So what am I really up against?

[noeyedear]

OK new to spread betting. At the moment it is just pencil and paper no real money.
(I did use real money and lost it all, so I decided to stop and ask for directions, several books later, I'm thinking give it another shot).
I've set a target to average 10 points a day. I'm just to begin with going to stick with the FTSE.
I've been working on a set of rules, what is most difficult is getting myself to stick to them.
Assuming I have a killer system and I stick to it, what am I up against regarding the broker?
On the face of it it looks like a 50/50 win or lose. But no way are they letting me make 50/50 bets, so how are the brokers skewing the odds in their favour?
If it was 50/50 there would be a lot more winners than there are. I can not believe they are trusting to luck that there are more losers than winners.
So what happens?
Slippage? outdated info?
I can not believe they will be looking at my £2-5 a point bets on an individual level to play dirty tricks.

I can also see that it's not the amount per point you are betting, but that times your stop and they only pay out on the times per point bet.

The spread is not make or break, so what is the real deal please?

 

[chaselancaster]

The real deal is that they know that overall a high percentage of retail traders will lose in the end, and a high percentage fund up their accounts for another go or several other goes, and indeed a good percentage of these -much like gamblers that go to a casino - accept the losses as a part of /the cost of the 'entertainment.' They also know that retail traders are generally under funded so will use high leverage to magnify gains to meaningful amounts and most have bought the industry notion that it is a sprint not a marathon, which adds to the chances of losing overall. They know too that retail traders mostly cannot/will not take the time/be able to devote the time (for pressing mercantile reasons like earning a living) to get good at it with a proper edge, then overcoming the psychological obstacles that beset so many (one of which you have alluded to in your post - ie discipline.) So in answer to your question - they rely on no more than you - the trader - that's the deal. In answer to your thread title : You are up against yourself !

OK new to spread betting. At the moment it is just pencil and paper no real money.
(I did use real money and lost it all, so I decided to stop and ask for directions, several books later, I'm thinking give it another shot).
I've set a target to average 10 points a day. I'm just to begin with going to stick with the FTSE.
I've been working on a set of rules, what is most difficult is getting myself to stick to them.
Assuming I have a killer system and I stick to it, what am I up against regarding the broker?
On the face of it it looks like a 50/50 win or lose. But no way are they letting me make 50/50 bets, so how are the brokers skewing the odds in their favour?
If it was 50/50 there would be a lot more winners than there are. I can not believe they are trusting to luck that there are more losers than winners.
So what happens?
Slippage? outdated info?
I can not believe they will be looking at my £2-5 a point bets on an individual level to play dirty tricks.

I can also see that it's not the amount per point you are betting, but that times your stop and they only pay out on the times per point bet.

The spread is not make or break, so what is the real deal please?

 

[kalott]

What is a Market Maker and How do Market Makers Make Money

 

[noeyedear]

What is a Market Maker and How do Market Makers Make Money

So the Broker only makes on the spread? I find that hard to believe, they need funds to pay out to the winners and they trust to luck more money will lose than win?
Is it really that simple.

 

[timsk]

So the Broker only makes on the spread? I find that hard to believe, they need funds to pay out to the winners and they trust to luck more money will lose than win?
Is it really that simple.

Hi noeyedear,
Not quite that simple, no. They entrust very little - if anything - to luck. Most SB firms most of the time (but not all - all of the time) hedge their book in the underlying market, so they won't lose money to their customers. Besides the spread, they make on overnight transaction charges and they either don't pay any interest on funds deposited or, if they do, it's below market rates. So, that's 3 ways for them to make money, before deciding whether or not to forego hedging against client positions.

I know that if I owned or ran a SB firm, I'd genuinely want my customers to do well and I'd do everything I reasonably could to help them. That way, they'll trade more, they'll tell their friends to use my firm and they'll deposit more funds into their account etc. - all of which is money in the bank for me. Whereas, if they blow their account, they're likely to think it's down to my platform or firm and, if they try again, they'll switch broker. So, with every closed account, I can't make a bean and, worse than that, I have to spend a fortune on advertising trying to find a replacement customer. That's waaaaay harder, more time consuming and more costly than looking after the ones I already have.

