The problem is that the rules (and, more importantly, the law) doesn’t take into consideration the kinds of intermediate markets which we are discussing here.
I don’t want to get on my high horse over this because it’s been discussed before but there are a number of brief point well worth raising.
Firstly, when you read the T&C of most of the spreadbetting / cfd firms you will find that they have the right to price their markets as they see fit. They reserve the right to vary their markets away from the level of the underlying on which the market is based. The condition is made generally for the firms benefit. They profit from being able to do this. Therefore one could clearly argue that it is a case of ‘live by the sword and die by the sword’. In my experience what many of the firms want is a ‘best of both worlds’ scenario. They want to be able to bias their quotes when the moment suits them whilst at the same time be able to cancel quotes when their markets became ‘varied’ when they didn’t mean them to.
Secondly, on a few points of law…. If a spreadbetting company enters into a trade with you they can not just cancel it. Generally the contract (the T&C) sets out the moment that a contract is formed. Normally it is the moment that a contract note is produced ie when the trade is accepted. Most of the firms have some kind of caveat which, they claim, allows them to reverse trades (ie break a contract) but, if the matter came to court, they would be very unlikely to be able to enforce. The law is clear;
Offer + Acceptance = Contract
Legally speaking the ‘consideration’ must come before ‘acceptance’ – once the ‘acceptance’ has occurred a contract has been formed.
The Financial Services and Markets Act of 2000 supports this point and states that contracts entered into, with regard to spreadbetting, are completely enforceable by either party. In terms of law, if a set of spreadbetting T&C are contradicted by the Markets Act, the Markets Act will prevail – some spreadbetting T&C actually mention this. So the power is actually with the client. People who say “Oh some trades disappeared” actually have the right to have them enforce them if they wish. Of course your bookmaker might close your account when you do that but that is a different matter.
I am constantly amazed by the number of spreadbetting firms who either don’t know the law, their own T&C or The Financial Services and Markets Act of 2000. This even relates to compliance staff.
With regard to the “TV at the tenth of the price”… if you take it to the counter and the sales person processes the sale then the TV is yours! Full stop. What you must bear in mind is that a price ticket on an item is not an ‘offer’ to trade at that price. It is an ‘Invitation to treat’. It is generally regarded that, when you buy something in a shop, the customer is the one making the offer to buy at the stated price. It is up to the shop keeper or his appointed representative as to whether your offer is ‘accepted’ or rejected. Once that offer is accepted and payment is taken then it is considered that a contract has been formed. Basically, in law, the pivotal issue is always the point of contract. So, with regard to the TV, if you were loading it into your boot having paid for it then it is yours and you are free to do so as you wish. If the shop keeper approached you and claimed a mistake then it would be down to you as to whether you accepted his explanation and returned the TV. If however the shop keeper spotted the error inside the store prior to you actually paying for it and being issued with a receipt then he would be perfectly entitled to refuse your ‘offer’ to contract at the level indicated on the price ticket.
Phil….
You ask a couple of questions.
In post #13 you ask if the imbalance between limits and stops will balance itself out. In simple terms it will not as money is involved. If firms just filled limit and stops regardless then people who straddle stop orders on data would be drawn to that firm thus causing a significant imbalance. Secondly, half the reason that markets move on data is because people pull their orders from the market. It’s not always the fact that trade occurs, although it clearly does looking at the volume candles, but more a fact to do with ‘ease of movement’ due to a large lack of liquidity. Also, as I mentioned before, trade breeds price movement which in turn breeds more trade as people react to price movement.
GJ….
I don’t have a massive problem with people ‘picking off bookies’ since the bookie essentially makes his money by selling contracts to people for more than they are worth or buying contracts from people for less than they are worth – essentially, just like in the real market, its two party’s trying to catch each other out. At the end of the day, for the bookie to make his money, someone (other than him) has to get it wrong.
At the end of the day the spreadbetting and cfd business is a rather funny one. They base their prices on the prices produced by another market rather than activity in their own market – that will always be a really strange concept to me. What would happen if 80% of the world were spreadbetting? Only 20% of the trading activity would pass through the exchange! Suddenly the tail is wagging the donkey. I hope you see what I mean.
Steve.
