You are NOT trading.

I have started this thread in reply to the numerous PM's I get in question to the spread betting phenomena and whom to use etc... This topic has been covered numerous times before but I wished to bring it up to date and answer all the questions and bring it all into one place.

SPREAD BETTING

A type of speculation that involves taking a bet on the price movement of a security. A spread betting company quotes two prices, the bid and offer price (also called the spread), and investors bet whether the price of the underlying stock will be lower than the bid or higher than the offer. The investor does not own the underlying stock in spread betting, they simply speculate on the price movement of the stock.

A basic economic concept that involves multiple parties participating in the voluntary negotiation and then the exchange of one's goods and services for desired goods and services that someone else possesses. The advent of money as a medium of exchange has allowed trade to be conducted in a manner that is much simpler and effective compared to earlier forms of trade, such as bartering.

TRADING

In financial markets, trading also can mean performing a transaction that involves the selling and purchasing of a security.

Trading is not a new phenomenon - we've been doing it for centuries! The trade that occurred among the most primitive humans has evolved considerably over time, and the word "trade" has come to include the complex trading that occurs on the floor of the New York Stock Exchange (NYSE).

However, the basic elements of buying and selling in some form of a market haven't changed a bit, because ultimately, trade still involves giving one thing in exchange for another.

(source: investopedia)

Trade is the voluntary exchange of goods, services, or both. Trade is also called commerce. A mechanism that allows trade is called a market. The original form of trade was barter, the direct exchange of goods and services. Modern traders instead generally negotiate through a medium of exchange, such as money. As a result, buying can be separated from selling, or earning. The invention of money (and later credit, paper money and non-physical money) greatly simplified and promoted trade. Trade between two traders is called bilateral trade, while trade between more than two traders is called multilateral trade.

(source: wikipedia *cough*)

By pure definition alone, be it financial markets or anything else; spread betting is NOT trading.

______________________________________________________________


The number of arguments for each side is endless and to name but a few...

CONS

1) Its not REALLY trading - You have nothing to do with the markets. None.
2) Fair playing field - Spread betting companies are dodgy as hell with bizarre antics (*1). They are market (*cough*) makers and thus in control of what you are trading.
3) Ask yourself why no other country in the world offers 'spread betting'.
4) Its not regulated despite what the T&C may say. You try and argue with the FSA and see how much they do for you.
5) The markets produce some of the richest people and companies in hte world, through trading against each other, not against a bookies.
6) A direct access broker allows you to see much more and thus a better scope on the market.
7) Spread betting companies are bookies. End of. They are nothing to do with the market.


PROS

1) Its tax free!
2) Low minimum capital required
3) Erm...

So why do people persist?

Take the few pro's listed;

1) Tax free > Yes, apparently so. You have to win first though and 80% (or approx.) lose in direct access and/or spread betting so no great help just yet!

2) Low minimum capital > I can only speak for FX but EFX group are direct access and they only require 200 quid to open an account.

I think the cons speak for themselves and I am sure others will contribute to the list and explanations.

End of the day, if you wish to call yourself a trader, have an even chance with a fair and open playing field trading the MARKETS not the bookies, do yourself a favour, forget spread betting. Trade the actual market and not some bookies simulation where they are in control.

Hope that helps for all who asked.






Disclaimer:

I know there is at least 2 members here who do profit from Spread betting but they are long term investors, not day traders and certainly not newbies either.

(1*) gonna get slammed for that one I'm sure!

Will you be wanting flowers or donations at your funeral?
:cheesy:

timsk said:

Will you be wanting flowers or donations at your funeral?
:cheesy:

Click to expand...

Donations for my gambling, I mean spread betting trading account please! :cheesy:

i've always wondered why, if SB's are market makers (which they are), if in the 'proper' market then a quote is poor, or if they have a position which makes them not want to make a tight market in that direction, then you don't just go to another MM.

I never understood why folks would participate in a venture where the counterparty to your position also sets the price! It'd be like betting on a football game with a bookie who also decides the outcome of the game! "Bet you $5 you can't guess how many fingers I'm holding up behind my back... Oops! Sorry, you lose!"

jj

As I am sure you know, I am not SB defender, but this stuff about SB not being trading is really nonesense. Let'ts take wasp's example, EFX. I use MBtrading, which is the same as EFX basically. Now all the trades I did this year with MBTRADING, IG index, CMC markets and Oanda would produce the same results whoever I used. I cannot honestly say my trades with MBTRADING are trading but the ones with IG index are gambling, that will be a very silly thing for me to claim. Why?

