SB Bias!

glenn
"But the traders don't move the spreads. With an electronic futs exchange, everything is controlled by computer including the spread. There are no market makers, just traders and a computer system offering prices and taking orders.
The traders simply decide whether to accept the prices offered or not.
It's just that sometimes e.g. the opening gap, the behaviour of the spread is very similar to a real human MM, and just makes me wonder why."

the exchange computer does not "control" the spread, it provides the inside ask and bid price from which the spread is derivied - it is just an electonic exchange where anyone can post a price that they are prepared to trade at - or - pick up a contract at a price that someone else has posted at

when you trade on an exchange's electronic system - you are not trading against the exchange ( the exchange makes their money from a cut of the brokerage fee you pay) - you are trading against other traders - they might be private or big companies - you are still just trading with other trading entities

even if you are trading against someone who is a member of the exchange - that is different to trading using the exchanges electronic platform

so the spread is just a reflection of where traders have placed their limit orders and how other traders are taking those orders up

whilst market makers do provide liquidity to markets - you dont need them for tight spreads if you have enough traders trading and especially if they are trading different strategies such as arbing, where they will go short even in a rising market - the estox is heavily arbed both to options and underlying - so is real liquid

and just because a market has market makers does not mean u will get tight spreads - you might get a tight spread when the market is not moving - but the second the market moves, either futures or underlying - the market makes will pull their size which is why you get fast moves in illiquid markets which appeared to have depth at the bid and the ask - the market makers make their money on the spread - but have to arb with the underlying - hence they have to pull the spread if their arb analysis shows an inbalance in the book

the CBOT uses market makers - but the overall lack of liquidity in the Dow mini causes big changes in the spread and fast moves which then retrace straight away when the dow market makers pull the size even when it appeared moments before that there was depth at the bid and the ask - but the S&P emini and Nas emini have real tight and consistent spreads without needing market makers due to all the various participants and high volume
 
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Glenn,

You said ...............But the traders don't move the spreads

The spread is just the price that traders are prepared to buy or sell at and that is it. The fact that it is electronic just means there are no middlemen but all the orders are from real clients.

If the best bid is say 9100 and the best ask is 9120 then the spread of 20 points is caused by the fact that no-one is prepared to sell at less than 9120 and no-one is prepared to buy at more than 9100. If you then placed a limit order to buy at 9110 then your order would appear and would have closed the spread by 10 points. On an electronic exchange there is no-one else involved in determining the spread other than the traders themselves. In SB this can be different but not on an electronic futures exchange and as previously said this can be used as an opportunity to make money.


Paul
 
OK probookie,

I will hold back on a few questions that might be a little too sensitive, but here are a few that you might like to answer.

1. The vast majority of spread bettors lose, say 90%+. I would imagine that day traders would make up the bulk of this group, trying to overcome the spread and other tactics. Yes?

2. So who are the most successful clients and what is their trading strategy? Is it trend/swing trading over a longer time period? Or some other trading style?

3. If you were a Spread Bettor probookie, who relied on trading the spreads solely for your livelihood, what would your strategy be?

dbt
 
It's not just daytraders using SB that lose money as approx 90% of all daytraders lose money.


Paul
 
SteveT - my thoughts in blue "But the traders don't move the spreads. With an electronic futs exchange, everything is controlled by computer including the spread. There are no market makers, just traders and a computer system offering prices and taking orders.
The traders simply decide whether to accept the prices offered or not.
It's just that sometimes e.g. the opening gap, the behaviour of the spread is very similar to a real human MM, and just makes me wonder why."

the exchange computer does not "control" the spread, it provides the inside ask and bid price from which the spread is derivied - it is just an electonic exchange where anyone can post a price that they are prepared to trade at - or - pick up a contract at a price that someone else has posted at
I'm not aware that I can post a price with Futures. With level 2 equities, yes, but if I can do it with futs then it's news to me.

when you trade on an exchange's electronic system - you are not trading against the exchange ( the exchange makes their money from a cut of the brokerage fee you pay) - you are trading against other traders - they might be private or big companies - you are still just trading with other trading entities
Agreed

even if you are trading against someone who is a member of the exchange - that is different to trading using the exchanges electronic platform
.but with futs as far as I am aware I am not trading directly with anything other than the exchanges computer.

so the spread is just a reflection of where traders have placed their limit orders and how other traders are taking those orders up
With IB any limit orders I place are not known to the Eurex exchange. They are held on IB servers until triggered.

whilst market makers do provide liquidity to markets - you dont need them for tight spreads if you have enough traders trading and especially if they are trading different strategies such as arbing, where they will go short even in a rising market - the estox is heavily arbed both to options and underlying - so is real liquid

and just because a market has market makers does not mean u will get tight spreads - you might get a tight spread when the market is not moving - but the second the market moves, either futures or underlying - the market makes will pull their size which is why you get fast moves in illiquid markets which appeared to have depth at the bid and the ask - the market makers make their money on the spread - but have to arb with the underlying - hence they have to pull the spread if their arb analysis shows an inbalance in the book
No argument. But there are no MM's for Eurostox on Eurex.

snip

This sub-thread has got down to the discussion of one futs Index on one exchange, where I understand that there are no middle men, and nothing like level 2, or any limit orders held at the exchange. Happy to be shown otherwise :)
Glenn
 
Paul
My thougths in blue:
You said ...............But the traders don't move the spreads

The spread is just the price that traders are prepared to buy or sell at and that is it. The fact that it is electronic just means there are no middlemen but all the orders are from real clients.

