SB and CFD, where does the money come from?

fredvb

Newbie
7 0
If you have a profit with CFD's and with SB, who pays your profit? What is the difference? Is it true that SB companies have to pay profits with their money (like a casino) and that CFD companies get your profits from the market, so CFD companies have less risk?
 

capitalspreads

Experienced member
1,452 79
fredvb

as with all derivatives and FX trades there is always someone on the other side (futures/FX/ spread bets/cfds/etc).

spread bets, cfds and most FX trades are made with the company that you are the client of.. there is virtually no difference in the risk .. although you will generally find that the SB and CFD companies are better capitalized as they must segregate all client money.. whereas spot FX companies can mix your money with their own.

futures trades are generally made across an exchange and your broker will margin you then... the broker of the person who you traded with will margin them as well. In theory this should make it safer but as those who had their money with MF Global and shearson lehman discovered this was not the case.

in spread betting and cfd (in the UK) you also have the protection of the FSCS compensation which is generally up to 50k... so you have even more protection..... those of you who have accounts in weird and wonderful regulated countries might want to bear this point in mind.

world spreads is a dirty word in our world but all clients who had less than about 75k will have got all their money back

simon
 

capitalspreads

Experienced member
1,452 79
samirs

this means that you are trading with a Market Maker (MM) which in most cases is the spread betting or cfd or FX provider with whom you have the account.

this means that if you buy the FTSE in £10 a point then Vice Versa the MM will have sold. (i.e have sold to you) if you make money the MM must pay you and if you lose then you pay to the MM. Many people do not like this as they believe that it sets up a conflict of interest in the company providing you with a service. for example if you win all the time it is hardly in their interest to offer you a service.

With a bookie at the races, if you just win too often, eventually the bookie will stop taking your bets or in extremis, if the bet is very large, 'nobble' the runner (or maybe even you!). Although I understand that quite a few of the big bookies quietly lay off the risk on Betfair or with another bookie.

Of course it does not really work that way in the financial markets as there is nearly always another client who has traded the other way (i.e sold £10 of the FTSE) and anyway the SB/CFD/FX company can always cover the risk by trading in the real market. (in the murky past though I am sure that there were some dogdy deeds going on)

these days though the financial markets are so heavily policed that such client negative activity is virtually impossible .. to be honest if one of the SB companies was doing it ... one of the others would probably shop them!

Simon
 
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fredvb

Newbie
7 0
samirs

this means that you are trading with a Market Maker (MM) which in most cases is the spread betting or cfd or FX provider with whom you have the account.

this means that if you buy the FTSE in £10 a point then Vice Versa the MM will have sold. (i.e have sold to you) if you make money the MM must pay you and if you lose then you pay to the MM. Many people do not like this as they believe that it sets up a conflict of interest in the company providing you with a service. for example if you win all the time it is hardly in their interest to offer you a service.

With a bookie at the races, if you just win too often, eventually the bookie will stop taking your bets or in extremis, if the bet is very large, 'nobble' the runner (or maybe even you!). Although I understand that quite a few of the big bookies quietly lay off the risk on Betfair or with another bookie.

Of course it does not really work that way in the financial markets as there is nearly always another client who has traded the other way (i.e sold £10 of the FTSE) and anyway the SB/CFD/FX company can always cover the risk by trading in the real market. (in the murky past though I am sure that there were some dogdy deeds going on)

these days though the financial markets are so heavily policed that such client negative activity is virtually impossible .. to be honest if one of the SB companies was doing it ... one of the others would probably shop them!

Simon

So with both SB and CFD, we never buy in the real market? I've read that with CFD you did buy in the real market and with SB not. How can customers buy in the real market or is that impossible?
 

capitalspreads

Experienced member
1,452 79
fredvb

the law was changed in the UK a while ago which meant that buyers of cfds (unless they specified at the time of the purchase who the buyer was) had no rights to the underlying stock. This was to prevent buyers quietly picking up large stakes in companies using their broker as the registered owner of the actual stock and the client hidden behind only holding a cfd.

it was decided not to expect every single buyer/seller of a cfd to register with the company broker as the owner of the stock as this would be prohibitively expensive.

you can open an account with a futures broker and trade with them but there are no futures (or very few) on single stocks.

