capitalspreads
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luc chase
i did 8 years ago with two other people.
i think it is a bit more difficult these days.
You need huge regulatory infrastructure/a trading platforms ((£1-2m) / permission from exchanges(pay them lots of money) / a spread betting licence from the FSA (18 months at least) / IT dev /chart providers/ hosting /support /dealers 24 hours a day / customer support / marketing / legal /compliance / finance /web build / lots of money because all client funds must be held in segregated accounts and ...eeeerrr some clients !
it was estimated by one of our white label partners (who got Mkinsey to do a report for them) that to operate a Spread betting company with any real chance of growing would require €8m a year, minimum, to operate even the most basic of offering.
easy really
simon
i did 8 years ago with two other people.
i think it is a bit more difficult these days.
You need huge regulatory infrastructure/a trading platforms ((£1-2m) / permission from exchanges(pay them lots of money) / a spread betting licence from the FSA (18 months at least) / IT dev /chart providers/ hosting /support /dealers 24 hours a day / customer support / marketing / legal /compliance / finance /web build / lots of money because all client funds must be held in segregated accounts and ...eeeerrr some clients !
it was estimated by one of our white label partners (who got Mkinsey to do a report for them) that to operate a Spread betting company with any real chance of growing would require €8m a year, minimum, to operate even the most basic of offering.
easy really
simon
Yes a lot of money, and with the fierce competition among the SB companies today I would stay away from such a risky enterprise.
____________
"Take control with Risk & Money Management"
http://www.trade2win.com/boards/pla...140296-visualrmm-interactive-new-concept.html
What is the cost involved of starting a white label operation under the umbrella of London Capital Group.
____________
"Take control with Risk & Money Management"
http://www.trade2win.com/boards/pla...140296-visualrmm-interactive-new-concept.html
Risky? The SB is much more likely to make a profit than the punters!
You have to look at the initial investment required, and marketing needed to get a client base large enough to make the investment pay off. This could take many years as I see it, especially as this industry is quite crowded with too many players competing in getting traders to sign up.
____________
"Take control with Risk & Money Management"
http://www.trade2win.com/boards/pla...140296-visualrmm-interactive-new-concept.html
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Yes, basically you have to bribe punters with 'free money' account opening offers, which must account for a significant chunk of costs, even if 80% blow it within days. Getting them to stay and keep trading is the next problem, and Simon's contributions here must help in that regard, while we can all think of other SB vendors who disappear as soon as they are asked awkward questions, which will have the opposite effect.
scose-no-doubt
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Even if you could overcome the ridiculous barriers to entry (which if you're on here you can't lol) you'd then find that the "best" firm is the one that makes you the most money and you'd soon be indiscernible from the rest of them. IMHO of course.
Say you were intending to deal at least initially in full market lot sizes only. Would that make it easier? No need for dealers inhouse. And why develop your own charting and trading platform? Just to deliberately slow down high frequency scalpers?
That might help things I guess - if you were going down the route of just clearing futures trades as 'spreadbets' then you'd at least remove the various costs associated with developing your own in house software etc... I'd assume you'd have to get into some form of clearing arrangement with an existing clearing firm here or US FCM etc...
I guess the added bonus for you, as you seem to be keen to do so, is you could potential then use ninja trader... it will work with a TT feed etc...
On the downside there is always the risk that, in the future, this doesn't get to count as 'spreadbetting' and you'd have essentially just set up a small futures brokerage.
capitalspreads
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Luc
actually it is not even as easy as that.
yes you have lost the requirement for dealers but you still need all the rest! The only 'money' you would make would be the commission that you charge for your clients trades. You will find that the spreads offered in the 'real world' are generally no better (and often worse) than those offered by the top SB companies.
Capital Spreads average client trade size is just £5. In the FX world this type of size would cost a fortune to clear. So for every client who trades in 50 to 100 quid we have 20/30 who trade in £3 or less. You would immediately lose out on all this biz!
But the real killer is the 3% gaming duty. A client makes a £10 trade in the FTSE, you charge him perhaps £3 a side, £6 round trip, you will be charged a few quid by your clearer. Client loses £500 on trade. You owe the inland revenue £15 in gaming duty. Net loss to you ....perhaps £12
You can never recoup this gaming duty even if the client then makes money off you later on.
This is why the one company offering this type of business in the UK requires that losing clients then pay an extra percentage on their losing bets to make up for this tax (so not only have you lost but, to add insult to injury, you then have to pay more for your temerity in actually doing so).