If the best bid is say 9100 and the best ask is 9120 then the spread of 20 points is caused by the fact that no-one is prepared to sell at less than 9120 and no-one is prepared to buy at more than 9100.
with Eurex futs, I believe, there is no best bid or ask because there are no middlemen to quote prices from which best prices could be derived.
If you then placed a limit order to buy at 9110 then your order would appear and would have closed the spread by 10 points.
As I said to Stevet, if I pace a limit order, it is not known to the exchange, it is held at IB until triggered.
On an electronic exchange there is no-one else involved in determining the spread other than the traders themselves.
My view is that the traders decide where they want to place orders, but the exchange doesn't know where that is until the orders come in. It's only when the orders come in that the exchange reacts to the demand and moves the spread (if necessary)
snip

Glenn
 
Paul
"It's not just daytraders using SB that lose money as approx 90% of all daytraders lose money."
We all quote this figure (or thereabouts) I know.
No reason to disbelieve it.
What intrigues me is where it comes from.
Seems to me that only people who definitely know how all traders perform are the brokers they use. And yet would they willingly publish such information ? Doesn't seem to be to their advantage to do so.
Just a thought.
Glenn
 
I think different markets have different rules as ther is still some floor trading going on as well.
but with liffe, you have to be 'one of the boys' to post direct.
so you are trading against 'professional/commercial' traders.
 
""It's not just daytraders using SB that lose money as approx 90% of all daytraders lose money."
We all quote this figure (or thereabouts) I know.
No reason to disbelieve it.
What intrigues me is where it comes from.
Seems to me that only people who definitely know how all traders perform are the brokers they use. And yet would they willingly publish such information ? Doesn't seem to be to their advantage to do so.
Just a thought.
Glenn
"

Glenn,

That is exactly why i am asking probookie the question. As an insider he will surely know the answers. Whether he will be willing to answer is another matter.

Looking forward to your reply/replies pb

regards,

dbt
 
Glenn,

If that is how Eurex operates then it is news to me, I may well try some tests and see what happens. In fact if that is how it operates then I would be surprised if anyone could ever really make money on it. Also what does happen if you place a limit order in between the spread and ask ? and how does the market move and who moves it ? I know that the Market depth is not great for futures but on the FTSE future you can see the limit orders and size. Are you saying that is different for the Eurex ?


Paul
 
Paul
Like I say that's my understanding of how it operates - from talking with other Eurex traders. Have a look on www.eurostox50.co.uk faq's (private site)

It's not a problem, I don't understand why you think no-one could make money. No harder than any other way.
I just do simple TA on the chart and put orders in. They get filled quickly.
I'm glad that there aren't any MM's because it eliminates some of the messing about with prices.
However there are big traders in there, trading in hundreds of contracts per trade sometimes. They can move the price and create fakes just like a MM. [the little tinkers :)]

"Also what does happen if you place a limit order in between the spread and ask "
Quite hard to do because for 99% of the day the spread is literally only 1 point !
But if you have set a limit price earlier and the spread moves to encompass it, then the order will be triggered - as you would expect.
Glenn
 
Glenn

the only orders which are held by IB for Eurex/Estoxx50 are trailing stops or limit stops which need to be simulated for Eurex, ALL others are native to the exchange and go directly to the exchange and sit on the order book - thats what an exchange is and does

spreads are NOT created by the exchange - they are a result of the participation of traders (either human or computer) posting and taking size on the order book of the exchange
 
Stevet
Do you mean that there are some kinds of Limit orders which are held at the Eurex exchange ?
Of course normal Buy and Sell order go direct, but I'd be interested to know of any kind of Limit orders which also do.

"spreads are NOT created by the exchange - they are a result of the participation of traders (either human or computer) posting and taking size on the order book of the exchange"
Sorry I don't understand what you mean.
My view is that the orders create a real-time flow of supply and demand. The computer analyses this and decides where to place the spread in response. The final decision about where the spread ends up is taken by the computer.
We may be in agreement and just not quite understanding each other :)
But quite happy to be shown I'm wrong.
Glenn
 
Delboy

1. I can't speak for the industry as a whole, but the ratio of winners to losers amongst spread betting clients with my company is not quite as bad as 10:90. It really depends on the product in question and how you define "active"; taking the community of daily Dow traders dealing over any given week I'd say 70% are losing money over their entire trading history. But looking at a sample like that inevitably introduces "survivorship bias".

If you look at all clients ever to have traded, then the proportion of losers must be 95% plus, purely because so many people open accounts, blow their trading reserves in a hurry and then stop dealing. Newcomers tend to get overconfident after initial success and deal in an inappropriate size. Then a small move against them puts them out of the game.