So, to conclude, I'd say chaselancaster sums up the situation pretty well. The deal is that it's much more about you the trader than it is about any broker. There are other reasons along the same lines that s/he describes as to why the SB firms tend to fair rather better than their clients. E.g., when retail traders do well, they attribute it to their skill and ability (as opposed to luck or some other factor) and then they up their position size. When they hit a losing streak - which inevitably they do - they give their profits back in double quick time and then some. Brokers of any kind - SB or otherwise - are the least of your worries, IMO. As chaselancaster rightly says - you're mostly up against yourself.
Tim.

 

[barneydunn]

So the Broker only makes on the spread? I find that hard to believe, they need funds to pay out to the winners and they trust to luck more money will lose than win?
Is it really that simple.

A few points...

Trading is never as simple as 50/50. The chance of the next tick being up or down may be 50/50 but the chance of the next 10 ticks all going up or all going down is infinitely smaller. Any bet you place has to beat the spread first too so that does give them another edge.

There are two ways that brokers can make money. One is to hedge all trades that all their clients take straight into the market so if you win or lose money the only money they get to keep is the spread.

The other way is to not pass trades on and keep the money lost and pay out the money won. Of course if they get a client who looks like they know what they are doing and start making decent money then they still have the option of passing that clients trades on to the market.

Which brokers follow which model is hard to say but I'm guessing that there are a lot of brokers who go with the latter option. See my post linked below.

http://www.trade2win.com/boards/spr...adbetting-market-all-seems-5.html#post2179680

It's more about slippage and STP forex brokers but I'm sure the same applies to spread betting brokers too.

If you want my advice on trading then I would stick to daily charts only. Anything less than that is largely noise. Just an opinion.

 

[barneydunn]

Sorry Timsk, overlapped! Your summary is very good.

 

[Shakone]

It's not 50-50. You can go to a casino and bet on the roulette red or black and the odds aren't much different from 50-50, they're a bit less, but that edge is enough.

If you aim for 10 points with a stop of 10 points on an instrument with spread of 1, (assuming you're not filled on the bid or ask) you'll need a movement of 11 points in your direction to win, and only a movement of 9 points against to lose. The odds of winning there are then 45%. You may also have to pay your broker commission for the privilege.

Most traders are just losing on the equivalent of the roulette wheel. Other than that, it's what Chaselancaster said.

 

[noeyedear]

It's not 50-50. You can go to a casino and bet on the roulette red or black and the odds aren't much different from 50-50, they're a bit less, but that edge is enough.

If you aim for 10 points with a stop of 10 points on an instrument with spread of 1, (assuming you're not filled on the bid or ask) you'll need a movement of 11 points in your direction to win, and only a movement of 9 points against to lose. The odds of winning there are then 45%. You may also have to pay your broker commission for the privilege.

Most traders are just losing on the equivalent of the roulette wheel. Other than that, it's what Chaselancaster said.

Ok Guys thanks.
Probably a subject for another thread but the rules I am writing down are to condition myself to do nothing, so not much when to trade more when to leave it alone and do nothing. The urge to do something is my biggest battle.
I'm using stops between 6 and 10 points depending on my signal and market condition strength, my target is stop amount plus 50%. I've had a couple of days of 30 point and a 57 point loss, equally I've had days of better wins, best to date 130. I'm hitting my 10 point target on paper and some. This is is the reason for my original post, I was wondering what I was missing, what hidden extra traps I might fall foul of that grab profits.
Still at least a couple more weeks of paper trading to go, just to prove I'm on the right track and to simplify my rules.
Thanks again.

 

[Splitlink]

So the Broker only makes on the spread? I find that hard to believe, they need funds to pay out to the winners and they trust to luck more money will lose than win?
Is it really that simple.

The character of the SB firm is as expressed in the above posts. I've been with mine for over a decade and the losses incurred are my fault. I admit that and others should take a good look at their trading procedures before they blame the other side. The SB is a bookie, straight and simple, and mine pays out to the winners and collects from the losers.

Having said that, you should look at what I call the roadroller effect. The market does the same,taking out the stops in both directions and these stop and limit orders are where you do not want to be or, at least, you should be buying where the majority want to sell and vice versa.

Easier said than done, I know, but get that sorted and you will have solved a serious problem for many. Welcome to the club!

