Spreadbet bias - true or false

[NickW]

Can anyone say for certain that it is a fact that the spreadbet companies use a bias on their prices?

E.g. if the SB Companies S&P future spread is 0.5, does this mean that if the real bid/offer is 900.0/900.1 then the SB bid/offers for the same price could be anywhere from 899.5/900 to 900.5/900.6? Assuming they restrict this type of bias to within their spread.

If this isn't what is meant by SB bias then what is? Or is it that as they are marketmakers they make up any price they like and serve it up?

Because I've been believing that there is a bias of some sort I've been using larger stops than I'm comfortable with.

 

[jpwone]

Hi

check out http://www.tradingspreads.com for a couple of examples of SB bias.

The bottom line is that the SB company is the market maker for their clients and can (and do) quote any price they like.

Examples of bias can be seen daily if you trade the Dow Cash. The SB quote will usually be higher than the actual in a rising market and lower in a falling market. This can be anything from a couple of points to 20 or more points away from the actual ie. they bias there prices in line with their view of where the market is going. The danger with the bias is that if it is biased up and you buy (go long) and the market turns down and the SB company changes their bias to a down bias then you can be sitting on a significant loss even though the market has only moved a few points against you.

Understanding the bias and recognising when it is favourable to trade is a key part of spreadbetting.

HTH

 

[NickW]

Hi HTH

Thanks for your reply - I'll check out that link.

One thing I can let people in on if they didn't know already is that the SB cash prices will definately not be the same as the index cash price. This is because their cash prices are actually based on the future price but adjusted for fair value dynamically, which is based on dividends and interest. In non US trading periods the SB co's also use things like ADRs and how US stocks are trading in currently open markets elsewhere. The cash price will always be an estimate.

I would guess this is so that all bets can be hedged in the markets. There's no practical hedge for the cash index, other than buying or selling every stock in the index, which is why it is based on the futures which are hedgeable.

Therefore I guess I should restate my question as is there a bias in the SB Futures prices, because I know the cash prices don't match with the real price due to the explanation above.

BTW I'm no insider wiz, but I had this explanation given to me by the head trader of a SB company.

 

[dsmodi]

nickw,

1.HTH = Hope That Helps, which is what John was alluding to (i hope)... and john = jpwone.

2. yes - i'm sure there is a bias to SB futures price. If mkt is flying up, they can, and do, easily increase their bias further in their favour. Although, the underlying price is based on the futures.

FWIW , HTH, and of course all IMHO

 

[Tray_Dar]

What I've noticed is that IG Index will always bias in the direction the market is currently moving. However, D4F will bias in the opposite direction if the market is moving towards a sup/res level. This makes it difficult for s/r traders as they are always 'catching up' with the price.

This can be favourable if you play breakouts as you can get in while the price is in your favour and as soon as the breakout occurs the bias is swung in your favour putting you in profit. Ofcourse easier said then done.

 

[mmillar]

I don't know why I'm always defending the Spreadbet companies but here goes again...

I think the idea of spreadbet companies quoting prices 20 points out of the market is just plain silly. If they did I (and plenty of others) would be arbitraging them to death. It would be easy, risk free money.

I took an S&P futures feed from the US a while ago to see if all this talk of them changing prices were true. The S&P futures feed and D4F's S&P price were EXACTLY THE SAME, tick for tick.

I believe all this is just down to a lack of understanding of what you are trading when you spreadbet (ie. there isn't really a 'cash' price, just a futures price + x) and the usual 'blame the broker' syndrome.

Just my humble opinion.

 

[NickW]

Having been on a SB trading floor I'm sure there's no manipulation done by the traders. They are just order fillers. I can see that is possible that the quote engine biases the prices based on momentum or perhaps where the stops are, if it can reasonably get away with it.

 

[Riz]

They are all biasing the price whicever way the market moves, apart from the usual trick of anticipating turning points and making life difficult for those trying to get in/out... and if all this doesnt help enough cmc will requote you while FINS delaying your quote, one last thing if you're a marked trader your orders will rarely go through auto...

Riz

 

[delboy trotter]

Have to agree with mmillar on this one. In my experience using a real time feed of S&P Futures (ES H3) from eSignal and compare this to D4F Dow30 Cash. It is identical tick for tick. Only today, there was a situation where the difference in the D4F price and the actual Dow 30 cash price ($INDU), had a so called "bias" of almost 20 points. This is a fairly common situation. My question is this. Do all the SB firms use the S&P Futures to set their prices or are there some who use the Dow cash instead?

db-t

 

[madasafish]

IG and City S&P prices straddle the S&P futures price.. Exactly
Fins bias.

Dunno about others.

 

[sidinuk]

MMillar is right.

I think the problem that people are having is that they are comparing the cash index to the SB quotes. The SB quotes are based on the relevant underlying futures market not the cash market. Futures move quicker than the cash index (it takes time for the cash market to catch up, as the underlying shares that make it up have to trade to move the index). The futures prices will always move a little further in any direction than the underlying index because it will have more momentum.

I have looked at the differences between D4F, cash index and futures prices for the S&P500. Between D4F and the index you will lose around 1 pt per contract, but between D4F and the near ES contract the difference over a contract is only .25 points. Now D4F quote a spread of .5 pts and the ES is .25 pts, so there's the difference. D4F and the futures move exactly together, the only difference is a wider spread. Other SB companies use considerably larger spreads and aren't worth using at all because of that.

