SB Brokers cheats?

T

tommog

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Hello,

There is a lot of talk on dicussion boards about SB companies having the odds stacked in there favour? I was wondering if anyone had ever worked for a SB and is aware of how they do this. Apart from the spread, which obviously puts you a couple of ticks behind the market to start with. or is it just a case of people looking for someone to blame for their losses

If SB companies really are just glorified bookies that don't play entirely fair can anyone suggest an alternative? I don't want to tie up £25.000 in a futures trading account, or however much it costs to trade live futures prices, is it possible to trade on margin in other forms of investing/trading so i am able to deposit a relatively small amount of capital?

thanks for your time
 
25000 dollars (not pounds) aplies to stock day trading not futures trading, 2,000 dollars is all you need
to day trade a single futures contract (although minimum account requirements are normally a bit
higher that).
 
Tommog….

What DD has stated is correct. I personally wouldn’t recommend attempting to day-trade futures or stocks unless you had about £15,000 on deposit with your direct access broker. This equates to around $27,000 which should give you ‘pattern day trader’ status which is quite important if you are planning on jumping in an out of trades on a short term basis.
The spreads on Futures and Stocks are tiny compared to what you have to pay through spreadbetting. Dow is generally 1 or 2 points at market. Most of the popular stocks (say the top 600 odd) are quoted at a spread of around 1 cent. You can also market make if you wish. Dealing costs start from around $1 per 100 stocks. Futures are about $2.40 per side per contract. Once you’ve traded via direct access you wont want to go back to spreadbetting.

I don’t want to get on my soapbox again on this one because mine and others experiences are largely documented on other threads in this section and also in the ‘fixed odds’ section of the BB. However I would say that spreadbetting in this country is, despite what people / companies may claim, completely unregulated. The people who are supposed to regulate this business are for the most part unaware of the nature of the business and the conflicts of interest which exist between a ‘market principle’ (that’s the spreadbet co.) and you as a customer. I still have a complaint being investigated by the Financial Ombudsman regarding ‘dealing sharp practices’ which has been ongoing for almost 9 months. It’s a slow process which almost requires you to ‘puppy walk’ the investigator through the various procedures which should be in place to protect the customer. Apparently there is now a specialist spreadbetting ombudsman – only time will tell how good he is and how much he is aware of.

If you do decide to start spreadbetting then you will likely find few problems. New punters are normally welcomed with open arms. From my experience it is when your account grows or you start making short sharp profits that they take a dislike to you. Normally they’ll just introduce a small delay in execution which results in a number of your trades getting rejected or you being filled at a worse price.

Needless to say, you don’t get that kind of nonsense with a direct access broker. His reputation is formed on speed of execution at an advertised market price.

Hope this helps,
Steve.
 
People complain about the SB companies business practises but in reality it's just good business, and 99% of the people would do the same if wearing different shoes.

It's a well known fact (for many different reasons) that the majority in the markets lose over time so if you had the chance to invest in one of two start up Spread Betting firms which would you do?

1) The firm that made it's money purely on the difference in the bid-offer and therefore hedged all bets, or

2) The firm that also made money off its bid-offer but also took the majority of client orders on its books, ie if a client sold £10 a point in FTSE to go short, the firm takes on board a £10 long trade.

Firm 1 is expected to make a solid profit of £250k a year while firm 2 is expected to make £750k a year

Obviously this is a very simplified example and it's still possible to lose a lot of money with firm 2 but overall it's safe to say that most businessmen would invest in firm 2.
 
Stevespray - interesting argument (i tend to agree with you) - however SB is the only way for position/swing trading - i would love to have direct access for overnight and long term positions but its not financially viable (or possible)

I agree with many of the statements, SB companies do need to clean up their images (and systems as well !!) but unless an alternative is viable they have us by the short and curlies :)

I'm sure that many of the companies monitor these and other boards, but do not take on board any critism.

As a matter of interest how does one set up a SB company ??