Obviously because there is no difference between the two positions at all. So I see resistance at 108 on USDJPY and the sentiment is negative for the USD and people are getting nervous about the carry trade, etc. I can put the trade on with CMC or MBtrading. There is no difference at all. wasp, I think you use alpari. You reckon that is trading but SB is not in principle?

If spread betting is not trading on that last GBPUSD trade you took, my similar position on the DMA platform isn't either. Why is this too obvious to me?

FXSCALPER2 said:

As I am sure you know, I am not SB defender, but this stuff about SB not being trading is really nonesense. Let'ts take wasp's example, EFX. I use MBtrading, which is the same as EFX basically. Now all the trades I did this year with MBTRADING, IG index, CMC markets and Oanda would produce the same results whoever I used. I cannot honestly say my trades with MBTRADING are trading but the ones with IG index are gambling, that will be a very silly thing for me to claim. Why?

Obviously because there is no difference between the two positions at all. So I see resistance at 108 on USDJPY and the sentiment is negative for the USD and people are getting nervous about the carry trade, etc. I can put the trade on with CMC or MBtrading. There is no difference at all. wasp, I think you use alpari. You reckon that is trading but SB is not in principle?

If spread betting is not trading on that last GBPUSD trade you took, my similar position on the DMA platform isn't either. Why is this too obvious to me?

Click to expand...

I do use alpari but as well as others as you know.

My point was not, If I take a trade on DA you're trade with an SB will be different, it was if I take a trade on DA its exchanging with other traders/banks/institutions for a fair and level price, whereas your position was a bet with a bookie.

Therein lies the subtle difference and why one is a trade and the other a bet.

The clues in the name!

wasp said:

I do use alpari but as well as others as you know.

My point was not, If I take a trade on DA you're trade with an SB will be different, it was if I take a trade on DA its exchanging with other traders/banks/institutions for a fair and level price, whereas your position was a bet with a bookie.

Therein lies the subtle difference and why one is a trade and the other a bet.

The clues in the name!

Click to expand...

I think you know they are both a bet.

Wasp: Interesting thread...

If I was attempting to day trade or use only short TF charts (which I am not, and have no interest in), I can see that potential price manipulation might be an issue.

I only trade longer term TFs (top down, weekly, daily, 8 or 4 hr for entry refinement) on FX. As far as I can see the SB price (I use IG for S/betting) more or less mirrors any other FX quotes that I look at (TradeStation, Oanda, non-broker related price feeds etc).

I run a rigourous strat that produces consistent profits over the longer term. I keep stops out of harms way once trades are 'away' and use careful MM to protect my prfotability (scale out, scale in).

I hear all the problems about SB, but in the circumstances I've outlined, wheres the harm? Bottom line, if EUR/USD rises 100 pips, so does the SB quote, more or less.

Dave.

forexangel said:

I hear all the problems about SB, but in the circumstances I've outlined, wheres the harm? Bottom line, if EUR/USD rises 100 pips, so does the SB quote, more or less.

Dave.

Click to expand...

I tend to agree.

In my experience, the only time there is an obvious difference is if you are attempting to day trade stocks. Spreadbets have much bigger spreads and the price movements aren't nearly as smooth, but then you need $25k in your account to daytrade stocks using direct access

I do understand both Wasp's and Mathemagician's views but as someone who does use an SB company I'd like to put my perspective.

Firstly, I fully understand that when I place a bet that I am doing so with an intermediary and not with the market. I also understand that the actions of other clients of that SB company can influence the price that is quoted. I understand this because I have made an effort to read all of the blurb on the SB's website and attended a few of the seminars that they offer.

That said, I am willing to work with these drawbacks because in the short term, using an SB company is better for my current position. That is:

• I am able to place bets smaller than the size of a single contract in the underlying market
• I am able to place guaranteed stops (although I don't use guaranteed stops any more)
• My bets are looking for significantly large moves in the market to mean that I don't have to worry about the spread

I feel that the general consensus will be that I shouldn't be trading if I don't trade full contracts and so forth but in summary, using an SB company is giving me a way into working with my trading system with lower risks and less administrative effort than using a DMA broker.

