Best Thread Capital Spreads
SB Firms hedge themselves whereever they can get the best deal. I work on the hedging desk of a broker and we have accounts with all of our major competitors and aswell as looking for arbitrage due to price lags, (works well with IG because their price stunts a lot...) we always look to place out net position at the end of the day across the market. This cuts our possible risk across platforms/products and also means that due to diversification we know that we aren't helping our competitors out too much.
It all boils down to how a company presents its price, as a company what we do is take prices from 6 of our Tier 1 investment bank liquidity providers and then present an average price to the market via our price feed. As a hedging desk we then take the spread + a bit more because we can always take a piece from the price feed itself.
It all boils down to how a company presents its price, as a company what we do is take prices from 6 of our Tier 1 investment bank liquidity providers and then present an average price to the market via our price feed. As a hedging desk we then take the spread + a bit more because we can always take a piece from the price feed itself.
So, spreadbetting firms are the arbitrage latency traders? umm....where's Simon who has been taking the high moral ground on this issue?
c6ackp
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Thanks AJ - very interesting - so that implies that you may take a hit from the demise of WorldSpreads?
Hi Simon,
I tried to log in to capitalspreads as usual and I have been informed by firefox and chrome that this connection is untrusted. It says certificate expired on the 16th.
I seem to remember something similar happening before. Please advise.
I tried to log in to capitalspreads as usual and I have been informed by firefox and chrome that this connection is untrusted. It says certificate expired on the 16th.
I seem to remember something similar happening before. Please advise.
capitalspreads
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tim3
in an ideal world this would be the case. But.... the spread betting company would have to have sight of the funds to allow the trade to take place in the first place (instantly) and i can tell you that Bank systems are just not this good. Also we do not actually take the margin out of the segregated account. that is left there. The only monies that can be removed from the segreggated account are losses and as Capital Spreads does not give credit (and readers will know we insist on stops) this means that your segregated money cannot be polluted by the actions of another Capital Spreads client.
the FSA is not omnipotent and must rely on other professional services to be its eyes and ears. in the case of MF global it is difficult to blame the FSA as the 'crime' took place under instruction from the US. In the case of Worldspreads the FSA must rely on the auditing firms to do their jobs properly (it appears that there has been some significant shortfall in this case from E&Y). I know that in our case Deloittes are absolutely anal about the segregated funds accounts. to the extent that one of our trust letters from Barclays had an incorrect letter in the name of the account and they mentioned this in their audit report! one single letter
to be honest at Capital Spreads we cannot see how in the current world this could have happened but WS was split with the operations in the UK and the Finance Director in Ireland which must have left room for manoeuvre to someone.
all i can do is assure clients that whilst WS (apparently) had £29m of client money and €7m of their own (as at their last statement a couple of weeks ago) we had in our UK regulated business at the end of last year £25m of our money and some £24m of client money in our CFD/SB division (a bit more in both now). So we actually have more of our own money than we have client money!
Simon
in an ideal world this would be the case. But.... the spread betting company would have to have sight of the funds to allow the trade to take place in the first place (instantly) and i can tell you that Bank systems are just not this good. Also we do not actually take the margin out of the segregated account. that is left there. The only monies that can be removed from the segreggated account are losses and as Capital Spreads does not give credit (and readers will know we insist on stops) this means that your segregated money cannot be polluted by the actions of another Capital Spreads client.
the FSA is not omnipotent and must rely on other professional services to be its eyes and ears. in the case of MF global it is difficult to blame the FSA as the 'crime' took place under instruction from the US. In the case of Worldspreads the FSA must rely on the auditing firms to do their jobs properly (it appears that there has been some significant shortfall in this case from E&Y). I know that in our case Deloittes are absolutely anal about the segregated funds accounts. to the extent that one of our trust letters from Barclays had an incorrect letter in the name of the account and they mentioned this in their audit report! one single letter
to be honest at Capital Spreads we cannot see how in the current world this could have happened but WS was split with the operations in the UK and the Finance Director in Ireland which must have left room for manoeuvre to someone.
all i can do is assure clients that whilst WS (apparently) had £29m of client money and €7m of their own (as at their last statement a couple of weeks ago) we had in our UK regulated business at the end of last year £25m of our money and some £24m of client money in our CFD/SB division (a bit more in both now). So we actually have more of our own money than we have client money!
