Spreadbetting Companies Want YOU to Lose? Any Thoughts - You Tube Video Link

Sep 13, 2013
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#1
Hello All!

I want someone to give me some further explanation. Please reply back with your thoughts.

Reading through some of the threads on this here forum I've come across the topic of whether it's in the interest of the Spreadbetting firm wanting their clients to lose money. Some people have said that the Spreadbetting firm makes money through the spread alone and commissions (I.E DFT) so that they don't care whether you win or lose.

In contradiction to this, I recently watched an interview of a very knowledgeable and successful trader. He's the bloke behind the million dollar trader tv series. He was one of the top trader's at Goldman, and he knows the Industry inside and out.

I want some clarification about something he said in the video interview. I also included the video link below. The extract below appears in the video between about 1:30 to 2:50 of the way in. The points I want further clarification on I have underlined.

Question: When you want to start trading, the first issue that comes with it is that you have hundreds of different brokers. In your opinion, which criteria should we use to find the right broker?

Answer: "I think it's important to know whether the broker's taking the other side of your trades, first of all...so I mean what you'll find, there's a lot of conflict of interest in the industry when you're a retail trader...ummm there's obviously the commission situation and the spread situation. Errr..just because spreads are tight and the commission's low doesn't mean it's a good thing. Because all that means is that the broker's are going to try to turn your account over more aggressively so that you pay them as much money, so they'll be telling you to do things that aren't necessarily good for you. Ummm so obviously cost of trading is an issue, errr... but I think that it's really important that you find brokers that aren't aggressively taking the other side of your trades, because that's a huge conflict of interest, so you know in the products like spreadbetting and cfds a lot of them still do, so they go unhedged on the other side of your positions, so that they would actually prefer that you didn't make money...(muffled hmmyph and smile)!"

From my own analysis, correct me if I'm wrong, if you go short, they (the spreadbetting company) goes long to nullify the loss on the account. But this wouldn't make sense if you go long because they wouldn't go short would they? They'll just lose either way, so they wouldn't want you to win? If that makes sense.

So if what he were saying is true, some unscrupulous companies might have a few tricks up their sleeves to try and prevent you from profiting (off their money as essentially with leverage you're borrowing money they provide?).

So back to companies that go "unhedged on the other side of your positions" as he was saying, do you think CityIndex is one of these companies?

I opened an account with them back in May 2012. I blew all my money in 3 and a half months. I gave up for 5 months. When they rang me 5 months later to check how I was doing, but obviously with the ulterior motive to get me back trading, I decided to give it another try. Then from Feb 2013 I blew all my account again this time though I lasted longer than 3 and a half months. Now I haven't traded for 5 weeks, but am thinking of going back to them to try again within the next few weeks.

I haven't had too many issues with them, but there were a few questionable incidences such as slowness to closing an order resulting in loss of profit. And other issues like stopping me out below my specified level, but the frequency of these anomalies as a percentage was small, and the amount of money lost as I was only placing micro trades didn't really warrant a cause to complain to the point to make it worthwhile to take the time and trouble. Plus the fact most of these incidences occur whilst placing trades during important economic annoucements when there's a sudden spike of 100 or more pips (DOW) within the space of a couple of minutes. This is usually the time when the system freezes up and prices start going anomalous - for example inconsistent prices showing on the charts as compared to the quoted rates on the order form. Other than that trading at normal times I have not really had too many problems.

Now if CityIndex was one of these companies that go "unhedged on the other side of your positions", I might think twice before depositing any more money, because obviously this guy in the video knows something, and basically if the Spreadbetting companies want you to lose, there would be no way to ever be successful would there?

Anyone else had issues with CityIndex here? I would not really regard them less if you did because more than likely it'll be the same with all the other spreadbetting providers out there, and CityIndex is probably one of the best even if I have encountered the sporadic questionable incidences. I would imagine if I just moved to another provider, the same issues would invariably crop up and maybe be even worse or more frequent...

So to cap things off, Do you think Spreadbetting companies would prefer you lose, or do they not care if you win or lose? How do you think CityIndex operates, are they one of these companies that as he says in the video "go unhedged on the other side of your positions" whatever that means?

Here is the video link:
 
Sep 13, 2013
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#3
So it appears that as long as there are as many buyers and sellers in their B book list, then they should all cancel each other out, and the market maker makes money off the spread.

What goes on behind the screens seems very complex, and as with a lot of other people, not understanding I suppose makes us a bit cynical.