Pervaz
 
i have, it is along the lines of "this is gonna flyee" "Going into ORBIT" and "Down she goes to 4p" Its a complicated system to master.
 
spread betting is only for amateurs - and since amateurs are going to lose anyway - spreadbettors could offer the best deals in town -and anyone using them would lose anyway

but the bitter sweet irony is that all or any nonesence that the spreadbetting companies come up with - does not make them any more money, its just because in general, most spreadbetting companies are run by unsuccessful ex-traders who dont have a clue anyway
 
i have, it is along the lines of "this is gonna flyee" "Going into ORBIT" and "Down she goes to 4p" Its a complicated system to master.
Click to expand...
Is that also the one where ' fillyaboots, get a shed full, this is going to rocket, buy now before it is too late',
applies?
Isn't there a very expensive monthly fee associated with that feed?
 
stevet

"..spread betting is only for amateurs.." piffle - disagree with you. As I said not everyone wants to day-trade - hence spreadbetting (for swing/position) is the next best thing - unless there is an alternative (viable)
 
From what I know of my dealings with IG Index and presumably any SB company worth their salt, they almost ALWAYS take the full risk of the other side of your bet. Simply put, they know most all traders lose more than they make - especially newbies, so not only do they make the spread, they also make all of your loss.

IG as a company is insanely wealthy and profitable, last time I did business with them selling them some IT hardware it was dropped out in casual conversation they had over £8m in cash in their expense account ready to buy stuff with - this company has the best of everything equipment and officewise, they sink cash into expensive IT hardware to minimise their tax bill. They were the best payers I'd ever supplied to.

What you need to remember is that, when you Spreadbet, you are already in the hole to the tune of the spread. If anyone can consistently make just the spread alone on every trade they should be trading on futures and they would have the holy grail - the spread on the S&P is typically 0.7 of a point, worth approx $37.50 on the Emini future per contract. Do that on every trade with 10cts and you are sorted. With SB, you have to do that just to break even... SB stacks the odds drastically against you to start with.
 
What MartinD says is quite correct but I have no problem paying £8 to put £50 into my pocket.
My last few SB trades:-
Cable spread 8pts profit £90
DJIA spread 10pts loss £30
Cable ---"----- 8 " profit £28
Cable ---"------ 8 " profit £54
DJIA ---"-------10 " loss £27
DJIA -----"------10 " loss £11
DJIA -----"------10 " profit £80
DJIA -----"------10 " profit £ 2

These were £1 per tick eyeball only bets. Maybe my opinion is biased since I come from a background where 30% profit was the norm. In the case quoted adding spread to losses I still make that 43% profit.
I'm sure that had I applied the same diligence that I apply to larger bets my profit margin would have been 10-15% greater. :)
 
Pervaz

a professional trader makes all their income from trading

i have never met a trader who makes the bulk of their income from trading anything but intraday

whilst it may seem that spreadbetting offers a viable method to trade longer term - it is establishing the longer term position which is the imperative - and the ability to close that long term position in an efficient manner, should the long term position not pan out immediatly as planned - so the parameters of establishing a long term position are the same as establishing a short term intraday position

so if you are a trader consistently making 6 figures plus per year primarilly on long term positions with spreadbetting - fine - but you are the exception to my point that only amateurs use spreadbetting - and therefore the problems of spreadbetting are unimportant - since the amateur will lose anyway
 
Anley…..

You said that “People complain about the SB companies business practises but in reality it's just good business, and 99% of the people would do the same if wearing different shoes.”

I disagree with that. It is not good business, its cheating. I would define good business as the skills involved in correctly moving your spread in order that your companies risk is reduced to its lowest level. Messing around with the execution procedures is a further method of extracting value from a customer by effectively making your market in hindsight. A customer should also have the right to trade a quoted price without having to first reveal his intentions to the ‘market principle’. You can not act in this fashion in the real market so why is it fair to do so when you operate a parallel market ?

I agree with what you say about people generally losing over an extended period of time. This of course, as you point out, makes it more sensible for the spreadbet companies to bet directly against the customer in an un hedged manner. Some companies do of course choose to hedge their net exposure and again, as you point out, their profits are generally derived from the bid / ask spread. You do however have to consider the higher risk with betting directly against customers without hedging. Whilst in the long run you stand to make all that the customer loses there are times when customers will have a run on the bank as it were so your projected profits aren’t always as stable as the firm who hedges everything. In essence, the prospect of higher profits comes, like everything market related, with a higher risk.