 

[NVP]

the real deal is also they will make monye from you win or lose .......ask them for Free training and help that is usually available .....the longer you stay in the business the more they earn

N

 

[barneydunn]

you should be buying where the majority want to sell and vice versa.

I hear this a lot and it always confuses me. I'd rather buy when everyone else is buying and sell when everyone else is selling because that is what is going to move the market in the direction of my trade.

 

[pboyles]

OK new to spread betting. At the moment it is just pencil and paper no real money.
(I did use real money and lost it all, so I decided to stop and ask for directions, several books later, I'm thinking give it another shot).
I've set a target to average 10 points a day. I'm just to begin with going to stick with the FTSE.
I've been working on a set of rules, what is most difficult is getting myself to stick to them.
Assuming I have a killer system and I stick to it, what am I up against regarding the broker?
On the face of it it looks like a 50/50 win or lose. But no way are they letting me make 50/50 bets, so how are the brokers skewing the odds in their favour?
If it was 50/50 there would be a lot more winners than there are. I can not believe they are trusting to luck that there are more losers than winners.
So what happens?
Slippage? outdated info?
I can not believe they will be looking at my £2-5 a point bets on an individual level to play dirty tricks.

I can also see that it's not the amount per point you are betting, but that times your stop and they only pay out on the times per point bet.

The spread is not make or break, so what is the real deal please?

It has yet to be proven that SB companies defraud their clients but several retail forex companies have been caught. Seeing as how at least one of the companies also provides spreadbetting it's not unreasonable to assume that SB clients are also being defrauded. The fraud is generally done by controlling slippage, google virtual dealer plugin for one example of what they are using. Other tools no doubt exist.

 

[Splitlink]

I hear this a lot and it always confuses me. I'd rather buy when everyone else is buying and sell when everyone else is selling because that is what is going to move the market in the direction of my trade.

You are right. Look at it this way. When the majority is looking to buy, you went into the market 10-15 points higher, for example, and now you have your stop just where the rest are entering the market. What if all the losing traders have have their stop losses there and a mass of pessimist sellers have their sell to open orders there, too? The market is going to go down like lead and you should have been selling to open, not to close.

If you can analyse the stop area correctly you will gain a big advantage.

I hope that I have expressed my thinking clearly, I'm not a good teacher.

What I said before was confusing.

 

[Purple Brain]

I hear this a lot and it always confuses me. I'd rather buy when everyone else is buying and sell when everyone else is selling because that is what is going to move the market in the direction of my trade.

I believe splilink is suggesting that if you are in a position to sell when everyone else is buying (price is rising), you’ll be able to get top dollar. Conversely, if you are in a position to buy when everyone else is selling (price is falling) you’ll get in at bargain basement level. This obviously requires an element of timing to get in as close to the top/bottom as possible on entry. Momentum and volume I am informed are useful clues.

Your position is equally valid in that if you get on board with the current momentum the trade will be almost certain to go your way from the off. But you are then faced with the timing element of when to exit the trade where the buying/selling is drying up. Which is exactly the point to which splitlink is referring.

Where to get on and where to get off seem to be arbitrary in that the top/bottom pickers for entry must take the chance that there will be no reversal, but when there is, they’ve got in at an optimum level. And while a momentum entry carries less risk of the trade not developing to your benefit, it also means you will grab less of the available run and still places on you the onus of determining when to get out at an optimum exit level.

Top/bottom pickers need to be right on the levels twice on each trade and have an added risk of a lower probability of the trade developing right from the off.

Momentum entries have lower risk of the trade not developing from the off, but offer less reward for that reduced risk. You also only have to get the exit level right.

I’m cobbling this together from various notes and posts I’ve picked up on this site so if it’s completely off kilter I’d appreciate an experienced trader jumping in and saying so.

 

[barneydunn]

I believe splilink is suggesting that if you are in a position to sell when everyone else is buying (price is rising), you’ll be able to get top dollar. Conversely, if you are in a position to buy when everyone else is selling (price is falling) you’ll get in at bargain basement level. This obviously requires an element of timing to get in as close to the top/bottom as possible on entry. Momentum and volume I am informed are useful clues.

