Fair Trading methods or Not Allowed?

[Mata Nui]

Zapster - You just haven't thought this through. If you said you wanted to have entry orders in opposite directions, that would be what some calll a bracket trade - if the FTSE100 price is now 5900 and you want to catch a move either go up or down, you place an order at 6000 to catch an upward move and a sell order at 5800 to catch a downward move. Many SB firms allow OCO (one cancels the other) orders for this type of system so that if your buy at 6000 is triggered, your sell at 5800 is cancelled, and vice versa.

But you were originally talking about positions, not orders. If price is 5900 and you buy at £1 per point and simultaneously sell at £1 per point, your profit (and loss) will always remain zero, no matter how far price travels and no matter in which direction. If it goes up 100pts you make £100 on your long and lose £100 on your short, so what's the point?

In reality, you would lose the spread on eventually closing each trade, plus overnight finance charges if you're keeping open Rolling SB positions.

Eventually, you know, you have to take a risk in this game.

True, As soon as you open the long in this situation your position is -£1. Then you open the short and that position is instantly -£1 also. Your account balance is now -£2 and you havent actually gone anywhere.

I think it can be usefull for example if you use another SB to potentially hedge a position if your original provider is offline and that position starts to go against you. But then you should be using stops really. I suppose you could use it over news as well if there is a possibiliy your original stop may be skipped. I dont see the point in normal trading conditions though.

 

[tomorton]

I shy away from hedging - I think it possibly cultivates the wrong psychology - 'No matter what happens, I won't have to face a loser, I can just hedge it, then I won't have been wrong.....'

Just put a stop in as soon as you open the position; and don't push it further out, bite the bullet.

 

[promuso]

Hi Zapster,
I'm sorry to tell you that he - and everyone else - will wager large sums that you won't!

Some SB even provide a facility for you to place the type of trade you outline - but I'm afraid I can't remember which ones. Sorry! Contact them and ask them. Far from being upset with you, or fearing that you'll make your fortune at their expense, they'll rub their hands together with glee. When you place the opposing trade, you'll have a neutral position in as much as one trade will make £X per point while the other trade loses the same amount. (This assumes the position size is the same on both trades.) However, you will have paid the spread TWICE, which is why your broker will be happy.

What you're doing is not hedging in the true sense of the word and, as a strategy, is unlikely to work - based on the information you've provided here. But DON't take my word for it - or anyone else's - try it out for yourself using paper money on a simulated trading platform. If you can't find a broker that will allow you to place the trades on the one platform, you'll have to open two accounts - each with a different broker. Have fun and welcome to T2W!
Tim.

"Some SB even provide a facility for you to place the type of trade you outline - but I'm afraid I can't remember which ones. Sorry! Contact them and ask them."

Oh..WorldSpreads certainly does that..for example.

http://www.worldspreads.com/en/home.aspx

On the other hand, 'Hedging' the bet could make sense if the pattern of movement of the share/commodity/fund etc., was considered a safe bet to move in one direction but hedged in the other for a smaller amount... together with a stop loss you would be minimising the loss at a smaller points bet (if it moved against you) but still produced a profit if it moved the way you felt it would...
At the end of the day, SB is a bet, it's a risk and it's not a science. The key to success is to minimise ones losses....surely..?
[..which hedging *could* do...]
As you say, just cancelling out the bet [akin to red AND black on roulette at evens]
by betting either way for the same amount of points will result in fees and no profit....and probably p*ssing off the SB company no end as it will show you are not a very serious 'player'..
However, betting in one direction [because all the signs are that it is the direction to go with] and hedging for a smaller amount in the other is a sensible and prudent strategy for some...particularly in volatile markets and shares....