Simon
fibbinstarchi
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Are you next to go bust along side Two Way Spreads and ETX?
Thankyou for the reply Simon.
capitalspreads
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i believe that some spread betting companies have hedged bis with other spread betting companies (generally the very small ones hedging with the very big ones) but i can assure you that LCG definitely does not.
PipStar ... YES I CAN TAKE THE HIGH MORAL GROUND. i realise that for some reason you seem to despise us but LCG has from its first day of business (back in Oct 2003) hedged all its risk directly on the exchanges. We have access to every single exchange which we quote and we hedge our risk with Futures/FX/Equities etc whichever is pertinent to the client risk involved. You seem to take some comment from a completely unrelated person and extrapolate it to LCG.
When we are hedging we are not looking at price ... we are looking at risk. We only hedge when risk limits are reached and so we are not really interested in whether we get the hedge away at some mythical 'best price' . Only that we have got it away. If my dealers lose a pip or two .. so what? we are not interested in making tiny little increments we are interested in being covered for major moves.
Concerning our stability we have both main auditors (Deloittes) who look us over twice a year AND external 'internal' auditors (Grant Thornton) who kick the tyres all year long. we have just given our results and Deloittes have signed them off (although i am sure that they will be checking with E&Y to see what happened at WS).
I do not know how WS have fallen into this hole but i know that the people who work there are as shocked by events as everyone else. From what i have heard and can infer the fraud does not seem to have taken place in the London Office.
Simon
PipStar ... YES I CAN TAKE THE HIGH MORAL GROUND. i realise that for some reason you seem to despise us but LCG has from its first day of business (back in Oct 2003) hedged all its risk directly on the exchanges. We have access to every single exchange which we quote and we hedge our risk with Futures/FX/Equities etc whichever is pertinent to the client risk involved. You seem to take some comment from a completely unrelated person and extrapolate it to LCG.
When we are hedging we are not looking at price ... we are looking at risk. We only hedge when risk limits are reached and so we are not really interested in whether we get the hedge away at some mythical 'best price' . Only that we have got it away. If my dealers lose a pip or two .. so what? we are not interested in making tiny little increments we are interested in being covered for major moves.
Concerning our stability we have both main auditors (Deloittes) who look us over twice a year AND external 'internal' auditors (Grant Thornton) who kick the tyres all year long. we have just given our results and Deloittes have signed them off (although i am sure that they will be checking with E&Y to see what happened at WS).
I do not know how WS have fallen into this hole but i know that the people who work there are as shocked by events as everyone else. From what i have heard and can infer the fraud does not seem to have taken place in the London Office.
Simon
You are wrong, I dont despise CS. I recognise the contribution of CS to my well being in the form of the tidy profits I've made over the years.
But I dont think you can take the high moral ground when it comes to any trading strategy be it scalping or otherwise as should your dealers find an opportunity for an arbitrage, they will take it for sure. Seems like someone from one of your competitors has come on here and stated the obvious.
tar
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I dont understand what's this has to do with your stability ? u still can go bust ...
stevespray
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Although I don't doubt LCG's financial health, 'If my dealers lose a pip or two .. so what. We are not interested in making tiny little increments' seems a bit rich, given CS's mission to prevent suspected 'scalpers' from making a pip or two.
capitalspreads
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ross
please dont confuse our hedge policy (which is only triggered when we reach a pre determined risk level) with my comments over latency trading. Latency trading is effectively betting on a horse after the race has ended and no market maker tolerates it (no matter who they are). And i really cannot understand anyone defending it. I can understand people doing it (of course, it appeals to the natural human instinct) what i cannot fathom is why people seem to think we should just put up with it.
but no matter what i say over this, really tiny, proportion of our clients it seems not to make any difference. To some commentators i am the devil incarnate to others i am merely stating the bleeding obvious.