I do feel that there are a number of people who are SB clients who perhaps give the whole concept of spreadbetting a poor image. That's not based upon anything I've read on these boards, more upon having seen some other people at the seminars which I attended. I'm sure they're in the minority but they approach using an SB company as a form of gambling instead of as a business venture. They have no trading system, no business plan and many haven't carried out any research into trading. In short, they approach spreadbetting in the same way as I approach a day at the races.

In short, SB companies do have their place so long as their customers understand how and why prices can vary and take responsibility for placing bad bets.

All that said, once I've become comfortable with my system and want to trade full contracts with it...I'll find a DMA broker

H.

More importantly...how do I get bullet points into a post? I tried with an unordered list but didn't get the bullet points to appear in the preview!

wasp - you say spreadbetting isn't really trading. Then again, we've all heard people say that trading isn't really investing. And that nominee account holders are not really shareholders.

But so what? The labelling (even the mechancs) of two differing systems of speculation are of academic or philosophical interest only unless one is demonstrably more profitable than the other by its nature.

One reason SB has a high proportion of unsuccessful clients is that barriers to entry (capital, training, expertise, regulation, red tape, hardware etc.) are non-existent. Whereas, do many complete novices with £500 to burn start DA trading on a Monday morning on the strength of what some bloke told them in the pub? No. So the burn-out rate amongst SB-ers must be horrendous. But this does not guarantee that DA is an easy way to make money and SB an easy way to lose it.

I know little about DA but I assumed if I ever became a large enough player I would eventually have to move towards it so I am open to the idea obe day. In the meantime, I would be happy for you to go one step further with your knowledge and convince me why and how I could cross over now and not wait.

wasp said:

I have started this thread in reply to the numerous PM's I get in question to the spread betting phenomena and whom to use etc... This topic has been covered numerous times before but I wished to bring it up to date and answer all the questions and bring it all into one place.

SPREAD BETTING

A type of speculation that involves taking a bet on the price movement of a security. A spread betting company quotes two prices, the bid and offer price (also called the spread), and investors bet whether the price of the underlying stock will be lower than the bid or higher than the offer. The investor does not own the underlying stock in spread betting, they simply speculate on the price movement of the stock.

A basic economic concept that involves multiple parties participating in the voluntary negotiation and then the exchange of one's goods and services for desired goods and services that someone else possesses. The advent of money as a medium of exchange has allowed trade to be conducted in a manner that is much simpler and effective compared to earlier forms of trade, such as bartering.

TRADING

In financial markets, trading also can mean performing a transaction that involves the selling and purchasing of a security.

Trading is not a new phenomenon - we've been doing it for centuries! The trade that occurred among the most primitive humans has evolved considerably over time, and the word "trade" has come to include the complex trading that occurs on the floor of the New York Stock Exchange (NYSE).

However, the basic elements of buying and selling in some form of a market haven't changed a bit, because ultimately, trade still involves giving one thing in exchange for another.

(source: investopedia)

Trade is the voluntary exchange of goods, services, or both. Trade is also called commerce. A mechanism that allows trade is called a market. The original form of trade was barter, the direct exchange of goods and services. Modern traders instead generally negotiate through a medium of exchange, such as money. As a result, buying can be separated from selling, or earning. The invention of money (and later credit, paper money and non-physical money) greatly simplified and promoted trade. Trade between two traders is called bilateral trade, while trade between more than two traders is called multilateral trade.

(source: wikipedia *cough*)

By pure definition alone, be it financial markets or anything else; spread betting is NOT trading.

______________________________________________________________


The number of arguments for each side is endless and to name but a few...

CONS

1) Its not REALLY trading - You have nothing to do with the markets. None.
2) Fair playing field - Spread betting companies are dodgy as hell with bizarre antics (*1). They are market (*cough*) makers and thus in control of what you are trading.
3) Ask yourself why no other country in the world offers 'spread betting'.
4) Its not regulated despite what the T&C may say. You try and argue with the FSA and see how much they do for you.
5) The markets produce some of the richest people and companies in hte world, through trading against each other, not against a bookies.
6) A direct access broker allows you to see much more and thus a better scope on the market.
7) Spread betting companies are bookies. End of. They are nothing to do with the market.


PROS

1) Its tax free!
2) Low minimum capital required
3) Erm...

So why do people persist?

Take the few pro's listed;

1) Tax free > Yes, apparently so. You have to win first though and 80% (or approx.) lose in direct access and/or spread betting so no great help just yet!