At the level of individual trades, if you correct for transaction charges (i.e. spread) you see a cumulative distribution of results that is almost a perfect bell-curve, centred on zero. As a number of academics like to claim, day traders as a whole neither make nor lose in the long run, once one corrects for dealing charges.

A cumulative distribution hides a lot of individual stories of course. Some clients make a lot of money, month in, month out. A slightly larger number lose far more than one would expect from the spread they've paid, month in month out. Whether there's skill (for the winners) or "anti-skill" at work (for the losers), or whether it's all down to chance is a subject over which I'm agnostic. There's plenty of serious academic theory on both sides of that particular debate.

The one thing that's pretty indisputable is that, the more transaction charges you rack up, the harder it is to beat the bell curve. So daytraders who take just a couple of intraday views will always end up doing better than those who jump in and out of the market like maniacs.

2. The most successful clients are arbitrageurs who, by definition, always win. These people open up spread betting accounts with 4-5 online bookmakers and then spend their time trading on arbs when daily prices get out of line. For example, at 7.15pm on the night of a chaotic FOMC announcement, you might see one company with a daily FTSE price of 4200-08, and another with a price of 4212-20. The arber buys the first, sells the second and locks in a certain profit.

Clients who do this are very obvious to the dealers on duty, as arb trades stick out like a sore thumb on a client's trading record (all trades are opened out-of-hours and are on daily products, all trades are left to expiry). After a brief honeymoon period they find that an unusual number of online trades are being rejected. Arbers hate this, as it typically leaves them with an exposed position on the non-rejected leg of the trade, which they then have to either take a chance on or close off, incurring spread.

3. If I had to spread bet for a living, I would trade housing markets. A couple of bookies do these; the key point is that they're impossible to hedge, so prices get forced way out of line by herd behaviour in the client base. For instance, a few months back everyone in the UK was betting that London house prices were going to crash. They all sold the bookies' quotes, and both companies involved had to move their futures prices on the London market through the floor, in a desperate attempt to attract buyers to balance out their risk. For a number of weeks it was possible to go long of London housing at a level that could only have lost you money in the event of the most catastrophic market move in history. Needless to say, the market didn't collapse and anyone who got long made a killing.

Apart from that, I'd go after any market with the same characteristic (i.e. unhedgeable markets where bookies get pushed from the "right" prices by flows of unthinking client business). Off the top of my head I'd list daily FTSE (only out-of-hours, mind) daily Dow (ditto) and binaries.

And I'd have any arbs going, but I wouldn't make a point of seeking them out.

But I'm not a trader. I prefer receiving spread to paying it :)
 
glenn

one thing for sure is that we are definetly not in agreement!

stop limit orders are held on ibs system as they need to be simulated on eurex
 
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Excellent stuff probookie,

I am very aware of the points you made, especially regarding arbers or alphas, as I believe you insiders call us. I have been down that road on the sports spreads markets and although I did very well for the 6 months of trading, as you say the firms are very aware of what you are doing ( they take a seriously dim view of this) and it didn't take them very long for them to sort me out. Nowadays I don't arb them blatantly as it it is just not worth the grief it causes. Interesting points on the unhedgeable markets. You have definitely got me thinking on that one.

Would you care to elaborate on the point regarding binaries? What exactly are you referring to here pb?

Many thanks for sharing your thoughts with us. I'm sure that there are many questions the other spread bettors on this board would like to ask you pb.

dbt
 
firstly , DO NOT be confused by bias and spread , bias is how many points away from the underlying instrument the bookie is quoting. Whereas spread is the points difference between the bid and offer price .

Bottom line , you can never avoid the bias , that's the bookie's right , they literally CREATE the market , so they can do what they like with it.
 
mma

bias was a term used by some of the early spreadbettors to describe something that in fact is the fair value between the futures and cash markets ( most spreadbetting traders look at cash prices to judge their trades, so assumed that becuase the spreadbetting companies cash price was different to the so called index, that somehow the spreadbetting companies were taking advantage, when of course spreadbetting companies work all their prices off the real futures price

spreadbetting companies make their money on the spread - not on the difference of the mid of their price to the mid of the futures - and as long as they are offering a two sided market - thats the only way they can make money and would do them just fine

if they chose to offer two different prices, that is with two different mids for a buyer or a sell, then they could take advantage of offsetting from the real price - i dont do spreadbetting myself , and i am sure some dodgy trades must have happened at some time - but all in all i am sure the spreadbettors offer a fair market and earn their bucks off their legitimate, if wide, spread - but as u said - its their game - so if u want to play - you play with their spread
 
To clear one thing up, check on the interactive brokers website and see for your self which orders are held at the exchange and which are simulated by IB.

At Eurex, as with every other electronic exchange, limit orders are held at the exchange. They have to be, this is what makes up the market! Eurex Stop-limit orders are, however, simulated by IB.

Interesting CBOT (for dow mini's) simulates stop-limits but CME (s&p mini's) holds them at the exchange.
 
sidinuk

the CBOE simulates stop limits the same as Eurex because the ACE system which CBOE uses is in fact licensed from Eurex, and there are some other issues involved, but the CBOE is shifting their platform to the Liffe system soon
 
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