Spreadbetting Vs Real Trading

[dr_d_michaelson]

they will tolerate the small winners, but if you are drawing massive amounts of money from a spread betting company, they WILL close you down.

This is just completely wrong. You really shouldn't misinform people like this when you don't know the basic facts. You have only to look at the Capital Spreads thread at this very site to see the Managing Director of a spread betting firm explain this mistaken belief. Not only have they never closed anyone down for winning but they never will, either. If someone wins consistently, instead of just laying off all that person's positions in the normal way and making something on the spread, they can simply take matching positions and profit with him. They are effectively using him as a "tipster". That's not someone they'd want to lose, is it? Just read the thread, if you don't believe me.

I doubt they would tolerate some guy taking out £500,000 regularly

They wouldn't just "tolerate" it. They would welcome it. Again, your prejudices, your out-of-date "facts" and your desire to "inform" people, when by your own admission you have no experience, are deluding you.

As I pointed out, spread betting is not tax free if it is your main source of income

You pointed it out, but that doesn't make it true (just like many other things you pointed out). Spread betting is all tax free at the moment. For the future, there is some concern that it might not always stay that way if it's your SOLE (not "main" - big difference!) source of income. Maybe he knows a little more than you do after all, but that wouldn't be surprising since you've already admitted that you have NO experience of it at all. Why not let others do the talking instead of gratuitously insulting them when they try?

 

[BBB]

This is just completely wrong. You really shouldn't misinform people like this when you don't know the basic facts. You have only to look at the Capital Spreads thread at this very site to see the Managing Director of a spread betting firm explain this mistaken belief. Not only have they never closed anyone down for winning but they never will, either. If someone wins consistently, instead of just laying off all that person's positions in the normal way and making something on the spread, they can simply take matching positions and profit with him. They are effectively using him as a "tipster". That's not someone they'd want to lose, is it? Just read the thread, if you don't believe me.

They wouldn't just "tolerate" it. They would welcome it. Again, your prejudices, your out-of-date "facts" and your desire to "inform" people, when by your own admission you have no experience, are deluding you.

You pointed it out, but that doesn't make it true (just like many other things you pointed out). Spread betting is all tax free at the moment. For the future, there is some concern that it might not always stay that way if it's your SOLE (not "main" - big difference!) source of income. Maybe he knows a little more than you do after all, but that wouldn't be surprising since you've already admitted that you have NO experience of it at all. Why not let others do the talking instead of gratuitously insulting them when they try?

1/ Just because the MD gives some PR spin - it dont make it so does it. I dont believe the MD is unbiased - but you obviously do. If you are gullible to believe they use their customers as tipsters, then good luck to you. (Hands up if you would expect the MD to say anything else? Wouldnt that be like the Ratners bloke admitting his product is carp?)

2/ If you sit down in a comfy chair and a nice cup of tea you may be in a better position to think rationally about this - WHY WOULD ANY BUSINESS WELCOME LOSING MONEY? Other than the issues Tufty pointed out, I cant think of any.

3/ Go and read up on the inland revenue. If I earn 30k, and I have a side business buying and selling property...oh s0d it, I cant be bothered to explain the blatantly obvious.

Spread bookies rely on your sort to make their crust.

I guess youre either the same bloke with a different nick, or you work for a spread bookie your self.

A BIG ROUND OF APPLAUSE EVERYONE FOR THE PERSON WHO THINKS BUSINESSES WELCOME LOSING MONEY!!!!!!!!!!!

lol

Just to clarify my position here (as some people dont seem to be able to read - or are very forgetful) my main disagreement with spread bookies isn't just the fact that you are faced with a handicap from the start (as the business model ensures), it is more to do with the INABILITY TO MANAGE YOUR POSITION (kind of the same thing).

The fact that no one has really picked up on this or asked why, shows that this is an area that most of the spread betters have no real understanding of this concept - and it seems to me they believe all speculation involves is picking market direction. However, picking market direction is only a part of the skill of a trader. He relies on many more skills to get out of a position - with a profit, if that position goes against him. Its a great shame this falls on such deaf ears. But then I am not surprised, as all the spread betters here clearly know every thing there is to know, and know spread betting is a fair game because the MD says so!