2) Low minimum capital > I can only speak for FX but EFX group are direct access and they only require 200 quid to open an account.

I think the cons speak for themselves and I am sure others will contribute to the list and explanations.

End of the day, if you wish to call yourself a trader, have an even chance with a fair and open playing field trading the MARKETS not the bookies, do yourself a favour, forget spread betting. Trade the actual market and not some bookies simulation where they are in control.

Hope that helps for all who asked.






Disclaimer:

I know there is at least 2 members here who do profit from Spread betting but they are long term investors, not day traders and certainly not newbies either.

(1*) gonna get slammed for that one I'm sure!

Click to expand...

Good thread bud.

I agree with you wasp. SB is ok for swing or longer term stuff maybe, but if you need intraday accuracy, forget it.

DMA is obviously for professionals, whereas SB is more for the 'hobby' market bettor (just lost 50 quid at newmarket, let's see how the ftse bet is getting on.....damn, that's down too) type of person.:cheesy:

Are CFDs for the professional or are they just another punt with a bookmaker?

it always amazes me when i read about people spread betting due to smaller contract sizes available.

given that the spread is bigger when you spread bet, and the spread cost is one of the main handicaps over time, isn't that more of a reason not to go near a sb?

why are these people so eager to get involved when they are clearly undercapitalised?

i know many forex 'brokers' adjust the spread according to customer margin on deposit (less money you have, the wider the spread). is this also true of sb companies?

In my experience the spread doesn't vary according to the margin on deposit.

I understand your first point but if the trading plan is to go for larger moves in which the, say 2 point, spread makes up say 10% then where's the harm? If I made a 20 point profit I'd have to give a lot of that back in tax wouldn't I? I agree it's a harder platform for scalping or small moves but then a beginner will get burnt trying to scalp using DMA too.

I'm intrigued as to why there is such a level of vitriol aimed at people who use SB companies. How does it affect people who use DMA? It's a bit like a Mac users not understanding how anyone could use a PC...oh, I get it now

H.

Is 2 pips a big spread??

If you're trading 200-300+ pip swings, then does it really matter if the spread is 1, 2 or 3 pips?

Surely the method, having an edge and the ability to apply it is more important than the exact spread...

I can get 1 pip spread (eur/usd) on brokers account, 2 pips SB.........so what?

Yawn.....

Yet another ignorant post to start a thread.

So WASP, I must be a DayBETTOR in that case.

Yes, this argument has already been done to death elsewhere on T2W.

It's really very boring.

It IS possible to consistently make money from spreadbetting, on short term trades. By short term I mean by using a 1 minute chart. Standard indicators are all you need.

If it makes you happy to say that I'm not a trader then so be it. It matters not one iota.

bluetipex said:

Yawn.....

Yet another ignorant post to start a thread.

So WASP, I must be a DayBETTOR in that case.

Yes, this argument has already been done to death elsewhere on T2W.

It's really very boring.

Click to expand...

Welll **** me, how perceptive you are. Yes you are a daybettor, the name gives it away 'spread BETTING'.... and you call me ignorant!

bluetipex said:

It IS possible to consistently make money from spreadbetting, on short term trades. By short term I mean by using a 1 minute chart. Standard indicators are all you need.

Click to expand...

Congratulations, I never said it was impossible. Did you want a badge or something?

bluetipex said:

If it makes you happy to say that I'm not a trader then so be it. It matters not one iota.

Click to expand...

For my esteemed daybettor and all else whom disagree, I posted this thread for those who asked my opinion on which broker or spread betting company to use, and this is my opinion. I'm not interested i arguing with anyone about it. Choice is yours.

Wasp,

It is clear that you are a well respected member of the T2W community, who has undoubtedly contributed far more than many. However, it seems to me that your original post is full of subjectivity and personal prejudice. Yes, people have asked you for your opinion - but:

I posted this thread for those who asked my opinion on which broker or spread betting company to use, and this is my opinion. I'm not interested i arguing with anyone about it. Choice is yours.

Click to expand...

strikes me as unabashed arrogance. Anyone who is not prepared to consider that their opinion of fact could be misguided - heaven forbid, wrong - should bear in mind that humility is probably the best tool of learning there is.

Furthermore, there are a few comments in particular you have made that I find difficult to accept in the context you have set them.