No doubt there must be some dodgy ones out there. Which one would you trust most?
 

timsk

Well-known member
Mar 18, 2002
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#4
So to cap things off, Do you think Spreadbetting companies would prefer you lose, or do they not care if you win or lose? How do you think CityIndex operates, are they one of these companies that as he says in the video "go unhedged on the other side of your positions" whatever that means?
Hi Charles,
The general question about whether or not spread betting companies operate a business model based around client losses has been debated many times. Do a T2W search and you'll uncover many threads on the topic. With specific regard to City Index - this thread might interest you: Starting to get 'Please Wait for a Quote' after making 150% return Apologies in advance if what I'm about to say sounds harsh; it's written with the best of intentions . . .

If you don't have a tested methodology that produces a positive expectancy, then you'll continue to blow up your accounts regardless of your broker and their business model. You could open an account with a direct market access broker and the same thing will happen. If you're wanting to start trading again, I recommend strongly you devote the bulk of your time and energy worrying about your trading methodology first - and the business model of your broker second!
;)
Tim.
 

highbury fx

Well-known member
Mar 31, 2014
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#5
Hello All!



In contradiction to this, I recently watched an interview of a very knowledgeable and successful trader. He's the bloke behind the million dollar trader tv series. He was one of the top trader's at Goldman, and he knows the Industry inside and out.


Hi

I could spend all day asking you questions about your post. I'll start with a simple one.

How do you know Anton is a very successful trader, was one of the top traders at goldman and knows 'the' industry inside out?

I'd like to mention that I do know him and I have met him several times
 
Sep 13, 2013
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#6
Hello All!


How do you know Anton is a very successful trader, was one of the top traders at goldman and knows 'the' industry inside out?

I'd like to mention that I do know him and I have met him several times
Ok, so I don't know, but I'm just going by what I watched and heard. So he said he started flipping IPOs at 16, got a job at Goldman, and was one of the top dogs.

So he might be lying, he might be a charlatan? I don't know.

So you've met him huh? So is he genuine? I don't know much about him, but after watching the video series he just appeared to me to be a trader natural - one of the 2%. Not that I would join his trading acamedy or anything, I haven't got 20,000 spare anyway.

Anyway, for comparisons sake, he's about the same age as me, and he's achieved a hell of a lot more than me. When he said he got into it watching TV documentaries in the mid 90's, I certainly remember what I was doing in the mid 90's and that I wasn't. So for experience, yes, he's been in the industry for a long time, so he I thought he was knowledgeable.

I've been in the Stock Market since about 2005, and I know I'm net down, made quite a few mistakes, lost a reasonable amount of money. I only got into Spreadbetting 2 years ago, and have yet to be in profit. The way I see it though, my mistakes and losses are a learning process, so I think I've got better through the losses and mistakes I've experienced.

I'm starting to be more careful now. Yeah there's plenty of people better than me, there's a few people start trading and just get richer and richer without hardly a down year. If Anton is one of those trader natural people, or anyone else here, even you Highbury, I will devote some my time listening to try and learn something.
 
Oct 8, 2012
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So it appears that as long as there are as many buyers and sellers in their B book list, then they should all cancel each other out, and the market maker makes money off the spread.

What goes on behind the screens seems very complex, and as with a lot of other people, not understanding I suppose makes us a bit cynical.

No doubt there must be some dodgy ones out there. Which one would you trust most?
No, it sounds like the spread betting firm can assume risk against the B book clients (bet in the opposite direction). That is what Simon Denham says in the video.

Also I think it is very well explained here:

http://www.trade2win.com/boards/spr...ndex-any-spread-betting-firm-make-profit.html

The risk betting against B book clients is limited up to a certain limit for individual instruments.

On top of that there is an overall risk limit for the spread betting firm.

Complex it may be but it's only fair to try and understand it.

I've only ever had an account with IG and am happy with them.
 

highbury fx

Well-known member
Mar 31, 2014
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#8
No, it sounds like the spread betting firm can assume risk against the B book clients (bet in the opposite direction). That is what Simon Denham says in the video.

Also I think it is very well explained here:

http://www.trade2win.com/boards/spr...ndex-any-spread-betting-firm-make-profit.html

The risk betting against B book clients is limited up to a certain limit for individual instruments.

On top of that there is an overall risk limit for the spread betting firm.

Complex it may be but it's only fair to try and understand it.

I've only ever had an account with IG and am happy with them.
That's it. You've got it. It's not complex, its a fantastic model that works well if properly managed.

