How to make money from SpreadBet firms with Slow Quotes

Just thought I'd spell this out clearly for all SB traders, since this is a nice easy way to make nearly guaranteed profitable trades at the expense of the SB.

Recipe Ingredients:

1. An SB firm with lagging or delayed quotes. Some lag a little. Some lag a lot - WS used to be (until recently, apparently) in this latter camp. OR an SB that gives you a price freeze - like a 3 second dealing window. Tight spreads help here because the smaller the spread, the quicker you can profit.

2. a seperate, realtime fast data feed, like eSignal, IQFeed, or OpenTick.

How:
basically, sit and watch your RT data for your chosen market. You're looking for a sudden spike or yank in the market price - ideally big news like non-farms produces big moves.

So you watch your RT feed, and when the market makes a move, obviously if the SB has slow quotes its gonna take them however long their delay is to catch up - the slower the SB the better for you.

All you have to do is enter the trade on the slow SB quote at the price before the move in the RT data. Then close the trade when the SB reaches the top of the move.

The advantage of the RT data is that once again on the exit you can pick an optimal price for exiting, because you're gonna see where the market got to before it startes to retrace, and can trade the top of the move when the SB catches up there.

Its like trading with hindsight, except in this case hindsight gives you foresight.

Warning: If you try this and successfully make money, you are taking money from the SB firms pocket, not from the market.

Some firms dont like you winning money at all, and may close your account if they figure out what you are doing :cheesy:

some sb's go to manual fills on announcements. be warned people. good idea tho.

It is not going to work, of course. They will stop you in no time at all unless you are very clever and patient about it. About 2 years ago CMC took back the profit I made saying I traded on 'bad price', which was true. CMC quotes are pretty good but that day their system was really sucking the big one. I think I had some crap feed like MT4 or something, and I noticed CMC were out by a lot. So, I put a massive position and picked them big time. I heard the till ringing and looked at the money I bagged and told myself that was it for the week I went out and had some amazing lunch, took a nap, went to my Kung Fu class and I was feeling like a million dollars.

After such a glorious day, I decided to open my trading account and have a look at my loot (literally) and gloat a bit. Boom! It was gone. No loot. I was back to my initial balance. I knew immidiately what happened, but it didn't, of course, stop me from ringing them up and having a shouting match with some d!ckhead who didn't know hi a*rse from his elbow. I was picking their pockets and I somehow agree they were right not to let me. The guy even told me they cancelled all trades whether winners or losers and I now believe him because that is what happened with susequent similar incidents.

What Arb suggests can be done, but it ain't easy if you are to get away with it.

I am sure the spreadbetting companies would have it covered.......they are not that dim

I've done something similar quite a few times. I use CMC and another SB firm that I won't mention, but their platform is pretty slow, and their prices often freeze. This has been happening for at least 2 years but their technical people can't seem to fix it.

Anyway, I trade the YM and last week I had my Marketmaker platform flashing as usual, but suddenly noticed that the other SB quote had "stuck" and was about 10 points below CMC. I refereshed a few times to make sure, then went long. The market just happened to be rallying at the time and by the time they had corrected the price I already had a nice profit. I closed the trade and sat back on my profit.

I must admit, it rarely happens now, and I was very surprised when it happened last week, but I took it anyway.

In addition, the difference between the "cash" and the "futures" price in CMC and this other company is generally the same. But today, CMC's difference is 36 points and this other company was 30. I was short, and then noticed that they'd changed it to 36, so I was instantly 6 points better off. Surprisingly, I didn't complain!

After a while you can become quite good at spotting these little "anomalies" and take advantage of them. I use CMC as my benchmark as they're rarely out of sinc with my ESignal data feed.

It is easier to get away with it if one sticks to relatively small trades. I used to do it a lot with CMC especially out of hours with UK shares but then I found that they started requoting but my friend who was doing the same trades was getting filled because he stuck to small trades.

Needless to say I learnt my lesson and now stick to much smaller trades. Something is always better than nothing especially when the trade has a built in profit.

What's the point?

I can see the lure of easy money, but I don't recommend anyone does this. Taking these trades will not teach you anything, or make you a better trader. As nice as it would be to trade from the middle of the chart, all we have is the right edge. I think that sooner or later a consistently successful spreadbetter would "move up" to DMA with actual futures, as the commissions of SB would be too high. If you want to do this properly, then why kid yourself by exploiting lagging prices.

Taking money from the SB companies is a bad idea, because if enough people do this they will be forced to be unfair to their customers. There appears to be enough conspiracy theories about SB "bucketshops" as it is. I can say from my own experiences (although I do trade a small account) that SB can be profitable. It is good for small accounts as it does not have the tax problems associated with CFDs, but I don't really think that anyone would trade it above £20 / point. Taking a huge stake to benefit from slow quotes is a little rude IMHO. Remember that SB firms pay tax on income from hedges, so they can never fully hedge. If enough people try to exploit this, we'll all suffer.

I don't mind arbs so much, as they help to enforce the Law of One Price, but exploiting quote lags is just bad form.

One other thing: a SB firm "recovering" money because you traded on "bad price".

Remember a legal contract doesn't exist until they open the bet for you - when they quote a price it's not an invitation to treat. However, when they send you a confirmation of your bet being open, its legal from there on in. IANAL, but I would think that any post-contract readjustment because of "bad price" would be a little dodgey. There is no such thing as bad price; it's an off-exchange transaction and they are a market maker. Even if the T&Cs permit them to unilaterally adjust the value of _closed_ bets (ie when the money actually appears in your equity balance), I think that would be a violation of Unfair Terms in Consumer Contracts.

If you deliberately screwed them on a lagging quote, I can understand why you'd not take it any further. But if anything like that ever happened to me, I would be in my solicitors offices before you could say "hourly charge out rate".

Okay, I guess you are "smart" if you can pull this off, and I can see the temptation to try it out, but if you learn to trade from the right of the chart, you will do better than waiting for quote skew.

Just my two cents.

Disclaimer: I trade with a few SB firms.
Disclaimer: I am a newbie trader
Disclaimer: The above is a statement of opinion and does not constitute legal or financial advice