You need to offset the bigger spread with the SB's against the tax benefits. Anymore than 1 or 2 trades a day and that tax benefit won't be big enough to pay for the increased spread.

 

[mmillar]

And while I'm doing my Spreadbet Defender bit...

... if you're a marked trader your orders will rarely go through auto...

Riz

This just sounds like paranoia to me. The questions is Why? Why would a spreadbet company 'mark' certain people and stop or slow their orders?

Spreadbet companies make their money on spreads not trading against us. When we place a trade with them, they place it in the market. They are not bookmakers, they are brokers. They make money when we trade - it is irrelevant to their profits if we have a winning trade or a losing trade. It is therefore in their long term interests for us to make money and to continue to trade.

Again, just IMHO.

 

[bigblue]

Are you sure that they do not take on their punters, I think they do. IG definitely does

 

[options]

Oh, dear.

You do have a bit more to learn. Mmillar.

Options.

 

[madasafish]

If you try to trade with Fins at a market turn or when the price direction is uncertain, you will be held for up to 1 minute. IF there is no bias, why? No need to hold, just oput you in at a price.

IG and City give you continuous quotes AND will fill at those quotes. Fins will not (and from what I read and hear) D4F wiill not.

Explain that if no bias!

 

[JonnyT]

There is no doubt about it, Spreadbet companies make on the spread and on the bias.

I can understand why they have the bias in fast moving markets as they need to lay off bets in the futures market and they are not sure what price they will get.

However 20 points on the Dow very often.

I have studied the spreadbet prices D4F with live futures feeds and they wobble there prices more, extend the moves more. I do not beleive that they do not make on this function

Sure it might be possible to exploit this but the average guy in the street will lose trying anything other than swing trades.

 

[Riz]

mmillar: This just sounds like paranoia to me.

mmillar, not sure what your incentives are, but we are talking from experience here, we've seen it day in day out, even comparing the quotes by various traders at the same time to make sure it is a fact, so I suggest you get your act together and stop calling words like paranoia etc, to concentrate on facts...

Ohh and your words "preadbet companies make their money on spreads not trading against us. When we place a trade with them, they place it in the market. They are not bookmakers, they are brokers" are rubbish... did you read last IG index results when they said we got unlucky to explain the drop in profits, meaning the punters got lucky and they do not hedge all trades?

Riz

 

[dsmodi]

mmilar/delboy et al

have a look at this
http://www.trade2win.co.uk/boards/showthread.php?s=&postid=20241#post20235

And in fact, on that board, this same argument has already been mooted i think...

all imho ofcourse

 

[mmillar]

Riz - I have no intention of insulting you so please don't get upset. On the same note, please dont accuse me of having 'incentives'. I am just a poster to this board like everyone else. I have been trading with D4F for two years and I think they are great. Clearly other people have different opinions.

My personal view is that there are lots of throw away comments made about bias, 'marked traders' and SB companies making money out of trades with no 'facts' to back it up. Of course, it is impossible for any of us to know what really happens because we don't work for these companies. Every post here is just based on opinions. Perhaps an ex-trader at one of the SB companies could join in and give us the 'facts'.

The point is I and others have compared S&P futures feeds against D4F and get them exactly the same, tick for tick. Obviously others have different experiences. But if I could catch D4F quoting 20 points away from the market then I would be making a fortune on arbitrage.

The reason I joined this thread is because I think this 'blame the broker' syndrome is a problem for traders. It means

1. we are all being ripped off by SB companies (which I dont think is true)!! or

2. you are not accepting responsibility for your trading (i.e. you will not analyse why your trade failed - you will just assume it is the brokers fault) or

3. you just don't understand what you are trading (there was a recent post on the board from someone who said they couldn't make money with spreadbetting, so now I wanted to try futures - a complete failure to understand that spreadbetting is futures).

Again, just my humble opinion. I hope we can all stay friends and not fall out over this.

Cheers

mmillar


p.s. for people who think they have been conned, why don't you phone the SB broker, tell them you think they are ripping you off, and ask them what is going on. I have spoken to the head trader at D4F at length and am satisfied with the answers I have received. Maybe, as Options so condescendingly put it, I just have a lot to learn!

 

[Riz]

yes, your humble opinions, only for some reason your humble opinions only assume those ciriticizing sb firms are doing that because they are losing or earlier paranoid, now not taking responsibility for their trades or dont understand what they are trding. Where as most posters here and on some others BBs who are critical of sb firms for not hedging trades and messing up with the system instead are experinced and winning traders. How do you know they are based on losing trades? If you had bothered to read the previous discussions you'd have seen that most allegations were based on facts and experiences, eg. holding and requoting, delaying quotes, switching off the system, suspending internet trading for some without any explanations, etc. That in my opinion makes your stance different than others. I called FINS to reply those critics here and I know for a fact they have agents reading BBs for them, never got a response. So calling again, if they think the allegation got no basis and not fair, they can reply. As for you you are not discussing the issue you are simply accusing traders criticizing them... once again they are not brokers they are bookies, there is a difference.

Riz