Specifically:

speculation that involves taking a bet on the price movement of a security

Click to expand...

Besides arbitrage, you will find that every "trade" is infact the acceptance of a payout, for a specified risk, determined by the value of an asset under certain conditions. Be it buying /ES8M, or AAPL, or a $10pp Spreadbet on EUR/USD - My payout is largely determined by the value of said asset at the time T I close the position. You go on to say that:

In financial markets, trading also can mean performing a transaction that involves the selling and purchasing of a security

Click to expand...

Well I might be an options geek, and I might be in the market for buying and selling volatility in the wholesale OTC market. This is just as much an asset as a spread bet, but you don't consider me a trader???

Moving on...

A spread betting company quotes two prices, the bid and offer price

Click to expand...

Call up the dealing desk of Killik & Co. or Brewin Dolphin, and ask for the price of BP shares. They will quote you a Bid and an Offer, which may well be different to the best Bid/Offer currently available in the market. But because I am dealing with a counterparty who is making a profit from the difference between the Bid and the Ask, I am not considered a trader??? Would you consider the counterparty, the MM in BP at Killik a trader???

Next;

The investor does not own the underlying stock in spread betting, they simply speculate on the price movement of the stock

Click to expand...

I've already covered the speculation aspect of this sentence, so I will focus on the first part "own the underlying stock". You are right, a spread better does not recieve the packet of rights associated with an ordinary share. However, what about CFD's? Increasingly these are being used to gain an influence over the management of a company; so much so that the FSA have launched investigations into abuse of these instruments, with disclosure of an interest > 3% in any listed company through a CFD likely to emerge in the future. But as CFD's dont mean you own the underlying stock, you cant be a trader??? These things were invented by the City!

You then move on to describe your definition of trading:

In financial markets, trading also can mean performing a transaction that involves the selling and purchasing of a security

Click to expand...

and

trade still involves giving one thing in exchange for another.

Click to expand...

Do you not understand the concept of risk? Traders trade RISK, nevermind the wrapper it comes in. I can receive risk by buying or selling an asset with the intention of completing the reverse transaction in the future for a profit, and I can receive risk by entering into an agreement where the payout is determined by the underlying assets' price at some time in the future. Potaeto, Potarto.

__________________________________________________________________________

In this first part of your post, these are the only serious arguments - most of the rest is just "filler", and pretty contentious at that (e.g. "Trade is the voluntary exchange of goods, services, or both." - absolutely. I pay my SB firm a commission, in the form of a spread, for the provision of RISK).

You then go on to list the - in your opinion - pro's and con's of spread-betting. Of all the "cons", only 2) and 6) aren't misleading.

2) Fair playing field - Spread betting companies are dodgy as hell with bizarre antics (*1). They are market (*cough*) makers and thus in control of what you are trading.

Click to expand...

And this is perhaps the only valuable point you make. Yes it is true that, in dealing with an SB firm, you are accepting a payout determined by the value of an instrument at time T, where the SB firm itself provides the value of said instrument. Conflict of interest? Of course! Does this mean I can't trade it? Bullsh!t.


There is a difference between buying a payout in acceptance for risk from an exchange, and buying a payout in accpetance for risk from a counterparty. But to say that one is trading and the other isn't is just plain ignorant. Each have their benefits - through an exchange I eliminate the conflict of interest (to the best degree possible), and through an SB firm I can tailor the size of the payout to suit my own particular propensity for risk. These are significant differences, but they share exactly the same principals of RISK and PAYOUT. Trading, or betting, is about finding opportunities, whereby one considers the PAYOUT and the RISK to be mis-matched, and acting to profit.

As an aside, some members do seem to exhibit a genuine "class divide" attitude here on T2W - there are those who trade mostly via exchanges (or ECN's), and those who trade via spreadbetting. In general, it seems that a few of the "exchange traders" consider themselves to be better traders than "SpreadBetters" - perhaps because of the bigger cash requirements (a point you elude to in your post), and I won't disagree that there are different skill sets for each. However the reality is that we are all just different shades of grey; there are good traders, bad traders, full-time traders, part-time traders, prop traders, hobbyists and teenagers (Spanish89 is my fav :cheesy. Instead of arguing about who is the most "trader-like", we could all just lay our d!cks out on the table and see who's got the biggest (I will sell the risk that you have the biggest - friendly banter ).

This is my opinion, and if anyone can convince me that I am wrong I will change it.