To put it more simply. If a Spread bet client sells £10 a point of GBP/USD the Spread bet firm is Long £10 a point of a Cable. Only once the GBP/USD risk limit is busted or the total FX risk is busted will the spread bet firm hedge. Everything else (excluding A book) is taken on the risk book.

For the A book clients, If a client sells £10 a point of GBP/USD the spread bet firm will sell a notional amount of GBP/USD (£168k) in to the market to match (hedge) the clients trade. If the client loses the spreadbet firm loses a little less, if the client win the spreadbet firms wins a little more because the s/b firm is dealing on tighter prices in the underlying than the client is.

To give examples of some ways other s/b firms do it slightly different to Simons way.. LCG by the sounds of it run a total limit in FX which is probably in $ terms and is probably somewhere around $50m to $100m of total net exposure. Other firms may run their FX book differently and rather than have a total net exposure will have a risk limit per individual leg. if a client sells £10 a point of EUR/USD to LCG, LCG are long EUR/USD.. other firms may break it down in to its seperate legs so if a client sells EUR/USD the s/b company is Long Euros and Short USD and may run them as separate risk rather than as a EUR/USD risk. This will give the s/b firm the option of only hedging the part of the risk they need to. For example the clients EUR/USD deal may make the spreadbet firm exceed their EURO risk but not their USD risk and so may hedge by trading EUR/JPY or EUR/GBP etc..
 

highbury fx

Well-known member
Mar 31, 2014
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#9
Ok, so I don't know, but I'm just going by what I watched and heard. So he said he started flipping IPOs at 16, got a job at Goldman, and was one of the top dogs.

So he might be lying, he might be a charlatan? I don't know.

So you've met him huh? So is he genuine? I don't know much about him, but after watching the video series he just appeared to me to be a trader natural - one of the 2%. Not that I would join his trading acamedy or anything, I haven't got 20,000 spare anyway.

Anyway, for comparisons sake, he's about the same age as me, and he's achieved a hell of a lot more than me. When he said he got into it watching TV documentaries in the mid 90's, I certainly remember what I was doing in the mid 90's and that I wasn't. So for experience, yes, he's been in the industry for a long time, so he I thought he was knowledgeable.

I've been in the Stock Market since about 2005, and I know I'm net down, made quite a few mistakes, lost a reasonable amount of money. I only got into Spreadbetting 2 years ago, and have yet to be in profit. The way I see it though, my mistakes and losses are a learning process, so I think I've got better through the losses and mistakes I've experienced.

I'm starting to be more careful now. Yeah there's plenty of people better than me, there's a few people start trading and just get richer and richer without hardly a down year. If Anton is one of those trader natural people, or anyone else here, even you Highbury, I will devote some my time listening to try and learn something.
He's a top bloke and good fun. Whether or not he was one of Goldmans top traders I doubt it. One of the things you should have worked out by now though if you've been trading since 2005 is unfortunately its safer to err on the side of caution and take what people tell you with a pinch of salt.

I don't know what a natural trader is. When I started in 1987 a natural trader was someone who could shout loud, think quick, not be intimidated and drink until the client collapsed, went home or got arrested. I don't think Anton would fulfil this criteria of a natural trader :)
 
Sep 13, 2013
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He's a top bloke and good fun. Whether or not he was one of Goldmans top traders I doubt it. One of the things you should have worked out by now though if you've been trading since 2005 is unfortunately its safer to err on the side of caution and take what people tell you with a pinch of salt.

I don't know what a natural trader is. When I started in 1987 a natural trader was someone who could shout loud, think quick, not be intimidated and drink until the client collapsed, went home or got arrested. I don't think Anton would fulfil this criteria of a natural trader :)
What I meant by a natural trader is someone who is good at trading from the moment they start as opposed to just lucky. So good that they know when to take a profit and just have the ability to grow their accounts 10x, 50x, 100x,... fold.
 

highbury fx

Well-known member
Mar 31, 2014
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#11
What I meant by a natural trader is someone who is good at trading from the moment they start as opposed to just lucky. So good that they know when to take a profit and just have the ability to grow their accounts 10x, 50x, 100x,... fold.
Yeah, that's not him either...

You shouldn't think there are superstar traders who know all the answers. The traders at Goldmans are good because of Goldmans not the other way around. When you have client orders sitting on your desk that are responsible for driving the market in a particular direction you don't need to be good to make money you just need to jump on the bandwagon..