Our unit in Gib Prospreads ( Direct Market Access Functionality Spread Betting For Professionals | ProSpreads ) offers DMA functionality but does not have the problem over the 3% gaming levy so if you are looking for this type of trading you might find that it is already out there.
Simon
actually it is not even as easy as that.
yes you have lost the requirement for dealers but you still need all the rest! The only 'money' you would make would be the commission that you charge for your clients trades. You will find that the spreads offered in the 'real world' are generally no better (and often worse) than those offered by the top SB companies.
Capital Spreads average client trade size is just £5. In the FX world this type of size would cost a fortune to clear. So for every client who trades in 50 to 100 quid we have 20/30 who trade in £3 or less. You would immediately lose out on all this biz!
But the real killer is the 3% gaming duty. A client makes a £10 trade in the FTSE, you charge him perhaps £3 a side, £6 round trip, you will be charged a few quid by your clearer. Client loses £500 on trade. You owe the inland revenue £15 in gaming duty. Net loss to you ....perhaps £12
You can never recoup this gaming duty even if the client then makes money off you later on.
This is why the one company offering this type of business in the UK requires that losing clients then pay an extra percentage on their losing bets to make up for this tax (so not only have you lost but, to add insult to injury, you then have to pay more for your temerity in actually doing so).
Our unit in Gib Prospreads ( Direct Market Access Functionality Spread Betting For Professionals | ProSpreads ) offers DMA functionality but does not have the problem over the 3% gaming levy so if you are looking for this type of trading you might find that it is already out there.
Simon
Very interesting, so inland rev assess per cash transaction. Does the SB firm have the option of using 'chips' like in a casino? Client deposits funds to purchase chips/tokens does his period of trading and then is assessed only after the chips are depleted or cashed in. Then the SB is charge gaming duty once on the net amount. I guess if that were an option it would have been done already.... too obvious.
Thanks - it's interesting to hear your perspective.
Re betting duty, is it correct to say that you pay 3% on the gross 'profit' from bookmaking over the assessment period (rather than 3% on each individual bet that the client 'loses')? So, if, say aggregated bets over a year resulted in a notional bookmaking 'gain' of £1m (ie in aggregate, clients lost £1m), you would get assessed to 3% of £1m. After that you would calculate company PL in the normal way and pay corporate tax.
I imagine it gets more interesting where you are hedging a client's bets - if the client is consistently winning, that client won't cost you gaming duty (because their 'winnings' are deducted when calculating the bookmaking 'profit' you are assessed for), but you will want to protect yourself from losses vis-a-vis the client (hence hedge).
When you say you cannot recoup the duty even if the client wins later, does this mean that (for the purposes of betting duty) you cannot set off (or net off) bookmaking profits/losses across different assessment periods?
Again, thanks - it's interesting to get a perspective from the other side of the trade, and I apologise for the dry subject matter!
scose-no-doubt
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Well what if he didn't hedge the client bet? Then instead of being down £12 he's up £488 of the £500 that's now disappeared from the client's account. If the majority of retail spread betters are losers the it's a no brainer really. I'm sure you could work out a way to dead stop hedge any event risk with that kind of money for old rope.
Poem 101
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I believe it's net client losses calculated quarterly.
Thanks - if I located the right guidance it is quarterly (provided one keeps a clean nose and total bets are less than a certain amount), otherwise it appears to be monthly - s.6 of
HM Revenue & Customs
capitalspreads
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actually net losses calculated monthly (for CS) we passed the qrtly threshold virtually in our first year so it cannot be very high
Simon
Simon
That sounds more like it. The more throughput you have on major indices and FX, the more the longs and shorts tend to cancel out. Only hedge when the risk reaches a certain level, and many markets will have just a handful of low stake trades, which the SB knows will most likely be losers for the punter, anyway.
capitalspreads
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ross, scose
of course this is how most SB companies (in fact nearly all market making / FX / CFD / Betting / gaming companies) make the bulk of their money. I was responding to a question about only having 'contract size' bets going through an exchange. Which I personally would not see as a viable long term prospect.
Simon
of course this is how most SB companies (in fact nearly all market making / FX / CFD / Betting / gaming companies) make the bulk of their money. I was responding to a question about only having 'contract size' bets going through an exchange. Which I personally would not see as a viable long term prospect.
Simon