 

[Spreadbetteur]

I am able to make 30 / 70 pips a day trading FX. Winning trades are 10/20 pips.

So I am not added to the "Liar List" lets say it is not me, though "Trevor Trader".

Now Trevor uses a Direct Access company. If he trys a SB company why would he suddenly not be profitable ?

I understand that the SB's, without admitting, bias the price by 1/2 ticks depending on if you are short or long (simple to do with software).

It is clear that Trevor is better off with Direct Access, including the fact that if it is his full time job, he should pay tax on bets as well.

Though if Trevor is consistantly making 30 / 70 pips a day, even taking some off for bias, surely he would still be profitable spread betting ?

Other than bias a 1/2 pips, if that is done, how else can a SB company attack Trevor's pip count.

A response from BBB would be appreciated.

 

[BBB]

I am able to make 30 / 70 pips a day trading FX. Winning trades are 10/20 pips.

So I am not added to the "Liar List" lets say it is not me, though "Trevor Trader".

Now Trevor uses a Direct Access company. If he trys a SB company why would he suddenly not be profitable ?

I understand that the SB's, without admitting, bias the price by 1/2 ticks depending on if you are short or long (simple to do with software).

It is clear that Trevor is better off with Direct Access, including the fact that if it is his full time job, he should pay tax on bets as well.

Though if Trevor is consistantly making 30 / 70 pips a day, even taking some off for bias, surely he would still be profitable spread betting ?

Other than bias a 1/2 pips, if that is done, how else can a SB company attack Trevor's pip count.

A response from BBB would be appreciated.

Trevor would probably find that he could make a lot more winning trades with more ticks using DA if he learnt to manage the trade (In fact I am tempted to say that I could guarantee this depending on how open Trevor was).

Other than that, Trevor, if he is consistently profitable would want to increase his position after a while. This would mean taking a more money away from the spread bookies profits. Like I said - this may be tolerable for a while, but if Trevor starts getting to the stage where he is making or able to make real big money, the bookie will start getting concerned. If the bookie was to take the same trades as Trevor, then at best the bookie only has the money to pay Trevor, but not to cover the costs of doing business with Trevor. So again Trevor becomes a liability. If the bookie took larger positions then Trevor, then the bookie would also have larger losses when Trevor lost. (I could be wrong here, but I doubt the bookie looks on their customers as derivative contracts in their own right). So if Trevor does become successful, he will only have to learn to trade for real all over again when he starts trading with DA. He will have to learn about liquidity for a start.

On a separate note, has anyone heard Phillip Morris or BAT admitting smoking gives you cancer?

 

[dr_d_michaelson]

WHY WOULD ANY BUSINESS WELCOME LOSING MONEY?

A BIG ROUND OF APPLAUSE EVERYONE FOR THE PERSON WHO THINKS BUSINESSES WELCOME LOSING MONEY!!!!!!!!!!!

There are two prolems here.

The first is that your erroneous understanding of how the spreadbetting industry works has led you to believe that if a spreadbetting firm has a consistently winning client, that costs them money. This simply isn't so. There's a whole weight of informed opinion on this board, some of it even in this very thread, that explains how and why that is.

The second problem is that you seem very unwilling to admit to the possibility of being mistaken or even badly informed. And this, astonishingly, in spite of your earlier admission that you've never had a spread betting account yourself. People will judge for themselves whether to pay attention to all the other people trying in vain to correct and inform you, or to your technique of launching out with insults, accusations and SHOUTING!!! if you think there's any danger of the readers realising that actually you don't know what you're talking about. I think it's been made pretty clear, and by several people now, what the realities of this situation are.

And from personal experience, I think what Dr Michaelson said about the 'tipster' rings true. I've sat on the other side and seen it happen just the way he / she points out.