Invariably when star traders leave banks to work for themselves and realise that without the financial muscle and information available to them from the bank its actually quite hard and they struggle like everyone else. Sure they know a bid from an offer and how to draw some lines on a chart but without the luxury of knowing whats around the corner they're as bad as any one else.

you're welcome to your opinion and I don't want to slate a mate but listen to your gut instinct and trust it..
 

SpreadDoctor

Active member
May 1, 2014
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#12
Hello All!

I want someone to give me some further explanation. Please reply back with your thoughts.

Reading through some of the threads on this here forum I've come across the topic of whether it's in the interest of the Spreadbetting firm wanting their clients to lose money. Some people have said that the Spreadbetting firm makes money through the spread alone and commissions (I.E DFT) so that they don't care whether you win or lose............................
to give yourself the maximum chance of success make sure you trade the market directly (DMA) do not trade against a dealer aka 99% of spreadbetters. question everything you are told/read. be warned the trading/investment industry is set up from the top down to transfer money from the ill advised or naive to those who are smart and well capitalised. start trading small DMA so this might be mini lots/mini contracts/direct CFDs.

Just my 2c after 15 years in this business. good luck.
 
Likes: DowJones
Sep 13, 2013
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#14
start trading small DMA so this might be mini lots/mini contracts/direct CFDs.Just my 2c after 15 years in this business. good luck.
Thanks, I never done CFDS so don't know what it entails, or their risks or anything. I've traded covered warrants, which I dont' like at all. As I only have a small account to start with (<£1000), I don't know if this is enough for what you're saying.

So you think spreadbetting is a waste of time?
 
Aug 15, 2007
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Yeah, that's not him either...

You shouldn't think there are superstar traders who know all the answers. The traders at Goldmans are good because of Goldmans not the other way around. When you have client orders sitting on your desk that are responsible for driving the market in a particular direction you don't need to be good to make money you just need to jump on the bandwagon..

Invariably when star traders leave banks to work for themselves and realise that without the financial muscle and information available to them from the bank its actually quite hard and they struggle like everyone else. Sure they know a bid from an offer and how to draw some lines on a chart but without the luxury of knowing whats around the corner they're as bad as any one else.

you're welcome to your opinion and I don't want to slate a mate but listen to your gut instinct and trust it..
And I think you've missed the most obvious red flag. Why is an "experienced expert" joining the same fetid (non)-advisory pool as the rest of those merchants trying to flog you a quick path to insane riches? Is it because he's a benevolent and loving chap who wants to share with you, just because he can? Because he's made his billion and is now bored in early retirement?

Or...erm...because he has realised that he can't get a job with a broker so is trying to peddle this overpriced claptrap?

I'm sure that if I knew the secret to quick riches I would share it all with you rather than spending my time on the beach :cheesy::LOL::LOL:(y)
 
Oct 27, 2013
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I'm sure that if I knew the secret to quick riches I would share it all with you rather than spending my time on the beach :cheesy::LOL::LOL:(y)
Hi Jon41

Well I know the secret to FX trading riches -and it can be quick ( ie 5 - 10 yrs is what only a small part of your working life ;-).)

Its basically - lots of study - hard work - commitment - dedication - patience - streetwise knowledge - strong sound mindset with emotion control - admitting when you are wrong- and continually trying to improve the method that works for you.

Notice - simple - easy and quick - does not appear - and with regards to going down the beach - for dreamers and wannabees lol

Regards


F
 
Sep 13, 2013
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I'm sure that if I knew the secret to quick riches I would share it all with you rather than spending my time on the beach :cheesy::LOL::LOL:(y)
Are you being sarcastic? There's no secret to getting rich in the market, anyone can learn how to trade, there is no secret formula, but if you want a helping hand there's someone with years of experience to give you a head start, rather than reading all the books from scratch you can have someone teach you and you just listen. Sitting on the beach not telling (or teaching anyone) how you got rich on the markets isn't going to stop other people getting rich on the markets is it? By the way, if you really were rich enough to not have to work, it's true, sitting on your backside all day will soon get boring and tiresome, you'll need to preoccupy yourself whether its a recreational activity, running a business, or anything else to prevent yourself getting piles from sitting on your backside all day!
 

highbury fx

Well-known member
Mar 31, 2014
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#18
Are you being sarcastic? There's no secret to getting rich in the market, anyone can learn how to trade, there is no secret formula, but if you want a helping hand there's someone with years of experience to give you a head start, rather than reading all the books from scratch you can have someone teach you and you just listen. Sitting on the beach not telling (or teaching anyone) how you got rich on the markets isn't going to stop other people getting rich on the markets is it? By the way, if you really were rich enough to not have to work, it's true, sitting on your backside all day will soon get boring and tiresome, you'll need to preoccupy yourself whether its a recreational activity, running a business, or anything else to prevent yourself getting piles from sitting on your backside all day!
I didn't say that. The quote wasn't from me.
 
