Four General Tips for Spread Betting

[charliechan]

Theoretically SB companies make money from frequency of trading, whether the trader wins or loses. They charge a spread and that's their profit, with bets laid off to give them a neutral position.

However, the reality may be a bit different.

yes - reality sure is different - the current conversation on stop running being the case in point.

financial markets are no different from any other industry. all glossy marketing hiding aggressive business people out to grab your money with a smile and a firm hand shake. this is life and we know it. im not saying its bad, just that pr is a powerful thing. reading some threads, it seems some even feel privileged that they gave their money to (were robbed by) such a nice, respectful, professional organisation!!

ignorance is bliss.

 

[Splitlink]

I thought everyone who has been in the market (particularly spread betting) knows about stop running.

Stop running in spread betting is when the spread betting market maker initiates a sudden movement of the price of an instrument, away from the underying market price in order to trigger stop orders accumulated at a certain area.

The same happens in stock markets as well. In the case of stock market, market makers trigger violent price movements even when there is no supporting volume.

Admittedly, these are not reasons to give up spread betting. I lost because I did not follow a plan. I am reasonably sure if one follows a good method, one can make money in spread betting.

Doesn't using market stops instead of "their" stops do any good?

Split

 

[OpenMind]

It's better to some extent, but not enough. For example, let's say you decide to get out when the market reaches 100p. Now, Finspread will trigger your order when the market reaches 100p, but you have no way to know exactly at what price you will get filled (depends on Finspread's bias at that point of time). Also the 'market' is not the cash market, it is the future market (at least that is what they said), the data for which I never had.

 

[Splitlink]

It's better to some extent, but not enough. For example, let's say you decide to get out when the market reaches 100p. Now, Finspread will trigger your order when the market reaches 100p, but you have no way to know exactly at what price you will get filled (depends on Finspread's bias at that point of time). Also the 'market' is not the cash market, it is the future market (at least that is what they said), the data for which I never had.

That's true, but if you think that you have a safe stop which is unlikely to be touched there is the satisfaction of knowing that you should not get any unpleasant surprises if the market does not get there. If it does get there then you are going to get the price that they are quoting then.

I mentioned earlier that I was particularly pleased with Finspreads closing of my stop on July 7,
a very bad day, although the market recovered towards the end. When I got home that night and saw my share had bottomed more than 20 points below I thought that I had lost a packet but I had been stopped right on my price, which was "their" price- not the market's.

Split

 

[the blades]

It's better to some extent, but not enough. For example, let's say you decide to get out when the market reaches 100p. Now, Finspread will trigger your order when the market reaches 100p, but you have no way to know exactly at what price you will get filled (depends on Finspread's bias at that point of time). Also the 'market' is not the cash market, it is the future market (at least that is what they said), the data for which I never had.

Hello OpenMind,

When you refer to SB bias - can I presume you are trading indeces?

There is a published, easily calculable relationship between the market price (not futures) and the SB company quotes. I use Fins, Capital and IG and haven't had one instance of the price differing from this. In my experience, SB bias (hence stop running) is a myth WRT individual shares.

Cheers,
UTB

 

[OpenMind]

Hi Blades,
I used to trade both stocks and indices.

Where do I find this formula?

On the topic of stop running and bias, I am certain that if I had a decent trading plan and if I was well-capitailised, these wouldn't have been an issue. Someone also pointed out above that SB companies use Bloomberg feed and momentary price spikes might not register on the intra-day cash price chart. I didn't know this, so you are probably right in your statement that it's a myth.

Thinking about it now and looking back the way I did it: it seems to me that most people lose in spread betting for the same reason as they lose in futures or in plain stock trading. Same old reasons: not having a fixed strategy, not managing risk, and not managing themselves. It's got nothing to do with whether you trade stocks, futures, CFD or spreadbets. If you are a loser, you will lose, doesn't matter what you trade.

Am I right?

 

[sccz97]

trust me i know all about it, i was stopped out once with ig index on a forex trade,despite seeing that my stop level was three points away from 'stop level'. i telephoned asking what was going on and they assured me that despite their website stating one level,they use bloomberg data feeds which work to fractions of a second.sure enough after asking for proof they e-mailed me an attachment of that area of the days tick chart and it turned out there was a brief micro-second spike which stopped me out, but which was so quick and insignificant it didnt make end of day data.being stopped out i can take,being robbed by speed-of-light technology completely narked me.

Whilst on this occasion it worked out in their favour, I have argue my way back into a position that supoosedly got stopped. Fortunately, I ave bloomberg as well and if I have a valid claim, they have no choice but to "crystalise" my position at an agreed price. Whilst I agree with msot that spreadbetting companies are crooks, if you can beat them at their own game then I suggest you do so. I've managed to milk almost 6 figures off ig index before they flagged all my accounts whereby all my trades go through to a manual dealer first.

Ther worst experience I've had was trading around figures with capital spreads. I was trading gbpcad just before the market gapped arodnu 60 pips and was up serious $$$. However I was unable to close out the position as the buttons suddenly disappeared from my screen. I called thme up to close it out and they were quoting my a price that was 15 pips below market level and refused to clsoe me out at the proper level. At least with IG they would either reject the trade or fill me. How capital spreads think they can accept a positoin and then choose to quote a price away from the market cos they were losing too much money off it. Serious crooks, stay away from capital spreads at all costs

 

[the blades]

Hi Blades,
I used to trade both stocks and indices.

