Death of SB

[David Knight]

Thanks for mentioning CS Lewis. Interesting writer, and seems to have been a very kind soul. Died 55 minutes before JFK was shot, so nobody remembers. (Aldous Huxley also died the same day.)

Yeah, that damn fibonacci is everywhere.

Actually..Huxley didn't die. He became Elvis and wrote 'Brave New Shoes'

 

[jkane]

Its over

Most priced out

USA Futures exchanges now have way better leverage

USE non UK CFD firms as a workaround

 

[tomorton]

Its over

Most priced out

USA Futures exchanges now have way better leverage

USE non UK CFD firms as a workaround

Finding so far the lower leverage hasn't hurt my trading, but I already had a well capitalised account. I'm sticking to the major forex pairs as much as possible to get the 1:30 leverage on them, all goes well so far.

 

[Splitlink]

I read somewhere (can't remember where) that SB providers would lose less than 25% revenue from retail traders quitting, or going elsewhere. It seems the "professionals" make up most of their revenue.

The criteria for qualifying as "professional" doesn't help in any way imho. If I had £500,000 in assets, I really wouldn't have a problem stumping up the additional margin required so wouldn't even need to apply to be "professional"!

Of course. I'm,still, a retailer and, so far, have not added to my account. Have reduced stakes, that's true, and am trading SP, which I turned my nose up at, before.

 

[kalott]

https://community.ig.com/forums/topic/5068-new-knock-outs/

 

[Your User Name]

Had a look at IG's new offering but must admit I don't get it (after 20 years of SB-ing). Presumably, and if it works, other providers will be doing the same thing?

 

[tomorton]

Had a look at IG's new offering but must admit I don't get it (after 25 years of SB-ing). Presumably, and if it works, other providers will be doing the same thing?

I don't get it either. Can't see why this feature is exempt from ESMA.

 

[Your User Name]

I don't get it either. Can't see why this feature is exempt from ESMA.

It's a relief to know I'm not the only thicko around here

 

[kalott]

"During its review of the intervention measure, ESMA considered the specific features of binary
options currently within the scope of the measures. Certain binary options were found to have
specific features which mitigate the risk of investor detriment, namely; they are sufficiently longterm
(at least 90 days); are accompanied by a prospectus; and are fully hedged by the provider
or another entity within the same group as the provider. ESMA considers that a binary option
that benefits from the cumulative effect of these three criteria is less likely to lead to a significant
investor protection concern.
In addition, products that at the end of the term have one of two predetermined pay-outs,
neither of which is less than the initial investment of the client, will be excluded. The pay-out
for this type of binary option could be the higher or lower one but in either circumstances the
investor would not lose money compared to their total investment. As the investor’s capital is
not at risk these products should be explicitly excluded. "

https://www.esma.europa.eu/sites/de...binary_options_for_a_further_three_months.pdf

 

[tomorton]

Thanks kalott. So these are just a type of binary options though it looks like spreadbetting on options, like ETX has put out also?

Seems like a gymnastic way to deal with ESMA's restrictions. It'd be good to hear from anyone making much money doing these.

 

[MORRIS2001]

Yeah but I think you’re missing my point.

It doesn’t matter how long it takes, most people will still lose all their money to the brokers so I don’t see how it will affect their revenue. As I said before, I’ve currently got 1k sat in a CMC account. Now I could lose it in 10 minutes at £10pp or I could lose it in a week at £1pp... either way CMC will still take that 1k from me and add it to their revenue.

Majority of people lose and these margin changes won’t magically turn those losers into winners, they’ll just stay losers for a lot longer.

I slightly disagree with this perspective. The biggest cause of losses that turn an account negative isn't the 'Death by 1000 Cuts' scenario that you outline but the market sell off events, such as what we saw back in Feb. From a broker's perspective that is when we see over leverage wreak its havoc.

About a decade ago the overseas frims that began being passported in were the firms who started offering ever increasing levels of leverage. FX went from 100 to 200 and ended up at 4-500x. Now the reason for this is that we brokers/bookmakers know that the more leverage you offer the quicker a client self destructs and all their money is booked quickly and efficiently to your balance sheet and you nip back onto Facebook, or wherever, to get the next gambler in with a bonus offer that can never be earned but encourages massively excess punting on hugely inflated leverage.

The reduction in leverage is long, long overdue. I'm of the view that it has gone too far and that key regulators will probably not be implementing ESMA's emergency rulings. ESMA will probably extend at the end of this 3 months for another but regulators are now seeing that the aggressive reduction has made it more dangerous for the smaller clients they are there to serve and protect as geographical borders are simply no longer relevant and clients can retain high and unsafe access to margins by migrating their account to Aus or the Marshall Islands or Timbuktoo.

