The fast-growing spreadbetting market. Is all as it seems?

[Liquid validity]

I've never had any trouble with IG either.
Had normal slippage, had +ve slippage as well
(price improvement they call it, or they did when I last used them).

Only issue I had was one instance of a level alert coming 15 mins late.
I used external alerts after that.
Other than that, no problems.

 

[ffsear]

This is the same argument that was always used when people complained about dodgy slippage in FX, 'don't blame the broker', 'slippage is normal' blah, blah, blah. Then several FX brokers were fined for doing exactly what had been alleged all along. Now because the same brokers have not been caught defrauding their SB clients we hear these excuses again.

Does anybody really think that a broker caught using asymetrical slippage on their FX platform was not doing the same thing on their SB platform? Why wouldn't they?

The point is they don't need to play these tricks. Its a gold mine as it it is, why risk losing customers in a very competitive market?

A couple of dodgy brokers does not represent the whole industry. I have used IG for 4 years, Capital Spreads for 6 and tried various others. Never had any issues.

 

[Liquid validity]

It is an undeniable fact that certain firms have been fined
for dodgy practices, so PB does have a point there.
The MT4 plugin alone proves it does happen.

 

[Triggerfish]

The spreadbetting platforms look like the real market. And feel like the real market. But are of course a clever simulation.

The spread-betting companies claim they’re transparent mirrors of the market. And I’m sure some of them are. But some people see them more like casinos – where the house has an advantage.

My question: Is this really true? Can anyone prove it?

What does it take to PROVE that "Simulation" is the same as the "Real Market"?.....at ALL TIMES when the real market is ON?

Surely the question to "PROVE" must be first removed.....so to provide that guarantee?.....and not that by mere words.

 

[pboyles]

The point is they don't need to play these tricks. Its a gold mine as it it is, why risk losing customers in a very competitive market?

A couple of dodgy brokers does not represent the whole industry. I have used IG for 4 years, Capital Spreads for 6 and tried various others. Never had any issues.

FX brokers don't need to either, but they did.

 

[Canulearntotrade]

David,

Nice article, hopefully it got through to some members of the public who otherwise would have been roped into something unsuitable for them under false pretences.

The spreadbetters generally use proprietary platforms and have the ability to do whatever they want with spreads, prices, execution etc it's all within the Ts&Cs. However, it really doesn't make any business sense for them to spend all day watching their clients trade. As noted above the client is going to lose anyway, why ruin their reputation by fixing it? I am talking of the big players like IG. Even if you beleive something has gone wrong like mis-pricing etc they will run an investigation and if you can prove your stop-loss wasn't reached or profit target got tagged then they will amend the trade for you. The big spreadbetters all get their prices from the big liquidity providers just like other brokers. Normal brokers have the ability to fix all of the above just like the spreadbetters do (a la fxcm positive slippage). At the end of the day it's an over-the-counter market and you are trading against the broker. It's up to the broker if they want to hedge or not. The mandatory hedging by regulation is virtually nil.

Taking all that into account I don't think IG are dodgy, let's be honest they have more than 3/4 of the market so it's them that we are really talking about! They wouldn't fix it for the same reason online gambling firms don't fix their software and odds. Fines and bad reputation have a disastrous effect in an industry so heavily built on trust.

note, this is from a forex, futures and commodities perspective. Looking at spreadetting on shares is crazy imo, why would you trade short term in shares and pay the spread plus commission? The edge required is huge just to break even.

Thanks all for your stimulating and forthright opinions. To be honest this is not specifically about IG. They dominate the market its true. But there are plenty of new players that have come in on the last few years and I'm particularly interested in some of them. As I say, its only rumours... is there smoke without fire?
Cheers
David

 

[forexanalyst]

If you are looking into price fixing, you will have more luck with Binary Options, much more scandalous. Just before the option expires, the market maker can see their exposure and edge the rate up or down accordingly if it's close to strike. No snipers on binaries to keep them straight either.

 

[Vasco da Banana]

I've read that a lot of S/B companies don't like scalpers...I have concluded that the only scalper they must like is me.

The only scalpers they don't like are the few who make a profit. As long as you're losing, you can make as many trades as you want and have perfect execution.

 

[Shakone]

The only scalpers they don't like are the few who make a profit. As long as you're losing, you can make as many trades as you want and have perfect execution.

Not sure that's true, I think it depends on the company.