Thanks, GammaJammer, but you won't get through to him. He already knows that he's right and he won't be sidetracked by an inconvenient little thing like the facts!

the bottom line is that it all depends on whom you want to believe. In my experience the ones with the loudest voices, the most offensive manners and the most "bluster", however unhelpful their advice, are always the ones you get left with after the better-informed and less opinionated ones have been driven away simply because they have better things to do and have no incentive, after all, to hang around only to be insulted! And on that note, if you'll excuse me, I'm now going to depart from this thread and not return to it. I wish you every success, and once again my apologies for "rising to the bait".

That goes for me too. The sad reality of bulletin-boards is that the prejudiced and opinionated people with no experience (sometimes even by their own admission) end up getting the run of the roost, because after taking so much, anyone wiser gets fed up with responding. Over and out.

Regards,

David

 

[BBB]

Is your real name Donald Trump by any chance? No, wait, Paul Rotter maybe? (just a gentle little joke - no need to get too upset now)

You said it - informed opinion. Thats all it is 'opinion' not common sense based on looking at realities, just believing any old shyster.....

As I said earlier - do I need to jump off a cliff to know I cant fly. So why do I need to open a spread betting account to know that the odds are against me?

Perhaps in your infinate wizdom you can tell me how you think the spread betting industry does make its money if it isnt from its customers losses???

Interesting that these people just slope off in a sulk rather than give some in depth understanding of what they are doing (hats off to GammaJammer there )

Now, where's that cliff gone? Obviously time for a flying lesson!

 

[debs]

Perhaps in your infinate wizdom you can tell me how you think the spread betting industry does make its money if it isnt from its customers losses???

I thought that the SB companies made their money through the spread they charge. They would want customers to win so that they keep trading - which means more 'commission' via the spread to the SB.

I also thought that some SB companies hedge their exposure. I read somewhere that one company classifies their customers into two groups i.e. consistent winners and consistent losers. They then hedge themselves if the 'consistent winners' category is posing too much risk.

Maybe I have heard wrong.......Debs

 

[BBB]

I thought that the SB companies made their money through the spread they charge. They would want customers to win so that they keep trading - which means more 'commission' via the spread to the SB.

I also thought that some SB companies hedge their exposure. I read somewhere that one company classifies their customers into two groups i.e. consistent winners and consistent losers. They then hedge themselves if the 'consistent winners' category is posing too much risk.

Maybe I have heard wrong.......Debs

Well done for having a go Debs.

The second bit about hedging could well be correct.

When you take a position though, the bookies doest offer the price to one party and then take the opposite side with another party as would happen in a real market - although he may take a hedge as you correctly say in the real market. If the bookies goal was to make money on a spread, he would set up shop as a market maker, or a normal broker.

In general though, spread bookies make their money from people losing. The bookie gets to keep all your losses though, rather than just charging you a commission, making the industry very profitable and worth spending the money on road shows, fancy marketing, PR, spin, etc to sucker more people in. As the majority of traders (using traditional methods) lose, its a fair guess that those choosing to spread bet will also lose - only more so, as the 'trader' has less ability to manoeuvre the postion according to underlying conditions after the trade is opened. This is made worse by the wider spread you must pay.


I trust you wont get too upset with me telling you how it is.

 

[wisestguy]

BBB,

actually I do know for a fact that SBs ( finspreads ) like to front run successful customers , that is not a falsity.
But they also do not like losing large sums regulary.

 

[BBB]

Spread betting also offers the gambler increased leverage. Leverage is a great thing if you know what you are doing - but it is perilous if you dont have a clue. Few people care to admit to themselves that they don't know what they are doing.

 

[Tuffty]

I still find myself thinking have I missed something here!

BBB. I’m afraid I still don’t fully understand your arguments as to why you don’t use SB'ers. I thought the fact that they didn’t off lay your bet was the reason in that it could lead to unfair practices. I inferred this from reading your posts. Your other arguments are that they won’t tolerate large winners and that you can’t manage your position. You haven’t explained the ‘can’t manage you position’ so I don’t know what that is or comment on it.

