Zero spread vs DMA discussion?

[tommog]

I saw the CEO of Worldspreads interviewed. He said the business model is "if I offer 0 spreads on say, FTSE EUR/USD and DOW, then people will switch over to my company and trade other products that do quote a spreads". So basically it is a loss leader. Also you need 5k minimum deposit to take advantage so i suppose they earn interest off the deposits.

As for whether SB firms make money off you losing i have no idea. But what I do know is the success rate is not much higher in DMA. And I know a couple of guys that have worked for SB companies and they say there is no need to hedge in the real market as there is typically an even number of punters going long/short at any one time. If there is a skew of say 55% long 45% short they will hedge that 5% to stay market neutral.

Also there is no way they can move the market to stop people out, that is an urban myth. Say product x is trading 60 in the live market but the Sb firm move their price to 65 to hit clients stops there is a risk free arb there, sell SB firm at 65 for £1000 a point. Buy 100 lots of underlying for a free 5 ticks.

 

[Luc.Chase]

LoL ... sounds like free money.... if you think the orders would get filled. Probably worth knocking up a NinjaTrader script to sit in the background scanning for that kind of trade.

 

[tommog]

A guy that owns one of the big prop houses in London told me a story of one of his traders that would comfortably make 10k a day trading bund futures spent a whole week arbing Betfair quotes against other bookmakers for £10 a pop just coz he found it fun. Slightly off topic but made me chuckle. Since then I can think of at least one person I know that has set up algorithms that arb bookies against the underlying/other bookies

 

[Luc.Chase]

A guy that owns one of the big prop houses in London told me a story of one of his traders that would comfortably make 10k a day trading bund futures spent a whole week arbing Betfair quotes against other bookmakers for £10 a pop just coz he found it fun. Slightly off topic but made me chuckle. Since then I can think of at least one person I know that has set up algorithms that arb bookies against the underlying/other bookies

yes, apparently it is still possible to make a steady living doing that.

 

[SanMiguel]

I saw the CEO of Worldspreads interviewed. He said the business model is "if I offer 0 spreads on say, FTSE EUR/USD and DOW, then people will switch over to my company and trade other products that do quote a spreads". So basically it is a loss leader. Also you need 5k minimum deposit to take advantage so i suppose they earn interest off the deposits.

As for whether SB firms make money off you losing i have no idea. But what I do know is the success rate is not much higher in DMA. And I know a couple of guys that have worked for SB companies and they say there is no need to hedge in the real market as there is typically an even number of punters going long/short at any one time. If there is a skew of say 55% long 45% short they will hedge that 5% to stay market neutral.

Also there is no way they can move the market to stop people out, that is an urban myth. Say product x is trading 60 in the live market but the Sb firm move their price to 65 to hit clients stops there is a risk free arb there, sell SB firm at 65 for £1000 a point. Buy 100 lots of underlying for a free 5 ticks.

Usually funds are segregated hence no interest for the SB firm.
50:50 long short - doubt this, just looking through Paddy Power's daily bets show a skew one way or the other on most days. They only need to hedge what is required by law and the rest whether they think they want to take the other side of the bet or not.
SB firms may not move the market one way or the other intentionally but it can be caused by slow systems or widening their spread during out of hours markets, a lot of stops get hit that way.

A guy that owns one of the big prop houses in London told me a story of one of his traders that would comfortably make 10k a day trading bund futures spent a whole week arbing Betfair quotes against other bookmakers for £10 a pop just coz he found it fun. Slightly off topic but made me chuckle. Since then I can think of at least one person I know that has set up algorithms that arb bookies against the underlying/other bookies

Seeing as the bookies have their own market ie quotes can be 1,2 or 3 pips away from the real market, can't see how this would work without having access to the exact market rate somewhere.

 

[wackypete2]

Also there is no way they can move the market to stop people out, that is an urban myth. Say product x is trading 60 in the live market but the Sb firm move their price to 65 to hit clients stops there is a risk free arb there, sell SB firm at 65 for £1000 a point. Buy 100 lots of underlying for a free 5 ticks.

This is a bit flawed. The sb firm or fx broker can simply widen the spread for a fraction of a second to stop out the aggregate client positions at that price. Even if you were fast enough or had a computer program to sell at 65 you will get slipped 5 ticks.

Peter

 

[arabianights]

Seeing as the bookies have their own market ie quotes can be 1,2 or 3 pips away from the real market, can't see how this would work without having access to the exact market rate somewhere.

It's a peice of ****, I also sometimes do it when I'm bored.

You literally just need to go to oddschecker.com, wait to see a horse moving in the market but not on the bookie, then hit it then lay it.

Like most people who do it I've been banned from a few bookies for it... more dedicated people do far clever things but I don't...

 

[tommog]

This is a bit flawed. The sb firm or fx broker can simply widen the spread for a fraction of a second to stop out the aggregate client positions at that price. Even if you were fast enough or had a computer program to sell at 65 you will get slipped 5 ticks.