The sensible margin levels for the industry are probably closer to where we were 10/15 years ago as those levels didn't destroy accounts (remember the hideous slippage that brokers had to resort to to nail competent traders, or the switching to manual or requoting etc?) back then competent traders were genuinely making solid returns. Especially CFD traders as that product attracted people who actually wanted to make profits rather than spread betting which has always attracted a very large contingent of random gamblers who are just punting for the excitement or thinking it was easy and just a case of following the trades of some random bloke on the internet.

Retail traders are terrible at risk management and what kills them is the draw-down periods because they are almost always running more risk than their return potential justifies. That's why you see traders with really good 55-70% winning trade rates still losing over the long term. Reducing leverage as well as forcing close-outs will have a huge benefit on this group of traders.

 

[Your User Name]

IG helpfully point out that 79% of their clients lose money. Wonder what the figure will be after a few months of 'safe' SPB?

 

[sminicooper]

I slightly disagree with this perspective. The biggest cause of losses that turn an account negative isn't the 'Death by 1000 Cuts' scenario that you outline but the market sell off events, such as what we saw back in Feb. From a broker's perspective that is when we see over leverage wreak its havoc.

About a decade ago the overseas frims that began being passported in were the firms who started offering ever increasing levels of leverage. FX went from 100 to 200 and ended up at 4-500x. Now the reason for this is that we brokers/bookmakers know that the more leverage you offer the quicker a client self destructs and all their money is booked quickly and efficiently to your balance sheet and you nip back onto Facebook, or wherever, to get the next gambler in with a bonus offer that can never be earned but encourages massively excess punting on hugely inflated leverage.

The reduction in leverage is long, long overdue. I'm of the view that it has gone too far and that key regulators will probably not be implementing ESMA's emergency rulings. ESMA will probably extend at the end of this 3 months for another but regulators are now seeing that the aggressive reduction has made it more dangerous for the smaller clients they are there to serve and protect as geographical borders are simply no longer relevant and clients can retain high and unsafe access to margins by migrating their account to Aus or the Marshall Islands or Timbuktoo.

The sensible margin levels for the industry are probably closer to where we were 10/15 years ago as those levels didn't destroy accounts (remember the hideous slippage that brokers had to resort to to nail competent traders, or the switching to manual or requoting etc?) back then competent traders were genuinely making solid returns. Especially CFD traders as that product attracted people who actually wanted to make profits rather than spread betting which has always attracted a very large contingent of random gamblers who are just punting for the excitement or thinking it was easy and just a case of following the trades of some random bloke on the internet.

Retail traders are terrible at risk management and what kills them is the draw-down periods because they are almost always running more risk than their return potential justifies. That's why you see traders with really good 55-70% winning trade rates still losing over the long term. Reducing leverage as well as forcing close-outs will have a huge benefit on this group of traders.

That makes an awful lot of sense to me. As a long-time spread-better I've always been very wary (and too scared to use) the maximum amount of leverage permitted. Almost any sensible appraisal of risk management shows that over-leverage will end in disaster even though there may well be moments of triumph en route!

It would seem that (though I have no access to hard evidence) many traders are under capitalised and therefore take the high leverage route to compensate – but the sums show this is disastrous (just get the old spreadsheet out and see for yourself). Shouldn't we be concentrating on making our "system" reliably profitable and then tailoring our risk accordingly? (As inferred by Morris 2001 above).

I spent a long time training myself to do this and I found the best way for me was to run a Micro account e.g. start-up capital £1000. This has many advantages:
(1) the most you can lose is £1K
(2) you have to make your system profitable or you will go broke
(3) you have to get your risk management in order or you will go broke
(4) there is little/no psychological pressure because the most you have at risk is £1K
(5) once you have a good system it can easily be scaled up gradually thereby acclimatising to the increased psychological pressures when dealing with larger amounts.
(6) I wouldn't even contemplate using real money until I could make a paper system work.
(6) although you may well have to go through numerous iterations to find a system that works satisfactorily, if you concentrate on risk management first and foremost you will always have some capital left to carry on.

The above philosophy has served me very well over the years and enables me to trade profitably and without undue stress. A good well-managed system will not make you a millionaire overnight but it will make you money. With such a system, if you want to make more money just add more capital while trading in the same way. And there's no point in trying to obtain more capital by increasing risk – just cut down your expenses in other areas and reallocate to trading.

All of the above I would imagine will be obvious to any successful trader but hopefully might be of use to anyone just starting out. I wish someone had told it to me years ago.

PS I trade US S&P 500 shares reasonably short term (0-10 days). Have no experience with FX or other exotic trading!

 

[Your User Name]

That makes an awful lot of sense to me. As a long-time spread-better I've always been very wary (and too scared to use) the maximum amount of leverage permitted. Almost any sensible appraisal of risk management shows that over-leverage will end in disaster even though there may well be moments of triumph en route!

