Spread Betting More Cost Effective than DMA?

[tommog]

Just was thinking to myself.
When you trade DMA you have 2 options, either to sit in the bid/offer or go to market. If you pay up at market you are paying a tick slippage.

If you sit in the bid/offer you are going to get filled 100% of the time on your losing trades but miss out on winners through slippage. i.e you want to sell 90's, price trades 90's but doesnt fill you then drops 10 ticks to your target. Thats -10 ticks slippage. Although that happens only occasionally, it adds up!

On top of that you have trading comissions which at retail level can cost half a tick. Ok, so you can trade at a prop firm but you have £2.5k desk fees, and if you are any good you are getting extra slippage getting in and out of the market because of the size you have on. Scale of economy does work when you get to decent size but im talking to most retail traders.

So, to keep it simple assume you have a trend following/trading breakout approach, you are getting in and out on stop market orders you are paying (at least) a tick slippage to get in plus half a tick in comissions.

If you spreadbet (a tightly quoted product such as FTSE,DAX, EUR/USD) you pay that tick slippage and NO comission.
Plus the tax advanatges!

 

[new_trader]

Just was thinking to myself.
When you trade DMA you have 2 options, either to sit in the bid/offer or go to market. If you pay up at market you are paying a tick slippage.

If you sit in the bid/offer you are going to get filled 100% of the time on your losing trades but miss out on winners through slippage. i.e you want to sell 90's, price trades 90's but doesnt fill you then drops 10 ticks to your target. Thats -10 ticks slippage. Although that happens only occasionally, it adds up!

On top of that you have trading comissions which at retail level can cost half a tick. Ok, so you can trade at a prop firm but you have £2.5k desk fees, and if you are any good you are getting extra slippage getting in and out of the market because of the size you have on. Scale of economy does work when you get to decent size but im talking to most retail traders.

So, to keep it simple assume you have a trend following/trading breakout approach, you are getting in and out on stop market orders you are paying (at least) a tick slippage to get in plus half a tick in comissions.

If you spreadbet (a tightly quoted product such as FTSE,DAX, EUR/USD) you pay that tick slippage and NO comission.
Plus the tax advanatges!

You don't get slippage on market orders. I think you are confusing spread with slippage.

 

[anley]

Plus the tax advanatges!

The tax-free is actually a disadvantage for most of their customers as a) they won't make over £10k in capital gains per year and b) losses cannot be offset.

 

[Chartsy]

You don't get slippage on market orders. I think you are confusing spread with slippage.

wut.don't you mean limit orders

 

[new_trader]

wut.don't you mean limit orders

Slippage refers to a failure to meet expectation with regard to the execution of an order. The slippage represents the difference between a trader’s estimated transaction costs and the amount actually paid due to market conditions or poor execution by the broker. It reflects how an order’s fill price differs from the price level that was entered. For example, if a sell stop loss order was placed at 1465 in the E-Mini S&P future contract and the order was filled at 1464.75, one would have experienced 1 tick of slippage on the order.

A market order is an order to transact a pre-specified number of shares at market price, which will cause an immediate execution, but is subject to price impact. Therefore, if you use a market order, there is no slippage. If you use a stop order, then when the market trades at your price, your stop becomes a market order and it gets filled at the current market price. You have slippage because you have a target price but you do not get it.Your stop price triggers the market order and the price you get depends on the liquidity of the market, the bid/ask spread, the size of the order and the market volatility. Slippage is common on stop orders.

The more volatile the market, the bigger is the chance of slippage. The more liquid the market, the smaller is the slippage. In some cases, it may even happen that you get a good fill below your stop price. The only way to avoid slippage is through the use of limit orders. By doing that, you demand a specific price to the market. Of course, the drawback is that you might miss a good profit because your order does not find a counterpart for the transaction and prices run immediately in your desired direction. If you trade within a short-term time frame using limit orders, you have to expect not to be filled every time. Note that if this can be accepted when you open a position, not being filled on a limit order might really be a problem when you want to close your position. Close monitoring of the market action is then required to make the proper decision. If you want to make sure that you are out of a position when you want to be, you have to enter a market or a stop order and accept slippage as an extra cost to pay for the certainty of the execution.

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Entering your trade “at market”. This way does not enable you to pick ahead of time, your entry price, and thus requires you to be constantly watching the movement of the market. Your timing has to be exact each time and you can still not be sure you are entering where you wish. But you cannot claim slippage because you didn’t first stipulate a particular price for you entry.

 

[tommog]

Ok to save discussing semantics when I said slippage I was referring to execution costs. Including spread. If the Market is 82@83 and you execute a trade at market you have bought 83 and it will cost you a tick to exit. Just as in spread betting. So my argument is that is the sum cost of execution SB. There are additional costs on top of this DMA.

I'd be very interested to learn more about which is more tax efficient though. I naively assumed SB was