As an example consider trading the DOW. The real market is usually going to give you a 1 point spread, but you'll have commissions to pay. So IG can quite happily accept scalpers and hedge their risk in the real market and make money because they offer a 2 point spread. But any spreadbet offering 1 point is going to find things harder and is more likely to resort to dirty tactics (all in my opinion of course).

 

[Vasco da Banana]

Not sure that's true, I think it depends on the company.

As an example consider trading the DOW. The real market is usually going to give you a 1 point spread, but you'll have commissions to pay. So IG can quite happily accept scalpers and hedge their risk in the real market and make money because they offer a 2 point spread. But any spreadbet offering 1 point is going to find things harder and is more likely to resort to dirty tactics (all in my opinion of course).

Agree, but this isn't only about IG, most of the rest do offer 1pt spread on the Dow. They can do this without resorting to dirty tricks (if they wanted to) because of the self-hedging effect of opposing positions, so it's only if you tried to open a very large trade all at once that they'd need to intercept.

 

[CityMasterTrader]

Not sure that's true, I think it depends on the company.

As an example consider trading the DOW. The real market is usually going to give you a 1 point spread, but you'll have commissions to pay. So IG can quite happily accept scalpers and hedge their risk in the real market and make money because they offer a 2 point spread. But any spreadbet offering 1 point is going to find things harder and is more likely to resort to dirty tactics (all in my opinion of course).

I thank you’re right. However, I remember reading that the overwhelming majority of SB clients are long – something in the region of 80% (don’t quote me on this!). Not sure why, guessing it’s something to do with positive bias.

Anyway, this means that the self-hedging effect can’t be relied upon because the firm would then effectively be 80% short. It would therefore need to go into the underlying market and hedge that 80% - depending of course on the risk they intend to take on their trading book.

I think you’re right about larger positions being more likely to be ‘intercepted’, but only because they couldn’t easily hedge this in the underlying market – hence the need for re-quotes etc. The trouble is, it’s hard to separate the ‘dirty tricks’ from genuine market liquidity issues.

 

[Vasco da Banana]

I thank you’re right. However, I remember reading that the overwhelming majority of SB clients are long – something in the region of 80% (don’t quote me on this!). Not sure why, guessing it’s something to do with positive bias.

Anyway, this means that the self-hedging effect can’t be relied upon because the firm would then effectively be 80% short. It would therefore need to go into the underlying market and hedge that 80% - depending of course on the risk they intend to take on their trading book.

I think you’re right about larger positions being more likely to be ‘intercepted’, but only because they couldn’t easily hedge this in the underlying market – hence the need for re-quotes etc. The trouble is, it’s hard to separate the ‘dirty tricks’ from genuine market liquidity issues.

That bit about the majority being long probably referred to share bets. Indices and FX are closer to self-hedging, so the SB only has to hedge in the real market (not necessarily the exact underlying one) when the balance gets badly skewed.

 

[barneydunn]

I like this... "one man's stop loss is another man's take profit" (x4x)!

I agree with most of what has already been said but what hasn't been mentioned yet is that the brokers aren't stupid. In most firm's terms and conditions it clearly states that they have the right to pass your trade onto the market at any time. If you flag up with them as someone who knows how to trade it won't be long before they start regularly passing on your trades to the market. I've been trading forex for a good 5 years now and I have realised a few things.

When you trade forex with an ecn broker you regularly experience slippage. This is because they can only pass on trades in blocks of 1 full lot. If they can't pass your trade on due to low liquidity then your trade will experience slippage whether it is your stop/limit order or take profit/stop loss.

Now, when you trade with an "stp" (straight through processing) broker who claim to pass your trade on direct to the market you rarely experience slippage unless there is a gap due to a news item, etc.

The interesting thing is that when you start to make money with an stp broker you suddenly find that you are experiencing slippage. Why? This is obviously because once you are flagged as a profitable trader they start to pass your trades on to the market. The same problem occurs as with an ecn broker and they can't pass your trade on immediately all the time as they have to trade in blocks of 1 full lot.

This has happened too many times to be a coincidence and with too many brokers and what it obviously means is that they are NOT passing your trades on "stp" at all unless they consider you a threat to their profits. In this way they are actually behaving exactly as a "market maker" or spread betting company.

