said:
Mayhaps my assumptions are erroneous, you'll have to help me out here. My thought is; if you are a consistently successful spreadbetter the inevitable outcome is surely the end of all spreadbetting firms. For the sake of argument, let me put forth a simplistic idea - if I know from past proven experience that I am likely to be "up" 30 points each month on average (based on a statistically significant length of trading history), I will raise my stakes on each point. Yes my losses increase, but so long as I am, on average, ending the month 30 points ahead, I can keep going and building up increasingly massive account... ? no?
Click to expand...

you might eventually bankrupt the stockmarket,but not the s/b firms. They would be happy to take your bets and may even offer you a preferential rate:smart:
Yes believe it or not most s/b comps want you to win.
 
SvenFoster said:
wouldnt they just offset *your* trades and shade the price and make a fortune.
Click to expand...

Fair point.

I stress I am playing devils advocate here - probing for the sake of education.
In truth, I work in London, and as part of my job (which I won't detail) I employ technical analysis to some extent. I am trying to form an opinion on the viability of trading my own money in conjunction with TA. I am aware of the arguments and studies which argue both in favour and against TA - my mind is undecided. The problem I am having is; I do not personally know anyone who is making a fortune trading at home with his own cash - and I don't see any compelling evidence that anyone on this (very large) forum is either.
 
I would also like to add something: spending a few hours searching for such terms as "technical analysis" and "spread betting success stories" makes me extremely cynical. I come across uncountable number of jokers selling trading systems. Furthermore, any time I read a "success story" about some guy who has made a great life from spread betting his own cash, the last paragraph of the story invariably makes reference to a spread betting firm where you, the reader, can sign up for an account. That makes me think the spread betting firm has directly or indirectly paid money to have the article written in the first place (I have personally encountered examples of similar news media manipulation)
 
Well, there's a couple of issues with your argument...

a) SB shops are emphatically NOT on the other side of your massively leveraged, massively "up" trades. They actually take minimal risk by hedging their exposure in the mkt. They're just there to offer you liquidity and get (very) well paid for that. In fact, the more you "keep going" the better off they are, in terms of both making money off of your trading activity, as well as the funding your margin provides them (the latter is just my sneaky suspicion). Generally, if I were running an SB shop, management of credit risk would be my biggest concern.

b) While you might in fact be so special and profitable, what if millions of the other customers of your SB shop aren't? As a result, the firm can offset the losses that it might incur from your trades with the profits it makes on a whole lot of other people.

c) The idea that, as long as your strategy has positive expectancy, you'd be willing/able to trade it in infinite size/leverage is preposterous. Apart from the constraints that will be placed upon you by the SB shop, humans just don't function that way.

These are the three main issues I see with your argument...
 
spearchew said:
Fair point.

I stress I am playing devils advocate here - probing for the sake of education.
In truth, I work in London, and as part of my job (which I won't detail) I employ technical analysis to some extent. I am trying to form an opinion on the viability of trading my own money in conjunction with TA. I am aware of the arguments and studies which argue both in favour and against TA - my mind is undecided. The problem I am having is; I do not personally know anyone who is making a fortune trading at home with his own cash - and I don't see any compelling evidence that anyone on this (very large) forum is either.
Click to expand...

I've posted this link a few times, but it seems relevant here. Have a look at the interviews section on this site. Some quite interesting reading from SB bosses or senior people:

http://www.financial-spread-betting.com/


By the way, how is the TA working out?
 
Martinghoul said:
Well, there's a couple of issues with your argument...

a) SB shops are emphatically NOT on the other side of your massively leveraged, massively "up" trades. They actually take minimal risk by hedging their exposure in the mkt. They're just there to offer you liquidity and get (very) well paid for that. In fact, the more you "keep going" the better off they are, in terms of both making money off of your trading activity, as well as the funding your margin provides them (the latter is just my sneaky suspicion). Generally, if I were running an SB shop, management of credit risk would be my biggest concern.

b) While you might in fact be so special and profitable, what if millions of the other customers of your SB shop aren't? As a result, the firm can offset the losses that it might incur from your trades with the profits it makes on a whole lot of other people.

c) The idea that, as long as your strategy has positive expectancy, you'd be willing/able to trade it in infinite size/leverage is preposterous. Apart from the constraints that will be placed upon you by the SB shop, humans just don't function that way.

These are the three main issues I see with your argument...
Click to expand...



Totally agree with B and C, but im not 100% sure about A. not that I don’t agree, just I don’t fully understand. As far as I understand, when you place a bet with an SB you are not buying anything from the market (DMA) you are just betting with a bookie in the same way that you would on horses with Will Hill. SB’s make money not only from the losers (of which im sure there are plenty) but also from the spread at the beginning and end of your ‘trade’ (read bet).

The question I think is being asked and one I would like to ask is what if the majority were winning, or at least the winners overcame the losers (I know unlikely but just ‘what if’). In a normal betting company this means that the betting shop loses (and they do sometimes at major events like the grand national) and they usually end up banning the big time consistent winners. Is this what an SB would do? I have heard that they hedge against your bets by directly accessing the markets themselves. How does this work? If they hedge against all the winners taking their money by making money off the market then fine but if they do the same thing against all losers then they would be losers themselves, unless they end up using stops as well. The SB cant know which bet made with them is going to be a loser so theyve either got to always go against the bet or with the bet when they DMA themselves...

Hopefully some one can clear this up.

Cheers
 
Let's say a SB only has 2 customers.

1st one goes long on the FTSE to the equivalent of 10 contracts, the 2nd customer goes short 5 contracts

The SB will hedge out this overall position by going long 5 contracts on the real market. No risk to the SB and they make money by charging a wider spread than the market and pocket the difference between the price they charged the customer and the price they paid on the market.

So lets say the SB spread is 2 points and the market spread is 1 point.

They have paid a 1 point spread on 5 contracts.
But they have collected 2 points spread on 15 contact (the 10 long + 5 short).

so they are in net profit of 25 contract points. ((15 * 2) - (5 * 1))

Easy money. - Now you imagine how much they make with 1000's of punters going long/short.
 
Hoggums said:
Let's say a SB only has 2 customers.

1st one goes long on the FTSE to the equivalent of 10 contracts, the 2nd customer goes short 5 contracts

The SB will hedge out this overall position by going long 5 contracts on the real market. No risk to the SB and they make money by charging a wider spread than the market and pocket the difference between the price they charged the customer and the price they paid on the market.

So lets say the SB spread is 2 points and the market spread is 1 point.

They have paid a 1 point spread on 5 contracts.
But they have collected 2 points spread on 15 contact (the 10 long + 5 short).

so they are in net profit of 25 contract points. ((15 * 2) - (5 * 1))

Easy money. - Now you imagine how much they make with 1000's of punters going long/short.
Click to expand...

Yes, especially as they won't need to hedge most of the bets.
 
great explanation... simples.... not about hedging against each bettor but hedging each bettor against each other and then only needing to enter the market if there is a short fall between the longs and the shorts...

Hence another reason they have historically had limited options for bets (ie currencies, indecies, etc) I guess now there are more bettors they can open up other options such as individual shares.

Wow, being an SB firm sounds like good business, i guess as good as being a broker... the money will always come in regardless.
 
Many SB companies clearly state that orders will enter a "pool", where shorts meet longs. They only hedge the reminder.
 
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