Betting with or against?

[NotoriousREV]

One of the things that has been bothering m in the back of my mind is whether or not the company I'm spread betting/binary betting/CFD trading with wants me to win or not.

With a traditional gaming company, I know that when I bet on the outcome of a football match, I'm taking money off them, which if they're lucky they've hedged against but, having worked for one, I also know this doesn't always work out.

It's been in the news recently that relatively small regular winners are getting banned by gaming companies. They just don't want successful gamblers. Does that apply to the likes of IG, CMC et al?

If I take a position, say, in the S&P, it's one thing to say they make money from the spread, but do they? If my trades make money, am I likely to see myself banned or suddenly find my trades are hard to close?

 

[timsk]

Hi NotoriousREV,
I would say this rather depends on the business model of the broker you're with. In theory, they all welcome successful traders, so long as their success isn't at the expense of the SB firm's profits. Some (most?) firms make it clear in their T&Cs about the types of clients they want and the type of trading they do and don't permit. Your task is to find a firm that is the right fit for you and your style of trading. In your shoes, I'd ask the rep' you deal with the exact same question that you've posted here. If you're using a bot with an arbitrage algorithm to scalp a tick here and there 500 times a day, then you can expect plenty of firms to thank you for your interest, but that your particular needs will be better served elsewhere!
Tim.

 

[Pat494]

The one I am currently with seem to offer a £8 win for a £5 bet. I think they pocket the 9th+ £ for themselves.

 

[highbury fx]

The one I am currently with seem to offer a £8 win for a £5 bet. I think they pocket the 9th+ £ for themselves.

can you explain what you mean please?

 

[highbury fx]

One of the things that has been bothering m in the back of my mind is whether or not the company I'm spread betting/binary betting/CFD trading with wants me to win or not.

With a traditional gaming company, I know that when I bet on the outcome of a football match, I'm taking money off them, which if they're lucky they've hedged against but, having worked for one, I also know this doesn't always work out.

It's been in the news recently that relatively small regular winners are getting banned by gaming companies. They just don't want successful gamblers. Does that apply to the likes of IG, CMC et al?

If I take a position, say, in the S&P, it's one thing to say they make money from the spread, but do they? If my trades make money, am I likely to see myself banned or suddenly find my trades are hard to close?

Hi Notorious

If your broker acts as an STP broker then in theory they're only making the difference in the spread that you deal on and the hedge they execute with their liquidity partners. They would typically look to make something like 0.5 pip per major FX pair trade (eur/usd, gbp/usd for example) and a bit more in the wider, more exotic currency pairs. Their model is based purely on volume, the more they do the more they make. Their income and revenue should not be influenced by the profitability of their clients or the money their clients drop. In reality though their liquidity partner will not put up with being shown toxic flow (an industry term that means the business is loss making) for too long and may begin to make execution that much more difficult. This will result in the client likely going elsewhere and the broker losing that business. The broker will therefore have an interest in the majority of his clients being losers so as to protect the liquidity that he is being given by the firms and banks the broker hedges with.

You shouldn't have to look too long on a brokers website to see if they're STP or not. If they're not they're going to be running a 'B' book which means they will take all or some of the other side of your trade and run a book against you with the risk they internalise rather than hedging your trades (as an STP broker would). If they run this model they will be making their money from your losses. Consistent winners are more of a problem to a B book broker and you could encounter difficulties getting your trades on if you display a tendency to win more often than you lose.

 

[timsk]

Hi NotoriousREV, . . In theory, they all welcome successful traders, so long as their success isn't at the expense of the SB firm's profits. .

. . . In reality though their liquidity partner will not put up with being shown toxic flow (an industry term that means the business is loss making) for too long and may begin to make execution that much more difficult. This will result in the client likely going elsewhere and the broker losing that business. The broker will therefore have an interest in the majority of his clients being losers so as to protect the liquidity that he is being given by the firms and banks the broker hedges with.

Hi highbury fx,
Is it fair to say that, based on your post, the comment I made to the OP (quoted) is incorrect? If I've understood you correctly, all successful traders will impact the profitability of all spread betting providers - regardless of their business model. The best that profitable spread betters can hope to do is to move from pillar to post before eventually running out of SB firms.This is a rather sorry of affairs is it not, as the poor ol' retail trader really has no one - not even their own broker - on their side!
Tim.

 

[Pat494]

can you explain what you mean please?

um can't make it any simpler. What don't you understand ? I am only guessing too. They make on a normal commission but just may keep going after +8 for say 10 seconds where it may be +10. An extra 2 for the broker ?

 

[highbury fx]

Hi highbury fx,
Is it fair to say that, based on your post, the comment I made to the OP (quoted) is incorrect? If I've understood you correctly, all successful traders will impact the profitability of all spread betting providers - regardless of their business model. The best that profitable spread betters can hope to do is to move from pillar to post before eventually running out of SB firms.This is a rather sorry of affairs is it not, as the poor ol' retail trader really has no one - not even their own broker - on their side!
Tim.

Hi Tim

Brokers send flow to their LP (liquidity provider) from lots of retail clients and so long as the net flow is profitable to the LP then there shouldn't be a problem. A problem may arise if a few big winning clients win so much that the LP widen the product or stop quoting the product to the broker altogether. This will impact thousands of other clients that were happily trading that product before the conditions were changed. A broker relies on having a mass of clients rather than a few big ones and he will always act in the interests of the majority of his clients rather than pander to a few. The broker will also protect the relationship he has with his LP quite carefully and listen to the comments and concerns they may have about some particular flow.

Winning clients who win by trading in a fair way (not scalping or trading on latent prices) shouldn't have too much of a problem because the majority of clients wont be net winners and they will more than balance out the profitable clients, but clients who win by being underhand will run in to problems. Once they're noticed and the broker works out what they are doing they will be warned about their conduct and ultimately closed down if they persist.

 

[timsk]

Hi highbury fx,
That's reassuring and not nearly as negative as I first thought!

Tim.

 

[highbury fx]

um can't make it any simpler. What don't you understand ? I am only guessing too. They make on a normal commission but just may keep going after +8 for say 10 seconds where it may be +10. An extra 2 for the broker ?

I still don't know what you're on about

 

[Pat494]

I still don't know what you're on about

Don't worry about it. Just an idea and may be off track.

 

[6am]

I was asked by my spread bet provider to stop placing convexity trades or else they will close my account and that was that.

 

[Pat494]

I was asked by my spread bet provider to stop placing convexity trades or else they will close my account and that was that.

That's a new one on me ?

 

[luckystrike23]

I trust your questions are
How does a spread betting company make its money? -> http://www.financial-spread-betting.com/Companies-make-money.html
Do Spread Betting firms Hedge their Customers' Bets? -> http://www.financial-spread-betting.com/Spread-betting-hedge.html

 

[highbury fx]

I trust your questions are
How does a spread betting company make its money? -> http://www.financial-spread-betting.com/Companies-make-money.html
Do Spread Betting firms Hedge their Customers' Bets? -> http://www.financial-spread-betting.com/Spread-betting-hedge.html

Thanks, I'll take some notes

 

[10%Club]

Since the vast majority of traders lose money, any broker that does take the other side of clients' trades will make a profit and this is certainly the case with binary options and for sure (like most SB companies) they will make life difficult for consistent winners. Truth is binary options and spread betting is more a game than real trading.

The only way to be sure (if you consistently make big profits) is to use a genuine ECN broker who makes money from the commission. In practice, you will find all the really profitable traders end up here because they have no problem with you trading 10 Lots a day and making $5k profit daily because the more you trade, the more commission they make and they want long term clients.