Peter

Wackypete2,


I suggest you change your broker, the SB firms I use are probably more consistent in how wide their spreads are than the live market. They make a claim to have a 2 tick wide spread on product x and cant think of many times this has deviated (apart from around news releases which is to be expected). The live market can often have their spreads widen or close too. If I see the spread suddenly widen from 2 ticks to 30 and back in a fraction of a second then there would be something wrong with that but if it goes from 2 ticks to 2-4 and it stoppped you out id argue it was probably just a losing trade.

 

[pit pony]

Paying no spread would mean an extra 20-30% gains per trade as I only aim for around 10 pips so yeah, provided the software and execution is good I'd go for it. In fact, don't Prospreads offer this on a DMA platform but call it spreadbetting?

The only thing stopping me from trying it out is my tiny account size.

Liam

they do offer DMA as a spreadbett, with tight spreads and no requotes, not like you will get with all the other spreadbetters out there.

 

[trader30]

if the sb firm wants to hit a lot of stops they can see on their books, they can easily spike the market up/down a few points to hit these levels. as its done in a second, you dont have time to arb this. (only way to avoid you being part of those they stop - and you have to be fairly big as no one cares about you 2quid a point - is not to leave your stops on the system)

most sb firms positions are massively short. no retail clients go short. most of them dont even understand the concept . So the volumes very rarely balance out. not that it makes much difference as they will only hedge you if:

1. You are very large/new to them. OR
2. You consistantly win and show relatively sensible money management.

most sb firms have a few guys on the risk management desk that will decide whether you are hedged or not. its a pretty simple test. (dont ask me how i know this, ive worked at a few firms and had access to lots of information that i was interested in for my own personal trading reasons)

In regards to sports arbing, its pretty tough nowadays. you can subscribe to a few software systems that alert you to the arb. youve then got to make the quick calculation and hit the prices with your different accounts. the problem is now that there are so many people doing it (i would estimate a few hundred just from feeling) that not only do you have to be really quick, most bookies will also limit your stake size as soon as it is clear you are just hitting their good prices as soon as they become part of an arb. (they are well aware of the market and when they are offering an arb price). usually they will limit you to 10 quid per stake or something which makes the average gain pennies rather than pounds.

i did this in 2002 for a summer (few hours a day) when i didnt have a job and made just over 2000 quid but this was in the days when you had to look for all the arbs yourself and you werent limited.

if you were really committed, im sure you could take a few hundred quid a week tax free. its boring though. really boring. youll need multiple accounts and ideally (eventually) a proxy to hide your IP address too.

Good luck!

**

i now trade futures with a tax free wrapper with FSA regulated company. like prospreads but its invite only and only for the bigger players. im not saying you can make money without this (day trading im talking about, if youre swing trading you have a much better chance(!)) but it makes it a lot harder.

feel free to PM me with Qs.

t30.


**So in summary, DMA with a tax free wrapper!**

 

[new_trader]

I guess my question can be more specifically asked by:
"If you currently trade DMA, would you consider swapping to a zero spread SB company?"

No, never. Spread Betting is Non-professional.

 

[Hoggums]

No, never. Spread Betting is Non-professional.

Gawd here we go again.

Just because you can't make money SB'ing n_t doesn't make it unprofessional. For those of us that don't day trade, SB is a fantastic tool.

Personally speaking I have avoided paying literally thousands in tax by SB'ing this year instead of DMA. I have also benefitted from lower margin requirements enabling me to keep more capital in high interest accounts, all of which far outweigh the benefits of 2 pips less spread on the futures/options I'm trading.

 

[trader30]

agree.

those who spread bet are just taking advantage of the tax advantage. obviously you have to be profitable for this to make a difference. as long as you dont day trade, small slippage etc isnt so important.

i would say its sb firms behaviour towards profitable shorter term traders is the problem.

but in a way you cant blame them, they need to make a livign too

 

[Black Swan]

Gawd here we go again.

Just because you can't make money SB'ing n_t doesn't make it unprofessional. For those of us that don't day trade, SB is a fantastic tool.
Personally speaking I have avoided paying literally thousands in tax by SB'ing this year instead of DMA. I have also benefitted from lower margin requirements enabling me to keep more capital in high interest accounts, all of which far outweigh the benefits of 2 pips less spread on the futures/options I'm trading.

Yep.

 

[meanreversion]

Er, Hoggums, are you running positions overnight? Presumably then you trade futures on spreadbet?

 

[new_trader]

Gawd here we go again.

Just because you can't make money SB'ing n_t doesn't make it unprofessional. For those of us that don't day trade, SB is a fantastic tool.

Personally speaking I have avoided paying literally thousands in tax by SB'ing this year instead of DMA. I have also benefitted from lower margin requirements enabling me to keep more capital in high interest accounts, all of which far outweigh the benefits of 2 pips less spread on the futures/options I'm trading.

