Sharks vs Reputable Brokers. Or. How to verify the price.

[maxima]

I came along a general idea that SB is unreliable way to trade as providers will encourage you to lose.

I understood that that could be done by
a) doctoring market price (spikes to hit your stops for instance)
b) administrative measures (slowing you down, limiting certain functionality of your acount)

Also I understood that there are more and less honest providers. And that more honest can screw only 'inconvenient' users.

After that I switched to read CFD threads and found the same scare.

My question is:

a) how is it possible to skew market price with DMA ? (isnt DMA supposed to bring you price of the real underlying market with corellation 100%?)
b) can trader object against unfair price spike which can be supported by historical data from underlying market (trading CFDs)?
c) is there evidence that IG Markets use such techniques?
d) arent providers supposed to actually sell you CFD contracts? Hence hedging of short-time trades should not be an issue...
e) am I understand correct that you have to pay income tax on CFD profit (around 40% for high tax band payers)?

I'll explain why I am asking - I looked through few platforms and stopped with IG Index. I tried small bets for few days. One day (when Darling read his "brilliant" budget) it was a period which suits me best - nice short swings for about 30 minutes. I bet few times in by 50p and made 5 wins in a row.

I was going to stop and play xbox for the rest of the day but greed kicked me **** and I bet 20 quid just to taste how it feels to be a real boy (Pinoccio effect). My bet lost as 10pt stop was hit by very unusual spike which I never seen in previous 2 weeks of small trades and monitoring graphs.

But it was SB. You cannot really verify - was it trick or extreme volatility of the day brought such effect - as there is some algorithmic corellation between underlying market and IG's market and they would probably never tell you how they calculated the price and it doesnt worth to have a go.

But I am not angry or anything. I have should read these threads before I started.

What I am afraid of now - is there any way I can trade in a way I want (short swings for 3-4 points profit for up to 500 a day) without risk to get hit by providers counter-measures?

Can they doctor CFD Level2 data? Can I bring it to a court comparing to historic data from an exchange?

Would appreciate a general advice from experienced traders.

 

[grantx]

Max,

The SB market is essentially otc, ie any similarity with the underlying price is coincidental. They are not obliged to deal at the market price. Use a regualr broker.

Grant.

 

[maxima]

Thanks Grant. Do you think CFD companies are the same?

 

[grantx]

Maxima,

Yes.

Grant.

 

[gle101]

Max,

The SB market is essentially otc, ie any similarity with the underlying price is coincidental. They are not obliged to deal at the market price. Use a regualr broker.

Grant.

This is just not correct. The SB price feed usually reflects the movement of the underlying asset. If you have a live exchange feed and compare this to the SB quote, you will notice the similarity. The price might not be exactly the same, but the movement of the quotes, reflect each other, and that is what is important. Due to the fixed SB spread there cannot be an exact match in the spread, but there are also instances when the spread can be in favor of the SB. Such occasions could come just previous to important news releases, where, in fact, the SB price spread can be narrower (if you get filled that is) compared to the real market. Also the MiFID financial directives clearly stipulate that the price quoted must reflect the movement of underlying asset. Also I would like to mention, that if the price does not reflect the real market, arbitrators would have a great time. However, one has to be, at all times, aware that the SB quote truly reflects the underlying asset, so as not to make a blunder buying at a totally wrong market price.

 

[grantx]

Gle,

"usually reflects...similarity...might not be exactly the same...cannot be an exact match". This is the crux, isn't it. Why trade on this basis when you can trade at market via a broker? All these qualifiers regarding price illustrate why SB's are best avoided.

"MiFID financial directives clearly stipulate that the price quoted must reflect the underlying asset".

Reflect, as in identical? We know that isn't the case. "Must approximate the underlying asset by an indeterminate and random degree" would be more accurate.

Separately, if you are a Swedish national, may I congratulate you on your superb English. This is genuine.

Grant.

 

[gle101]

Gle,

"usually reflects...similarity...might not be exactly the same...cannot be an exact match". This is the crux, isn't it. Why trade on this basis when you can trade at market via a broker? All these qualifiers regarding price illustrate why SB's are best avoided.

"MiFID financial directives clearly stipulate that the price quoted must reflect the underlying asset".

Reflect, as in identical? We know that isn't the case. "Must approximate the underlying asset by an indeterminate and random degree" would be more accurate.

Separately, if you are a Swedish national, may I congratulate you on your superb English. This is genuine.

Grant.

Thanks Grant, for the nice comment on my English. In my younger days I spent a couple of years in Australia, so I have been able to keep my English upto a reasonable standard.

I think there are a lot of misconceptions about SB and this is definitely one of them. Some think that the SB quotes do not reflect the movement of the real market. This is far from the truth. Notice I used the word "reflect", it does not need to be a match in price, as long as the movement is in balance with the real market momentum. I am sure you agree with this statement.

Anyway, why use a SB when you can trade on the real market? The answer to this question is probably dependent on factors like initial deposit, leverage, margin requirement, stakes and tax issue. Let me take an example, if you would like to trade FTSE, most people would find the initial deposit, margin requirements, and stakes, way too high while trading the FTSE 100 or the Z future. Also SB is great for testing new strategies, this holds true, especially if you are a newbie. I would go so far as to say, that trading the real market could be catastrophic from a financial point of view (I am referring to indices, e.g. FTSE future), without first having sufficient experience in this area by starting out with smaller stakes. However, I totally agree with you on the assumption that if, initial deposit, leverage, margin requirement, stakes and tax free are no issues to be concerned about, trading the real market is definitely every traders choice.