Regarding large winners; if a trader with a very successful strategy used spread bet companies they’d all go bankrupt if they allowed the trader to carry on trading in any size (assuming the positions weren’t layed off). The options open to the bookie are:-

1) They could lay off the bets. This is expensive for them and assumes they can lay off the bet. My guess is that they don’t generally do this other than to make sure all bets as a whole are within risk tolerances. Implementing such a policy would also mean defining consistent winners, which would be difficult.

2) They could side with you as the Dr. said. I call this ‘front running’ and happens in ‘real’ markets too. It is an abuse of a broker’s or bookies position and is bad practice in my book. The fact that the Dr. mentioned a spread betting MD say that they would do this is worrying if they do it without your consent.

3) Normal trade size restrictions limit the spread betters exposure to very successful traders/strategies thus preventing a trader ever to make a ‘large’ amount of money.

4) Checking the profitability of instrument lines. If there are unprofitable instruments (meaning customers are finding real edges against the house) they would stop trading that instrument or adjust their pricing model (especially where there is no off setting market).

5) Review a customer’s profitability over time and place restrictions on successful traders. While there has been some evidence of this it doesn’t seem to be widespread otherwise these boards will be full of traders complaining. Maybe there just aren’t that many profitable traders to be worried about. If there are then where are you?

As the spread bet market is smaller than the ‘real’ market then the successful trader will come up against issues (size/ability to trade etc) quicker than in the ‘real’ markets. Unfortunately this thread hasn't indicated where that point is.

 

[Strategic Trader]

professional traders would not spreadbet since they understand trading and they understand the business model of spreadbetting companies - and professional traders would rather not trade than add risk to trading by using the normal spreadbetting system

some non-intraday professional traders may use a spreadbetting company to place trades - but they use a special facility that is not available to the general public

 

[debs]

Well done for having a go Debs.

I trust you wont get too upset with me telling you how it is.

BBB: I'm not upset at all - I like to hear other peoples' opinions. Besides, you never know....I might even learn something !.........debs

 

[BBB]

I still find myself thinking have I missed something here!

BBB. I’m afraid I still don’t fully understand your arguments as to why you don’t use SB'ers. I thought the fact that they didn’t off lay your bet was the reason in that it could lead to unfair practices. I inferred this from reading your posts. Your other arguments are that they won’t tolerate large winners and that you can’t manage your position. You haven’t explained the ‘can’t manage you position’ so I don’t know what that is or comment on it.

Regarding large winners; if a trader with a very successful strategy used spread bet companies they’d all go bankrupt if they allowed the trader to carry on trading in any size (assuming the positions weren’t layed off). The options open to the bookie are:-

1) They could lay off the bets. This is expensive for them and assumes they can lay off the bet. My guess is that they don’t generally do this other than to make sure all bets as a whole are within risk tolerances. Implementing such a policy would also mean defining consistent winners, which would be difficult.

2) They could side with you as the Dr. said. I call this ‘front running’ and happens in ‘real’ markets too. It is an abuse of a broker’s or bookies position and is bad practice in my book. The fact that the Dr. mentioned a spread betting MD say that they would do this is worrying if they do it without your consent.

3) Normal trade size restrictions limit the spread betters exposure to very successful traders/strategies thus preventing a trader ever to make a ‘large’ amount of money.

4) Checking the profitability of instrument lines. If there are unprofitable instruments (meaning customers are finding real edges against the house) they would stop trading that instrument or adjust their pricing model (especially where there is no off setting market).

5) Review a customer’s profitability over time and place restrictions on successful traders. While there has been some evidence of this it doesn’t seem to be widespread otherwise these boards will be full of traders complaining. Maybe there just aren’t that many profitable traders to be worried about. If there are then where are you?

As the spread bet market is smaller than the ‘real’ market then the successful trader will come up against issues (size/ability to trade etc) quicker than in the ‘real’ markets. Unfortunately this thread hasn't indicated where that point is.

Tuffty - well done - some good points raised here, and itt shows that youre at least thinking about the topic rather than believing whatever is put in front of you.

Im a bit busy at the moment (markets - fomc later on etc) - sorry if that is a weak cop out - but I will try to answer these points tomorrow.