Tar
eeerrr... well yes . but you could say the same about any company. All investors rely on a high degree of rectitude from the board and competence from the auditors.
Simon
please dont confuse our hedge policy (which is only triggered when we reach a pre determined risk level) with my comments over latency trading. Latency trading is effectively betting on a horse after the race has ended and no market maker tolerates it (no matter who they are). And i really cannot understand anyone defending it. I can understand people doing it (of course, it appeals to the natural human instinct) what i cannot fathom is why people seem to think we should just put up with it.
but no matter what i say over this, really tiny, proportion of our clients it seems not to make any difference. To some commentators i am the devil incarnate to others i am merely stating the bleeding obvious.
Tar
eeerrr... well yes . but you could say the same about any company. All investors rely on a high degree of rectitude from the board and competence from the auditors.
Simon
Luckily we didnt have any positions running with worldspreads at this point in time, however we did abuse their zero spreads by scalping them at high frequency. This led to them changing their status from "zero spreads" to every trade with zero spreads being charged a £1 admin fee...
It defeated the point of the system but they thought that the net client position would be negative but forgot to factor in major players within the industry abusing the zero spreads.
They have been running a loss for a long time now. A bit like the Nigerian dude from UBS they have covered it up pretty well. So well their their auditors Ernst Young didn't even realise what was going on.
Hedging off excess risk at the end of the day once you have netted your clients positions against one another is the proper way to run a SB firm or FX Brokerage. However its the least profitable way...
Watch this space guys, next company to fall will be much bigger than WS, from what I've heard from people working in the Spread Betting world there is very much a culture of un-sustainability within the work place.
This will naturally be rectified by companies going into liquidation "CMC" cough... But don't quote me on it
Simon
How many screens do you have open showing IG's FTSE 100 and Dax price overnight?
Luckily we didnt have any positions running with worldspreads at this point in time, however we did abuse their zero spreads by scalping them at high frequency. This led to them changing their status from "zero spreads" to every trade with zero spreads being charged a £1 admin fee...
It defeated the point of the system but they thought that the net client position would be negative but forgot to factor in major players within the industry abusing the zero spreads.
They have been running a loss for a long time now. A bit like the Nigerian dude from UBS they have covered it up pretty well. So well their their auditors Ernst Young didn't even realise what was going on.
Hedging off excess risk at the end of the day once you have netted your clients positions against one another is the proper way to run a SB firm or FX Brokerage. However its the least profitable way...
Watch this space guys, next company to fall will be much bigger than WS, from what I've heard from people working in the Spread Betting world there is very much a culture of un-sustainability within the work place.
This will naturally be rectified by companies going into liquidation "CMC" cough... But don't quote me on it
So who's going under next:
CMC- Pissed away £100m on a new platform and then told all there clients to go away. Losing money for a couple of years now. The culture of 'Steal 4 Free' still very strong.
City Index- Losing money for years, probably dodgy stuff going on behind the scenes but keep getting bailed out by Michael Spencer.
Cantor Index - Losing Money, even though they've got no clients. Parent company probably wind up the operation as not worth the hassle.
SpreadCo- Proper tin pot operation, bound to go under.
my two cents
c6ackp
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Thanks AJ - very interesting - the whole spreadbet industry seems to be another bubble but a few will survive and prosper, I guess...
The big mistake seems to be to go for a "corzine" and get greedy - which is effectively what the management at WS did also...
The big mistake seems to be to go for a "corzine" and get greedy - which is effectively what the management at WS did also...
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