 

[maxima]

I am very sorry to intervene with my terrible English unfortunately my younger years I spent in Mexican jail....

But there are quite a few evidences around that some/many (all?) SB companies fix prices. I am talking about spikes. "Reflecting" underlying price / moving spread around - that is different story.

Would you say Gle that spikes are imagination of conspiracy theories fans?

 

[gle101]

I am very sorry to intervene with my terrible English unfortunately my younger years I spent in Mexican jail....

But there are quite a few evidences around that some/many (all?) SB companies fix prices. I am talking about spikes. "Reflecting" underlying price / moving spread around - that is different story.

Would you say Gle that spikes are imagination of conspiracy theories fans?

Ha ha, that was a good one.

No, spikes are real, I have experienced it, trading with some CFDs brokers. I have not experienced it to be a problem with the well named SB companies. I have been trading with Capitalspreads for over 2 years now, and not had a single spike against me. There have been one or two technical problems with the feed, but these have always been corrected in my favor.

 

[maxima]

well good to know that people have positive experience.

Not what I can say about myself. But I did what later appeared to be scalping so I got caught. Then I went to this forum and found that I shouldnt do that. So I am looking for a broker now and potential for an arcade later...

 

[gle101]

well good to know that people have positive experience.

Not what I can say about myself. But I did what later appeared to be scalping so I got caught. Then I went to this forum and found that I shouldnt do that. So I am looking for a broker now and potential for an arcade later...

May I ask what instrument you were trading with at IG? You said you were doing well but decided to raise your stakes. Did this rise in your stakes come hand in hand with your money management strategy? As for myself, I never trade with more than 2% of my capital, (stop loss included). Also do you have a live exchange feed, or some other reliable feed, besides your SB for monitoring? Could it be, that this sudden movement against you was actually a movement in the real market, that went against you?

 

[grantx]

Gle,

I think you present you a reasonable case.

However, “as long as the movement is in balance” is difficult for me. An SB’s spread could be 100 points over the market price but is irrelevant if the difference is maintained, eg market up 75 points, SB’s price up 75 points. I question whether this is the case.

Max,

“my younger years I spent in Mexican jail”. Respect, bro. Which gang were with you with? Maybe we can compare tattoos.

Grant.

 

[maxima]

Gang was DaSupaSpreadBetta.com

Gle - I can not say for sure they cheat. But I think they do. Spikes was crazy and in previous month I monitored/tested (traded by 50p) nothing was nearly like that. It was 3 spikes about 20pt each in 10 sec time span. But that is not so much suspicious. Suspicious was that these events happened quite soon after I made 20 quid bet after 5 winning bets 0.50 each.

Of course sh@t happens I know. But I just dont really believe it. Plus I tried to figure out - what could deter SB company from fixing prices? Nothing except bad publicity. But that is not real argument.

I know that in the UK bad relationship between business and customers is normal. 90% of the UK business attitutde - we are doing great favour to you so shut the f up. And it works because locals - a) see complaining as personal weakness b) most of them never seen anything different so they naturally assume that it how the cookie crumbles.

I wont bet on my words. But I wont sreadbet either...

P.S. It was FTSE 100 Daily Future.

 

[BearClaws]

Hi Guys.

I have been reading these comments with much interest and I have just come back from a
seminar on SB.
Fortunately for me, I did read some of these posts prior to attending and also trade equities also.
I posed a similar question about just this when viewing a candlestick chart of a stock.

I have to ask this question.(This is a genuine question ...not taking the mick)
When comparing the underlying share price to the SB, you can also see unusual spikes on just
the share price graphs which can sometimes be explained by the refresh interval of the SB software
and the interval for share price chart.
So need to know if peoples are using the same price intervals when comparing in realtime.
Also, what share price graphs are you using, as the standard graphs are average share prices?
Average share price is not the actual share price trades.
I admit I don't know that much about SB yet...I am a newbie...but need to know how to rate your comments and need to keep a perspective on them.

I see I will have too look carefully into just how these SB systems work and the pitfalls such as has been mentioned.
This unusual spike or sag...was that with an index or an equity based instrument?
Was that reflected in the underlying share price?
DO you receive the realtime prices?
A 10 % fall, then bounce recovery certainly does sound odd but definitely possible also.
What was the instrument?

I am wondering what the best way is to verify the SB spread tracks the underlying share price.
In the seminar I attended, I found out their package only does 1 min refreshes.
Obviously, that is not going to correlate with market data which is refreshed a lot faster than that.
So, I cannot see anyway of confirming the Spread is tracking share price changes which are more frequent than 1 minute.
Is it possible to confirm correlation between the SB spread and the underlying share price?
How can this be done as it seems essential?

I definitely have more questions for my SB team regarding their platform and how it actually works
before I open a SB.

 

[Vaco]

track the dow then head over to cbot and look at the live quotes there this should put your mind at rest.

I trade cfds with cmc and the quote is never far from the $5 contract, however i would not trade a strategy that relies on tight stops and small profits, but for larger moves with wider stops its fine.