As for point 5, thats interesting. A lot of people will tell you they are successful on these boards, but that doesnt make it so. In my experience it is the people who rarely talk about their profitability that are the ones you need to watch out for. Not the people who brag they are profitable on every post.

 

[bbmac]

Another interesting thread this regarding the merits or otherwise of spreadbetting, and here's the thing:
(no really!)

How do you gain an edge over the 'business model' of the spread betting companies? Answer in the first instance:- find the most liquid instrument with the largest trading range and least spread erosion, ie you have to do everything you can to counter the spread erosion and then the manipualtion of price at certain key levels. Also find out which is the the biggest ,most liquid spread betting company(no more clues there, but its the starting point.)

In the long term you probably cannot overcome the 'house' advantage of the business model that SB's employ in the price they offer in any given instrument, if you want to trade large and growing positions, so be prepared to change your 'trading vehicle', if this is your aim. (By the way, for business model, read: manipulation of price, limited means of trade management, slippage on entries and stops etc.) Spread, Bias and slippage are the SB's main tools in practising their business model.

I know of other more specific edges that can be gained on the SB's model but will never discuss these as this would run the risk of these edges disappearing, suffice it to say, only those with extensive experience of spread betting will know these! Put very simply though ou have to understand how, and crucially when the SB's employ the these tools,.... and act accordingly.

BBB's assumptions are probably correct regarding the use of SB as a long term vehicle for trading and increasing your position sizes,...(personally I don't intend to find out!) but, to say that there are not ways of overcoming the 'house edge' to utilise what is essentially a useful trading vehicle in many ways, certainly for the short to late short stages of an overall trading plan, from a limited capital base, is an incorrect statement.

What is true however is that 99% of 'newbies' will never undertand what is required to neutralise the 'business model.' What is also probably true is that at best, finding an edge only ever puts you on a more even playing field.

Do spread companies operate like an exchange and profit simply from the spread (dealing charge?) ....NO. It is however true to say that like all trading, it is a zero sum game, ie even in exchanges there have to be winners and losers on each side of the deal. The principle difference between an exchange and an SB is that the SB has an interest in manipulating the price, the exchange should not.

To sum it up, If you can find a way of neutralising the house edge, SB's can offer a convenient, tax effecient means of trading, particularly from limited capital at the start of a longer term plan.

Surely no one can argue with that!!! (runs for cover.)

 

[Porks]

bbb,

Maybe I've misunderstood, but are you saying that spreadbetting companies do not lay off their 'bets' ?

I don't want to belabour this point, but I know for a fact that they do on some trades. At times in extremely large trades they call my friend to check on his intentions so they can do exactly that. These are swing trades by the way held for 2-5 days. Again I'm talking about CFD's through Deal4free.

And thats no porkie pie,


Porks

 

[zzaxx99]

The options open to the bookie are:-

1) They could lay off the bets. This is expensive for them and assumes they can lay off the bet. My guess is that they don’t generally do this other than to make sure all bets as a whole are within risk tolerances.

It's my understanding that some of them do this - (I'm fairly sure that either IG or Fins (probably IG) have said publically that this is their policy) - ie they net off the trades internally and either carry the risk or hedge only the nett exposure. Obviously, it's a lot cheaper/easier for them to hedge just the nett risk than hedging every single position.

Implementing such a policy would also mean defining consistent winners, which would be difficult.

IMHO, that would be childishly easy to do, if their software was anything more than very rudimentary - would only need to define the rule(s) for "consistent winner".

If I were setting up a SB company, I would be certainly be tempted to do this - hedge the successful traders, and either nett the risk of the others, or carry the risk of the unsuccessful traders and nett the rest. Occasionally, one of the "duffers" will pull a rabbit out of the hat and you take a bath, but most of the time you will be coining it in - both from the gain on spreads and from the bets not hedged outside the company.

2) They could side with you as the Dr. said. I call this ‘front running’ and happens in ‘real’ markets too. It is an abuse of a broker’s or bookies position and is bad practice in my book. The fact that the Dr. mentioned a spread betting MD say that they would do this is worrying if they do it without your consent.

