Rules of the Game...

trader1302

Newbie
2 0
So I had a flirt with spread betting with IGIndex and thought I'd share some of the knowledge gained.

I wanted to write out a thorough-going explanation of how this con works but it was taking ages so here is a summary...

You win by betting a sum of money per point movement of an index. The provider introduces a spread which basically fixes the minimum size of the movement you can bet on. It also fixes the amount that you lose when it comes to closing the bet... I.e. index is at 100, spread is 95-105. Buy at 105. Index value is 110. Spread at 110 is 105-115. Sell at 105. Profit = 0. The movement that you bet on has to beat both the spreads in order to make money.

Naturally, losing is much easier. Continuing the above example, if the index value drops to 97, you lose three points. You then sell (and get a spread like 92-102) and lose some more. The spread works against you.

I downloaded yahoo finance data for the FTSE 350 for the last few hundred days. I calculated mean differences between the high and low prices during a day. The size of the spreads you have to beat is about the same as the average point difference for any given share. What this means is to win you can't just rightly pick the direction of the share price (which is hard enough), you have to pick the share at a low and sell it at a high or vice versa, to win a few points. However, this is a lot of effort for a few pounds so to make any decent money your bets have to be large and/or over longer periods of time. Both these factors increase risk. Alternatively, you can bet of IPOs and other events likely to create large spikes.

The longer the time period the less likely you are to get it right. The more volatile the situation, the less likely you are to get it right. The bigger your bet and the wider your stop, the more you stand to lose.

Standard gambling odds. Bet on the favourite and win most of the time, only to have it wiped out and more, when you lose. Remember, the spread works against you.

If you want to win at spreadbetting that's the game you have to play. Resultantly, most will lose. It is not a venture for the smart.
 

ffsear

Senior member
2,192 460
Or trade forex? Spreads 2-8 points. Daily ranges are generally much higher
 

justtrader

Well-known member
470 71
So I had a flirt with spread betting with IGIndex and thought I'd share some of the knowledge gained.

I wanted to write out a thorough-going explanation of how this con works but it was taking ages so here is a summary...

You win by betting a sum of money per point movement of an index. The provider introduces a spread which basically fixes the minimum size of the movement you can bet on. It also fixes the amount that you lose when it comes to closing the bet... I.e. index is at 100, spread is 95-105. Buy at 105. Index value is 110. Spread at 110 is 105-115. Sell at 105. Profit = 0. The movement that you bet on has to beat both the spreads in order to make money.

Naturally, losing is much easier. Continuing the above example, if the index value drops to 97, you lose three points. You then sell (and get a spread like 92-102) and lose some more. The spread works against you.

I downloaded yahoo finance data for the FTSE 350 for the last few hundred days. I calculated mean differences between the high and low prices during a day. The size of the spreads you have to beat is about the same as the average point difference for any given share. What this means is to win you can't just rightly pick the direction of the share price (which is hard enough), you have to pick the share at a low and sell it at a high or vice versa, to win a few points. However, this is a lot of effort for a few pounds so to make any decent money your bets have to be large and/or over longer periods of time. Both these factors increase risk. Alternatively, you can bet of IPOs and other events likely to create large spikes.

The longer the time period the less likely you are to get it right. The more volatile the situation, the less likely you are to get it right. The bigger your bet and the wider your stop, the more you stand to lose.

Standard gambling odds. Bet on the favourite and win most of the time, only to have it wiped out and more, when you lose. Remember, the spread works against you.

If you want to win at spreadbetting that's the game you have to play. Resultantly, most will lose. It is not a venture for the smart.

Igindex does not have a spread of 10 points on its index its more like 1
 

capitalspreads

Experienced member
1,452 79
the problem with this analysis is what it does not say !

What on earth was the client trading in to have a price of 95-105 ?

I assume that this was some tiny low cap stock. you must remember that the "Real Price" in the underlying market is very wide (and totally illiquid). Almost certainly something like 96-104. I am not a fan of IG (you will all be surprised to hear) but this type of comment is just not informative.

over 85% of our trades are in just 10 markets.

GBP/USD, EUR/USD, JPY/USD, EUR/GBP, gold, oil, dow, S&P, FTSE, DAX

the lowest spread on these is 0.8 (JPY) 1 (for dow [in hours], FTSE, DAX, EUR/USD, EUR/GBP) 2 for GBP/USD and 4 for the others (but these are all very big numbers)

clients should be aware that no matter where they trade they will have to pay the offer or hit the bid to make a trade (i.e. "pay the spread") or place an order (which might not get filled) this is not some unique thing that only happens on Spread Betting/CFD platforms.

Simon
 
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