The bottom line is that, in my opinion, swinging your markets around greater than, and, away from the underlying is fine but screwing with the execution procedures so certain customers have a higher chance of getting orders rejected is not acceptable and must be regarded as outright cheating as that behaviour would never be acceptable on the stock exchanges.

Steve.
 
this is interesting reading! however depite Sb companies being pretty unfair on its customers most of the time, is there an alternative for someone that wants to trade, whether it be short term, and actually be putting money into the market, rather than some smart looking bookies, without needing to deposit several thousands pound to open an account. Thats the one thing SB's have going for them, the leverage, shame about everything else.

My ideal situation would be able to actually trade live cash/futures prices, and still have the leverage of Sb, is this possible?

thanks
 
stevet said:
Pervaz

a professional trader makes all their income from trading

i have never met a trader who makes the bulk of their income from trading anything but intraday
Click to expand...

Let me introduce myself then........

I am a professional trader who makes his income from trading.

I never trade intraday.

I am profitable.

I have placed 56 trades with SB's since March 2004.

Not one single trade has lost money.

I disagree with your statement that SB's are for amateurs. I know many market professionals who successfully use SB's for long-term trading. However, what I will say is that the MAJORITY of SB's clients are amateurs (largeley because the margin / deposit requirements are smaller and they can deal in smaller lot sizes than they would through a traditional broker).

As the majority of SB's clients are either newbies to derivative trading, or have a smaller "pot" to play with, it is not surprising that the majority of their clients get burnt.

The win / loss ratio (I seem to read everywhere that 80% lose ) is not a result of sharp practise by the SB's, but more to do with their typical client profile- newbie, inexperienced, limited funds.
 
stevespray said:
Anley…..

You said that “People complain about the SB companies business practises but in reality it's just good business, and 99% of the people would do the same if wearing different shoes.”

I disagree with that. It is not good business, its cheating. I would define good business as the skills involved in correctly moving your spread in order that your companies risk is reduced to its lowest level. Messing around with the execution procedures is a further method of extracting value from a customer by effectively making your market in hindsight. A customer should also have the right to trade a quoted price without having to first reveal his intentions to the ‘market principle’. You can not act in this fashion in the real market so why is it fair to do so when you operate a parallel market ?

Steve.
Click to expand...

Steve

In a perfect world I supose it could be called unethical but in reality this is a very dog eat dog world especially in the financial markets. This is why I say it's good business because anything that makes good money legaly in my book is good business (whether I like it or not).

If you were a shareholder in IG index would you be happy that they did this and the shares were good performers and paid good dividends or would you prefer for the shares to go down with no dividend because they ran their business with the clients in mind first and not their bottom line. It's hard to have it both ways these days.

This is such a tricky subject though that we can all all talk about it forever without coming to the right conclusion.
 
Stevet, I don't make six figures from SB and may never do. I fully appreciate your point about day trading. It can be very frustrating seeing smaller moves where direct access would have made me money but SB won't. I will probably make the jump at some point, once I've got used to risking capital on a wiggly line. :)

Blairlogie, I agree that the small pot has a lot to do with it. As has user profile.

We should also remember that SB started as a service for professionals.
 
Steve,

"..a professional trader makes all their income from trading.." - How do you define a professional trader -

i) in your case its a daytrader.. I'm not a daytrader and probably wouldnt be - I have a small concentration span and like doing multiple projects at the same time.

ii) Is it the number of successes or failure that you trade ?

iii) Is it the amount of money you make (or lose)

I put on average 8-12 SB's a month (about 60% of them are opening or closing positions). SB allows me to trade at my convience over a long period which I determine - and helps to push the odds in my place (not much but a little more than daytrading).

You didnt answer my second question: If SB is bad - and I want to position/swing trade - what are the (financially viable) options left ??

Thanks
 
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