Sep 13, 2013
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I didn't say that. The quote wasn't from me.
I don't believe you did. It was Jon41 said that. On top of that, thinking about it, what he said is contradictory. If you were rich enough not to have to work, why would you try to get a job with a broker anyway?

All things beside, I wouldn't sign up to his course anyway. I went to one of Greg Seckers seminars, at the end of which they try to get you to sign up for this weekend course costing £5000+!

I started spreadbetting with less than half of that, even though I lost it all, at least the people who signed up for that course lost even more than me before even placing a trade! And you can only learn by actually trading. I feel sorry for them to be suckered (Seckered) in like that, they could have taught themselves by reading books or online articles. It might have taken a little longer and more effort to learn but it is still available free.

And my conclusion after doing 1000+ trades, and blowing my account? Most of it is down to behaviour and psychology rather than actual technique, they can teach you technique but they can't teach you behaviour as easily, and these are traits that will determine your success, and no one can change a person's behaviour over a week-long course, they'll just have to learn to control it themselves and can only learn by losing money.

From the 1000+ trades made on my small account, at least half my losses must've been lost through the spread alone. As an hypothetical example say you start with £1000, make 5 trades a day 5 days a week for 40 weeks at average of £0.50 spread cost per trade, and after 1000 trades or 40 weeks (5x5x40) say you managed to break even after all those trades, you'd actually be down from £1000 to £500 as you've lost £500(£0.5x25tradesx40weeks) through spread costs on each of your trades!!! This is something I noticed, that overtrading amounts to losses. Now I doubt you'll learn stuff like this at their courses? Unless they tell you that the number of trades you should aim to place each week is 1-5?

I'll be starting again soon, so watch this space! Next time I'll be a winner! I've lost but haven't given up (yet)!
 
Oct 27, 2013
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#20
I don't believe you did. It was Jon41 said that.......


And my conclusion after doing 1000+ trades, and blowing my account? Most of it is down to behaviour and psychology rather than actual technique, they can teach you technique but they can't teach you behaviour as easily, and these are traits that will determine your success, and no one can change a person's behaviour over a week-long course, they'll just have to learn to control it themselves and can only learn by losing money.

From the 1000+ trades made on my small account, at least half my losses must've been lost through the spread alone. As an hypothetical example say you start with £1000, make 5 trades a day 5 days a week for 40 weeks at average of £0.50 spread cost per trade, and after 1000 trades or 40 weeks (5x5x40) say you managed to break even after all those trades, you'd actually be down from £1000 to £500 as you've lost £500(£0.5x25tradesx40weeks) through spread costs on each of your trades!!! This is something I noticed, that overtrading amounts to losses. Now I doubt you'll learn stuff like this at their courses? Unless they tell you that the number of trades you should aim to place each week is 1-5?

I'll be starting again soon, so watch this space! Next time I'll be a winner! I've lost but haven't given up (yet)!
Hi Charles D

Re the cost of trading and overtrading - another myth to explode

I average 10 -20 trades a day - and have taken over 15k live trades over the last 7 -8 yrs

OK - I want low spreads and commission for sure - but the fact that my win ratio is between approx 62 % and 87% on batches of 100 trades - I never bother about my costs - as long as they are competitive - as an ex accountant - look at what it makes you - not just what it costs

For example i would prefer to pay a broker say $10k per month - and make say $20k+ net - then pay a broker only a third say $3k but only make 4 times as much net ie $12k

For me - if I ever pay my broker say $25k per month - I would be delighted - i should have had a really great month

If however i only pay him $4k a month - then - not so good

5 trades over a trading session of say 5 -10 hrs is nothing

I would not say scalp 50 -100 trades a day - thats too tiring and costly with diminishing returns

However if you are full time and put in over 6 hrs a day over say a 10 -12 hrs a day then anything from 10 -15 trades is acceptable. Over 25 trades - yes you might be overtrading unless you are a pure scalper

If I have 1- 4 bad trades a day for minus 1 to 5 pip loss - its no pressure - and part of the costs of doing business - just like your broker cost :)

Regards


F
 
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