Where do I find this formula?

On the topic of stop running and bias, I am certain that if I had a decent trading plan and if I was well-capitailised, these wouldn't have been an issue. Someone also pointed out above that SB companies use Bloomberg feed and momentary price spikes might not register on the intra-day cash price chart. I didn't know this, so you are probably right in your statement that it's a myth.

Thinking about it now and looking back the way I did it: it seems to me that most people lose in spread betting for the same reason as they lose in futures or in plain stock trading. Same old reasons: not having a fixed strategy, not managing risk, and not managing themselves. It's got nothing to do with whether you trade stocks, futures, CFD or spreadbets. If you are a loser, you will lose, doesn't matter what you trade.

Am I right?

Eyup OM,

the SB price is the market price and spread, plus the SB co charge, typically 0.5%. Interest is then charged, depending on the expiry date of the bet you take. This interest would be LIBOR (I think) plus a little. So for example, if you could get a quotes 12 months in advance, the mid price of the SB quote would be around 6% higher than the market price. The day of expiry, this premium would've "depreciated" to zero. The exact figures are quoted in the SB co's literature. Ring them at any time to find the interest rate being charged.

I ran a thread "spread prices" for a short while to confirm this, as much to myself as anything. I sonn realised the futility of trying to convince those who don't want to be. Those that believed it, already did. As such I was wasting my time, though the results were as I expected.

Cheers,
UTB

 

[Satori]

The way I tend to look at spreadbetting is that it's just another way to invest, subject to the limitations, charges etc. that come with that particular form of investment.

Everyone in this game is out to get your money - SB companies, brokers, market makers, other investors - and they attempt to do so in a variety of ways. One must just accept the ways that the various market institutions will try to take your money and work around them.

With spread betting one pays an extortionate spread, annoying slippage (perhaps) and has to put up with some of the games the SB companies play (if, indeed, they do play any), but one gains a tax-free result and gets some decent leverage. If one can get on with that and make money it's as fine a way to invest as any other - making money is all any trading is about. If one can't get on with it then it's best to use another means of investing.

One suggestion already mentioned in this thread is one I use myself. I set a guaranteed stop loss quite some distance from the price to cover the worst scenario and then operate my own stop loss so that the SB company doesn't know my true intentions. Now I really don't know if SB companies operate some sort of sneaky stop-running system above and beyond any other market entities, but why take the chance? - I don't have to worry about that. [note to say that I don't actually recommend beginners do this - I'd suggest they set their 'proper' stop loss at the SB company]

In terms of the extra spreads I just have to factor them into my bottom line and see if it's worth it against my expected gain from a trade. That's the crux of it all: is the trade - whatever the vehicle used to execute it - worth it? If it's not, don't trade it.

 

[charliechan]

Eyup OM,

the SB price is the market price and spread, plus the SB co charge, typically 0.5%. Interest is then charged, depending on the expiry date of the bet you take. This interest would be LIBOR (I think) plus a little. So for example, if you could get a quotes 12 months in advance, the mid price of the SB quote would be around 6% higher than the market price. The day of expiry, this premium would've "depreciated" to zero. The exact figures are quoted in the SB co's literature. Ring them at any time to find the interest rate being charged.

I ran a thread "spread prices" for a short while to confirm this, as much to myself as anything. I sonn realised the futility of trying to convince those who don't want to be. Those that believed it, already did. As such I was wasting my time, though the results were as I expected.

Cheers,
UTB

bwhahahahaha!

 

[the blades]

bwhahahahaha!

A highly reasoned, well thought out post, Charlie. Why not just go for "liar, liar, pants on fire".

Or you could enlighten us all with your first hand experience of spreadbetting shares, which I suspect was exhausted in your impressive contribution.

UTB

 

[Pringle]

In my experience of nearly 4 years spreadbetting with just two companies i have had very few problems.
I make on average £3000 from spreadbetting per month from a large account split between two companies. I use Finspreads and Deal4free.
I believe they make their living from the frequency of trades via the spread, matching clients with opposing views against each other to obtain a neutral position. If they cannot do this then they hedge in the 'real' market.
My accounts have not been stop run or been threatened with closure. On the contrary i have been taken to an expensive lunch on one occasion and had a day at Lords in a posh box on another.
Why pay tax and commissions when you don't have too?

 

[ukhero]

In my experience of nearly 4 years spreadbetting with just two companies i have had very few problems.
I make on average £3000 from spreadbetting per month from a large account split between two companies. I use Finspreads and Deal4free.
I believe they make their living from the frequency of trades via the spread, matching clients with opposing views against each other to obtain a neutral position. If they cannot do this then they hedge in the 'real' market.
My accounts have not been stop run or been threatened with closure. On the contrary i have been taken to an expensive lunch on one occasion and had a day at Lords in a posh box on another.
Why pay tax and commissions when you don't have too?

Pringle,

have read your other posts with interest. I tip my hat to you.

Yours

UK

 

[Pringle]

Cheers UK