Gawd...straw man arguments...some people just don’t understand. I have a spread betting account and a DMA account so I know the difference. People who have a conniption whenever spread betting is called non-professional probably have never had a DMA account and remain ignorant of the differences. That aside...Let me ask you this.
Imagine you or one of your children is getting married or suppose you need a professional cameraman for whatever reason and so you hire one. When he turns up, you look at him and ask him where his camera is, he pulls out his iPhone and says “here it is!” What would you think?

The amount of money you make has little to do with whether it is professional or not. Let me give you another example. In the TV industry there are generally 3 standards 1) Broadcast Quality 2) Professional Quality 3) Domestic Quality. These aren’t based on opinions or whether people make money from each, they are clearly defined standards. If you called yourself a professional cameraman and showed up at a studio with a Sony Handycam you would be laughed off site. If you didn’t know the difference between the 3 you would never get any work.

Finally, can you give me the name of a Spread betting company that will allow me to take physical delivery of a commodity? If you can do this I might be prepared to change my opinion.

 

[meanreversion]

Gawd...straw man arguments...some people just don’t understand. I have a spread betting account and a DMA account so I know the difference. People who have a conniption whenever spread betting is called non-professional probably have never had a DMA account and remain ignorant of the differences. That aside...Let me ask you this.
Imagine you or one of your children is getting married or suppose you need a professional cameraman for whatever reason and so you hire one. When he turns up, you look at him and ask him where his camera is, he pulls out his iPhone and says “here it is!” What would you think?

Dodgy analogies aside, spreadbet companies make money from their clients in ways that DMA brokers don't. For example, I could be long £10/pt in EUR/USD and short £10/pt in EUR/USD at the same time, and every night the SB would charge me a 1 pip "roll charge" on both trades even though I have no position.

A more professional broker would not allow this nonsense, so if you bought EUR 150k/USD and sold EUR 150k/USD, you'd have no position thus no "roll charge". Moreover, your cash positions would all be netted, unlike with SB.

So I'm not sure I would say SB is "unprofessional", but they certainly pull a few stunts.

 

[new_trader]

Dodgy analogies aside, spreadbet companies make money from their clients in ways that DMA brokers don't. For example, I could be long £10/pt in EUR/USD and short £10/pt in EUR/USD at the same time, and every night the SB would charge me a 1 pip "roll charge" on both trades even though I have no position.

A more professional broker would not allow this nonsense, so if you bought EUR 150k/USD and sold EUR 150k/USD, you'd have no position thus no "roll charge". Moreover, your cash positions would all be netted, unlike with SB.

So I'm not sure I would say SB is "unprofessional", but they certainly pull a few stunts.

Dodgy analogies??

At least your argument is based on some sort of logic instead of the usual "I make money tax free so Spread Betting is professional!" nonsense. I wonder if a spread better will be able to give reasons without resorting to their income, but instead basing their arguments on the differences between the platforms.

I'm also still waiting for one of the..."professionals" to give me a spread betting company that allows physical delivery of a commodity...

One more thing, has anyone ever heard of a DMA broker who banned a trader for making too much money?

 

[Jack o'Clubs]

Gawd...straw man arguments...some people just don’t understand. I have a spread betting account and a DMA account so I know the difference. People who have a conniption whenever spread betting is called non-professional probably have never had a DMA account and remain ignorant of the differences. That aside...Let me ask you this.
Imagine you or one of your children is getting married or suppose you need a professional cameraman for whatever reason and so you hire one. When he turns up, you look at him and ask him where his camera is, he pulls out his iPhone and says “here it is!” What would you think?

The amount of money you make has little to do with whether it is professional or not. Let me give you another example. In the TV industry there are generally 3 standards 1) Broadcast Quality 2) Professional Quality 3) Domestic Quality. These aren’t based on opinions or whether people make money from each, they are clearly defined standards. If you called yourself a professional cameraman and showed up at a studio with a Sony Handycam you would be laughed off site. If you didn’t know the difference between the 3 you would never get any work.

Finally, can you give me the name of a Spread betting company that will allow me to take physical delivery of a commodity? If you can do this I might be prepared to change my opinion.

Not valid arguments, I'm afraid.

Is a hedge-fund 'not professional' because when it buys or shorts a UK stock through its broker it will use an OTC CFD to avoid stamp-duty? Of course not.

Spreadbetting is effectively an OTC tax-efficient wrapper for individuals. Look at a firm like Prospreads, cost aside it is no different from DMA access. Can a 'professional' use it, ie trading inside a fund - no because the tax benefit won't apply. The fact that many spreadbet firms use sharp practices is because they're dealing with muppet retail punters and can get away with it, not because in itself it is a 'spreadbet'.

 

[Jack o'Clubs]

I'm also still waiting for one of the..."professionals" to give me a spread betting company that allows physical delivery of a commodity...

FWIW, our professional DMA system at work also does not allow physical delivery. Unless you're a commercial why would a 'speculating firm' (for COT definition purposes) want to take the risk of a trader forgetting to rollover his position and ending up having to take delivery of a commodity?