Your position is equally valid in that if you get on board with the current momentum the trade will be almost certain to go your way from the off. But you are then faced with the timing element of when to exit the trade where the buying/selling is drying up. Which is exactly the point to which splitlink is referring.

Where to get on and where to get off seem to be arbitrary in that the top/bottom pickers for entry must take the chance that there will be no reversal, but when there is, they’ve got in at an optimum level. And while a momentum entry carries less risk of the trade not developing to your benefit, it also means you will grab less of the available run and still places on you the onus of determining when to get out at an optimum exit level.

Top/bottom pickers need to be right on the levels twice on each trade and have an added risk of a lower probability of the trade developing right from the off.

Momentum entries have lower risk of the trade not developing from the off, but offer less reward for that reduced risk. You also only have to get the exit level right.

I’m cobbling this together from various notes and posts I’ve picked up on this site so if it’s completely off kilter I’d appreciate an experienced trader jumping in and saying so.

Splitlink and Purple

I see what you mean and I understand now.

My feeling on it is that I would rather use a buy or sell stop to get me into a trade when the market was moving in the direction I want to trade than watch everyone buying or selling and try and tell when the buying/selling pressure is going to dry up. I suppose if you could spot the right time you could buy and sell at the extremes but I don't know many people who would advocate trying that.

 

[lucas_king]

OK new to spread betting. At the moment it is just pencil and paper no real money.
(I did use real money and lost it all, so I decided to stop and ask for directions, several books later, I'm thinking give it another shot).
I've set a target to average 10 points a day. I'm just to begin with going to stick with the FTSE.
I've been working on a set of rules, what is most difficult is getting myself to stick to them.
Assuming I have a killer system and I stick to it, what am I up against regarding the broker?
On the face of it it looks like a 50/50 win or lose. But no way are they letting me make 50/50 bets, so how are the brokers skewing the odds in their favour?
If it was 50/50 there would be a lot more winners than there are. I can not believe they are trusting to luck that there are more losers than winners.
So what happens?
Slippage? outdated info?
I can not believe they will be looking at my £2-5 a point bets on an individual level to play dirty tricks.

I can also see that it's not the amount per point you are betting, but that times your stop and they only pay out on the times per point bet.

The spread is not make or break, so what is the real deal please?

Hi,

I think you’re a little mistaken when you say “so how are the brokers skewing the odds in their favour”. This isn’t like your high street bookies which set the odds. The prices you see on the FTSE for example are the prices mirrored by the underlying market. The fact is, if you go long and the FTSE goes up, you make money. If you go long and the FTSE goes down, you lose money. Most brokers should simply hedge your bet (zero risk for them) and they will make on the spread. So if it’s 1 point spread on the FTSE for example (6500-6501) and you do £2 per point, the broker will make 1 point X £2 = £2.

Hope that helps!

 

[noeyedear]

I have nothing to fear with using IG then.
Thanks all again.

 

[lucas_king]

I have nothing to fear with using IG then.
Thanks all again.

As you're new I think it's better to check all FCA regulated brokers. Don't invest too much at the beginning. I used CMS, City in past. Currently, I'm using IG, Saxo and Accendo Markets for CFDs and SB as they are providing DMA. I was not aware of Accendo Markets. I find out Mike Van Dulken in twitter and he is really very good market researcher(https://twitter.com/Accendo_Mike). and then sign-in with Accendo. Accendo Markets also providing markets overview everyday and other trading materials for free. Now I'm happy with all the brokers here. Please make sure you understand the trading properly. Good Luck

 

[noeyedear]

As you're new I think it's better to check all FCA regulated brokers. Don't invest too much at the beginning. I used CMS, City in past. Currently, I'm using IG, Saxo and Accendo Markets for CFDs and SB as they are providing DMA. I was not aware of Accendo Markets. I find out Mike Van Dulken in twitter and he is really very good market researcher(https://twitter.com/Accendo_Mike). and then sign-in with Accendo. Accendo Markets also providing markets overview everyday and other trading materials for free. Now I'm happy with all the brokers here. Please make sure you understand the trading properly. Good Luck

Thanks again.I'm still just paper trading, I was looking for the catch, I keep coming out on top!
Still going to give it a bit longer yet. I thought about kicking off with £5k, £2-£5 bets. My stop loss I've been using are 6 to 11, depending on what profit I think is in the trade.