It would seem that (though I have no access to hard evidence) many traders are under capitalised and therefore take the high leverage route to compensate – but the sums show this is disastrous (just get the old spreadsheet out and see for yourself). Shouldn't we be concentrating on making our "system" reliably profitable and then tailoring our risk accordingly? (As inferred by Morris 2001 above).

I spent a long time training myself to do this and I found the best way for me was to run a Micro account e.g. start-up capital £1000. This has many advantages:
(1) the most you can lose is £1K
(2) you have to make your system profitable or you will go broke
(3) you have to get your risk management in order or you will go broke
(4) there is little/no psychological pressure because the most you have at risk is £1K
(5) once you have a good system it can easily be scaled up gradually thereby acclimatising to the increased psychological pressures when dealing with larger amounts.
(6) I wouldn't even contemplate using real money until I could make a paper system work.
(6) although you may well have to go through numerous iterations to find a system that works satisfactorily, if you concentrate on risk management first and foremost you will always have some capital left to carry on.

The above philosophy has served me very well over the years and enables me to trade profitably and without undue stress. A good well-managed system will not make you a millionaire overnight but it will make you money. With such a system, if you want to make more money just add more capital while trading in the same way. And there's no point in trying to obtain more capital by increasing risk – just cut down your expenses in other areas and reallocate to trading.

All of the above I would imagine will be obvious to any successful trader but hopefully might be of use to anyone just starting out. I wish someone had told it to me years ago.

PS I trade US S&P 500 shares reasonably short term (0-10 days). Have no experience with FX or other exotic trading!

But surely (1) isn't or wasn't the case? You can lose more that £1k on a 1K account. That's partly the problem the new rules are supposed to address.

 

[MORRIS2001]

It would seem that (though I have no access to hard evidence) many traders are under capitalised and therefore take the high leverage route to compensate –

This in spades. You have various types of clients out there but by far the most common is the chap with little in the way of funds expecting to make returns capable of funding a lifestyle from that small pot.

This enormous group of traders are the group that, alongside the pure gamblers, have the highest number of loss making accounts by far. And within that group it breaks down further into sub groups of plain stupid people, the deluded, the uneducated and probably the most common, the duped and deceived.

We've always had dodgy vendors who state that someone with almost no money can make a living from trading. It simply isn't true. You need a large pot for trading in order to make consistent annual returns that are large enough to replicate a working income and to trade with low enough leverage etc to manage risk.

 

[MORRIS2001]

IG helpfully point out that 79% of their clients lose money. Wonder what the figure will be after a few months of 'safe' SPB?

These numbers will be interesting, especially if they do start to become part of a marketing angle. You would expect that particular number to decrease if a firm is moving as many of its speculative punters out to a non-EU license.

It's Plus500's, 80% that has surprised me greatly as to how low it is. Likewise Trading212.

 

[tomorton]

These numbers will be interesting, especially if they do start to become part of a marketing angle. You would expect that particular number to decrease if a firm is moving as many of its speculative punters out to a non-EU license.

It's Plus500's, 80% that has surprised me greatly as to how low it is. Likewise Trading212.

80% (only) losers didn't surprise me as I'd heard it before the ESMA publication requirement -

 

[MORRIS2001]

Denham was a quality broker. I'm just surprised at how some firms have got their data as low as 80%.

Showing one's workings would be a beneficial step in that regard. The system as it stands is somewhat flawed as the fact that the majority of clients only go long will have a strong skew effect. Along with whether you derive the final calculation from trades or accounts

 

[tomorton]

Denham was a quality broker. I'm just surprised at how some firms have got their data as low as 80%.

Showing one's workings would be a beneficial step in that regard. The system as it stands is somewhat flawed as the fact that the majority of clients only go long will have a strong skew effect. Along with whether you derive the final calculation from trades or accounts

Good points. I had assumed the firms simply looked at all the live accounts and if someone had deposited £2000 and they now have £2001 excluding open trades, they went in the 20%. But maybe things ain't so simple......

 

[MORRIS2001]

Certainly a starting point would be to ascertain what constitutes a live account? It's basically any old account that has been 'active' in the last 12 months on a rolling basis.

I'm not sure what 'active' means. To me it is someone who is logging in regularly and has been executing trades. To others it might be anyone who has opened their trading app, regardless of whether they have traded or even have any funds on account. Maybe, each month, you could filter out all your unfunded, or dormant clients and ping them a push message to entice them to open their trading app and be an 'active' client?

On thing for sure is that in an industry where regulated brokers spent years gaming KYC and AML laws, I'm not exactly convinced they won't be just as keen to game other aspects.