How does this relate to spread betting and this article? Well, I have only just started spread betting after having traded forex for just over 5 years but the big difference that I can see is that the spread betting companies are all pretty much upfront about what's going on. You are betting directly against them but if they don't like the look of you or your bet then they can simply hedge off your trades with the wider market and still make good money on the extra spread you are paying. This sounds and feels to me exactly like a traditional book maker although there is plenty of anecdotal evidence of people being turned away for good from betting establishments if they were found to be making too much money. Even today online bookmakers have been known to ban people if they made too much money.

At the present moment I can't say whether the same slippage and other problems will occur if you are profitable with a spread betting company. Presumably I'll find out soon enough but for the meantime I'm getting a good service from my broker and that's all I care about.

By the way, if I ever experience any problems that feel like price manipulation or problems closing trades when in profit, etc then I simply shut down the account and never look back, no questions asked. There are so many half decent companies out there that there is no need to indulge the shoddy ones.

As for the pay to learn companies, I can't comment from experience but it's true to say that everything you need to know is available for free in public forums so £13,000 for anything sounds a lot of money.

I hope this brings a fresh perspective on the issues brought up in the article?

 

[mike.]

Good post Barney


Its interesting that you traded forex then started spreadbetting, my intentions were the other way round, cut my teeth with the spreadbet brokers then progress onto trading once the shenanigans started that i was pre-warned about.

Like you though, im happy with my sb broker, never experienced any slippage and I dont see any advantage by trading forex as opposed to spreadbetting it.

 

[barneydunn]

Good post Barney


Its interesting that you traded forex then started spreadbetting, my intentions were the other way round, cut my teeth with the spreadbet brokers then progress onto trading once the shenanigans started that i was pre-warned about.

Like you though, im happy with my sb broker, never experienced any slippage and I dont see any advantage by trading forex as opposed to spreadbetting it.

Hi Mike,

To be honest I have never spread betted forex, only ever with a regular broker. I still trade forex with a forex broker but I have moved to spread betting due to the vast range of markets available. I trade daily charts so watching a handful of pairs on forex can take a long while to find a valid trade whereas with the instruments available on the SB brokers you can usually find something worth trading.

I did experience some slippage when I first started trading with my broker as I tried them out for straddle trading news. This can work really well with the right broker but I'm not surprised I got slipped some with an SB broker. I didn't expect much so wasn't disappointed.

As my post above suggests you may encounter problems no matter who you trade with. Maybe if you trade with at least one lot on every trade then you'll be ok?! Still a bit rich for me on daily charts with 100 to 250 pip stops!

 

[mike.]

Still a bit rich for me on daily charts with 100 to 250 pip stops!

Bit out of my league there

i just spreadbet the majors, day trade, look for 25 to 35 pips on a 1:1 R/R

win some and loose some but still going

 

[barneydunn]

Bit out of my league there

i just spreadbet the majors, day trade, look for 25 to 35 pips on a 1:1 R/R

win some and loose some but still going

It's all down to position sizing. 1% at 200 pips is the same loss as 1% on 30 pips. It's just down to how you see it.

I honestly don't think 1:1 can be profitable long term (I'm happy to be PROVED wrong). I won't even consider a trade unless I think it has the potential to go 1:5.

 

[mike.]

I won't even consider a trade unless I think it has the potential to go 1:5.

Which most likely is the right way to go, but, if i use a 35 pip s/l and a 35 pip t/p, throughout the day, a move like this this is often easily achievable, sometimes within minutes, yet on a 1:5, i would be looking for 175 pips ? wouldn't happen.

 

[barneydunn]

Which most likely is the right way to go, but, if i use a 35 pip s/l and a 35 pip t/p, throughout the day, a move like this this is often easily achievable, sometimes within minutes, yet on a 1:5, i would be looking for 175 pips ? wouldn't happen.

Fair point but that's why I don't trade intra day, I don't see the point? I'd rather follow trends and take multiple small losers before I hit a big trend that pays the money. It takes 5 mins a day too. (or it did before I started looking at the huge range of markets available on spread betting!)

 

[barneydunn]

I demo'd quite a bit before going live, I saw forex pairs often do strange things through the night, obviously the asian open had a lot to do with it, which went against my strategy i was trying to master, that's when i decided on intra-day. still learning, and a long way to go yet.

just to add, i tried demo-ing the s&p, got crucified, Its so unpredictable in my view, on par with women

Lol, I find everything unpredictable which is why I think you must go for a larger risk/reward to compensate. I wish you all possible luck with your trading anyway.