Equities.... whoever you trade cfds with you may find that the trade goes directly into the market but then again...who really knows?... we hedge with one of the biggest investment banks in the world... it looks like our trades go through to the real market... depth of market/volume etc.... but in the end the platform has been provided by them and so I am sure that they can make anything seem possible. If they have Capital Spreads trading in one direction in 50,000 Barclays and on another client access and broker selling 50,000 of the same stock.. it is a bit silly to put the order through the market and pay away the spread.... they can just clear both deals and pocket t he difference

you could trade with one of the DMA style SB/cfd companies FP in the UK and ProSpreads in Gibraltar which give you the functionality of direct access. but each have their limitations versus Market Makers.

simon
 

georgedon

Junior member
37 2
fredvb
why would you want to buy in the "real market" the prices you see on the platforms of the SB/CFD companies are a mirror of the real market, if you use any popular instrument you will see prices are the same across the different companies. If you use it responsibly, the leverage provided by SB/CFD products in my opinion makes it better than the real market for those of us with limited capital.
 

capitalspreads

Experienced member
1,452 79
samirs

i am not sure where kwickwool got that bit of misinformation (maybe it was taken from our first year in existence) .... or maybe he just made it up on the spot.

the biggest winner versus us is well over £1m (in fact we have one client who has made more than 500k in the last month) and you must remember that we do not tend to attract 'big punters' because we give no credit/waived margin and insist on stops versus every trade. I know that with IG they had a client who had made north of £20m in just a few months last year.

our biggest winner versus initial deposit was over 340k from a deposit of just 4k. (a BT engineer from brentwood)

BUT... our biggest retail client loser was £730k followed by another 700k and several in the 600ks.

You must remember that these are all extremes.

The fact is that, in general, we can only 'gain' the money put down by the client as our stop policy normally stops people losing more than their initial deposit (although it is possible) ... whereas the client, if he/she gets it right, can 'win' multiples of his/her initial deposit. So in the case of the BT engineer the most LCG could 'win' was 4k whereas he made £340k

but dont cry for us... we always have the spread in our favour.

Simon
 
N

neil324

0 0
Very interesting indeed. I wonder if he is still a BT engineer.

Nice to hear from the horses mouth people winning big.
 

capitalspreads

Experienced member
1,452 79
neil

to be totally honest he was a very rare beast with that kind of return

he won... took most of his winnings out (probably paid off his mortgage or something) .. left about 20k on the account and then lost this....

BUT crucially he never came back trying to make back what he lost... a truly excellent dealer....

i should have employed him!

Simon
 

samirs

Established member
507 47
well 4k to 340k must be rarest of the rarest whether SB or otherwise...how long did it take him to do that...must have an excellent game plan and stuck to it
 

samirs

Established member
507 47
hi simon - you must have an amazing data on psychological profiles and behaviour of the punters. how people behave under stress and with emotions flowing high, ill informed punters who do not know much about the product , risk / money management, revenge trades, going all in, betting mortgage and the last penny, eternal hopefuls, loss chasers and news followers. Probably can write a book.

Do people get in touch with you for advice when in deep trouble or most silently disappear behind their computer screen assuming no one watching and move on with their life.

This industry must be wrecking havoc in people's lives ....though people themselves are responsible for inviting most of it
 

capitalspreads

Experienced member
1,452 79
Samirs

We generally don't get clients into this type of position as we don't give waived margin or credit.. and the stops are always there to help prevent clients from doing too much damage.. but i guess there will always be those who go too far.

SB and CFDs are really no different to Futures/FX though ....just built on a smaller scale.

No matter how many times i see a trader do something stupid it never seems to teach me personally.. my own PA dealing is just as bad as the worst of our clients..

Clients do sometimes ask for advice but unfortunately LCG is not allowed by the regulators to give any specific advice to a client (although we can give general info).

Simon
 

capitalspreads

Experienced member
1,452 79
dollar

as i mentioned he was a very rare client.. no matter what he did he seemed to catch the market.. by the end he was trading in three/four hundred pounds a point in the Dax/FTSE and Dow.

At any point he could have been wiped out trading in those sizes but somehow he wasnt. there seemed to be no rhyme or reason behind his activity.

Even our best clients make losses sometimes. Sometimes quite big ones ...but they have a game plan and do not let reversals change their structure/strategy.

But do not be blinded by the winners.. most people do lose. it is a fact of life. Trading is risky and so everyone should be aware that the odds do not favour them merely on a statistical level. On an individual level every trade has (pretty much) a 50/50 chance of winning . .. it is up to the trader to try to work the odds.

There is no getting away from the fact that we are market makers and so win when a client loses.. (as are all the brokers whose liquidity you see on the LSE/Futures/Chi-X/FX etc etc) .. the only difference is that their names are all hidden from the traders via the exchange but the SB and CFD companies are very up front and personal)

Simon
 

BeginnerJoe

Senior member
3,329 350
If I did attempt this I would do this on CapitalSpreads and if I succeeded I would be expecting a job offer from you. :)

If you can make that much money from £100, why would you need a job ? Can't you use another $100 of the winnings to double your monies ? After that, use £100 of that winnings to treble your monies.

In fact very soon, you will have so much money that you will have to hire the guy from CS to help you count your money. But, I am not sure if they will sue you for libel if you do that.
 
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