Dubious practise if they front-run the trade, not so dubious if they just place a matched trade - which is effectively just ensuring they hedge a successful trader

3) Normal trade size restrictions limit the spread betters exposure to very successful traders/strategies thus preventing a trader ever to make a ‘large’ amount of money.

Not convinced about this one - some of the SB companies allow huge trades - that story in the press about "The Plumber" a few months ago implied that he was running a spread bet of £several thousand pp (though it could be that the press got its facts twisted and that it was a CFD). However, even at the "normal user" limits, which I believe are £250pp on Fins and £500pp on IG, a few trades at that size can make a serious amount of money if you got a run in your favour.

4) Checking the profitability of instrument lines. If there are unprofitable instruments (meaning customers are finding real edges against the house) they would stop trading that instrument or adjust their pricing model (especially where there is no off setting market).

Damn sure that this happens - there were literally months last year (or maybe the year before) where you couldn't trade AZN (and another major stock that I can't remember) online with FINS - when I phoned them, they said it was because it was "too volatile" (after I laughed off their original "there's a problem with the price feed" line of bull).

5) Review a customer’s profitability over time and place restrictions on successful traders. While there has been some evidence of this it doesn’t seem to be widespread otherwise these boards will be full of traders complaining.

Haven't heard this much about SB companies, but there's a lot of anecdotal evidence of D4F doing this - many many complaints on Hemscott and Advfn about this practise - slow quotes/requotes against you etc. I'm fairly sure I've read a couple of compaints on Advfn about users having SB accounts closed, allegedly because they were too successful.

Still not clear to me either what BBB means by managing the account though - look forward to some clarification/explanation of that.

 

[LION63]

BBB,

As you do not and have never had a spread betting account it is unfair for you to say that what I have posted is inaccurate especially as you do not have facts to refute what I have said. Furthermore, a quick call to Deal4Free (CMC Plc) will prove that they act as 'Marketmakers' when taking on the trades. Therefore, what I have described is fact as you tried to point out (by trying to make me seem inept).

Contrary to your posts about what I have said, I have stuck with fact and tried to explain in simple terms what I know to be true and twice you have tried to scold me like a headmaster without being sure that I am as silly as you think I am.

 

[timsk]

Calm Down Folks - We're All On The Same Side!

BBB,
In an earlier post, I think I said something about cats 'n' pigeons. Now I'm feeling a tad embarrassed for stoking the fire so to speak. I honestly didn't expect this!
For heavens sake, stop beating about the bush and say what you really think!

Seriously though, I respect all the posters on the thread and have a lot of time for the key protagonists on both sides of the debate - or do I mean argument! Once the colourful language and sheer forcefulness of the views expressed are put to one side and one examines the pro's and con's of Spread Betting, I find myself pulled in both directions. I say this as someone who has traded solely by this means for almost three years. (BBB won't be at all surprised to learn that I'm not consistently profitable).
The problem for fellow spread betters like myself is, as I see it, this: Do I carry on or stop? According to the anti SB lobby, if I continue, I will lose all my money as sure as eggs are eggs and, therefore, I'd be well advised to stop. The pro' SB lobby also say that I will probably lose all my money, but that is only partially the fault of SB companies (i.e. increased spread) and has more to do with my skills as a trader - or lack of them. As I'm severely uncapitalised and can't afford a 'proper' (direct access) trading account, I feel that I have to spread bet if I'm to trade at all. I suspect BBB is upwards of 95% correct that the number of consistently profitable SB'ers is, sadly, extremely small.
The solution? Well, for me, this is simply to try to break even. If I can achieve this, consistently, I will have cut my teeth in a live market and stayed afloat in an hostile environment with the odds stacked heavily against me. All of which will stand me in good stead, if and when I graduate to the upper echelons of the trading community and manage to open a direct access account.
Happy and profitable trading all,
Tim.

 

[neil]

Why bother spread betting when you can get smaller spreads on currency futures?

I am amazed that people handicap themselves unecessarily with wide spreads when you can use futures !

You seek to put the odds in your favour - not to hamper yourself.