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

[Vasco da Banana]

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.

It can't be predictable, otherwise it wouldn't be a market.

 

[Splitlink]

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?

That's, probably, the reason why the most popular markets are down to a one point spread, There is so much volume that they can place one contract size constantly, while the quieter markets have higher spreads.

I had not given this much thought. Thanks for a good post.

In fact, there is not much reason for them to turn anyone away, if they stick with the main instruments. Someone who is trading ten quid is trading a contract, anyway.

 

[Canulearntotrade]

Thanks again to all of you for your long, considered, and thought-provoking responses. I shall mull on them carefully before deciding what to do with this.
Have a nice weekend all
David

 

[barjon]

Thanks again to all of you for your long, considered, and thought-provoking responses. I shall mull on them carefully before deciding what to do with this.
Have a nice weekend all
David

Here's a couple of threads that you might peruse - there are more, too, with specific complaints if you search a bit.

http://www.trade2win.com/boards/spr...ad-spread-bet-fills-here-research-needed.html

http://www.trade2win.com/boards/spr...e-all-just-close-our-spread-bet-accounts.html

 

[pboyles]

Thanks again to all of you for your long, considered, and thought-provoking responses. I shall mull on them carefully before deciding what to do with this.
Have a nice weekend all
David

I have a much more entertaining story about the pay to learn to lose money trading industry. Have you ever heard of Mike Baghdady, previous name Mahmoud Baghdady, previous previous name Mahmoud Ali Mahmoud? You could write a book about his exploits, multiple bankruptcies, appearances in the small claims court, staff moaning about not getting paid, former staff allegedly getting a slap around the ear. All of this whilst claiming to be the world trading champion and a millionaire.

 

[rsh01]

I believe it is true, the difficulty is that to date none of them have been caught, primarily because the authorities have not tried. If you look at retail forex however you will see that many companies have been caught defrauding their clients using some of the methods you mention. They have all been caught by the US authorities though, as SB is not allowed in the US the SB companies get much less scrutiny than would otherwise be the case.

lets put it into context.....

take the TBTFs & other multimstionals' nefarious activities of late which have at least been fined: libor fixing (Barclays); swap rate fixing (JPM); electricity price fixing (JPM et al); oil swap price fixing (Total); martingaling when supposed to be a hedging risk function (jpm - the whale); using client fund as collateral to leverage trade sovereign bonds (MF Global); Money laundering for mexican cartels (HSBC); equities (everyone Buffet etc)

so out of major mkts this only really leaves gold (PMs - wont be long before this gets found out) and fx - which are not being manipulated (haha). regulating fx wld be a nice start.

(must have missed some off, anyone got anymore? i have only been adding one example so if you have anymore)

so with these fine custodians what do you expect further down the chain? its a morally bankrupt industry, & i worked in it for far too long.

 

[pboyles]

lets put it into context.....

take the TBTFs & other multimstionals' nefarious activities of late which have at least been fined: libor fixing (Barclays); swap rate fixing (JPM); electricity price fixing (JPM et al); oil swap price fixing (Total); martingaling when supposed to be a hedging risk function (jpm - the whale); using client fund as collateral to leverage trade sovereign bonds (MF Global); Money laundering for mexican cartels (HSBC); equities (everyone Buffet etc)

so out of major mkts this only really leaves gold (PMs - wont be long before this gets found out) and fx - which are not being manipulated (haha). regulating fx wld be a nice start.

(must have missed some off, anyone got anymore? i have only been adding one example so if you have anymore)

so with these fine custodians what do you expect further down the chain? its a morally bankrupt industry, & i worked in it for far too long.

Exactly, but still some people think a SB company won't scam a few pips off them here and there, not even a SB company that was caught doing the same thing on FX accounts. I can't help thinking some people are addicted to this as a form of gambling and are unwilling to recognise the problem because they're in denial about it all.

 

[barjon]

Exactly, but still some people think a SB company won't scam a few pips off them here and there, not even a SB company that was caught doing the same thing on FX accounts. I can't help thinking some people are addicted to this as a form of gambling and are unwilling to recognise the problem because they're in denial about it all.

Can you think of any business, in any form of commerce, that plays things absolutely straight with their customers at all times? I'd be surprised if you could draw up a very long list.

That doesn't make it right, of course, but it does mean that we continue to do business until we feel that we are being too severely disadvantaged - then we go go elsewhere (long live competition, lol). Why should anyone think differently so far as SBs are concerned? Maybe they are not necessarily "in denial", but just accepting that there may be a slight extra cost from time to time.

 

[Splitlink]

Exactly, but still some people think a SB company won't scam a few pips off them here and there, not even a SB company that was caught doing the same thing on FX accounts. I can't help thinking some people are addicted to this as a form of gambling and are unwilling to recognise the problem because they're in denial about it all.

I believe that you are correct. It is a form of gambling to, not just some people, but to many, if not most. But to single out SB companies as the epitome of corrupt business practice is not correct, either. After what has happened to the capitalist world in the last few years, I consider it to be as safe an industry as many more, some of which working people had, because of their faith, their life savings and pensions decimated and where pillars of society have been named, shamed, fired and given golden handshakes at the same time!

Your posts are good advice to open people's eyes to what can happen if one is too trusting but people are gamblers by nature and business, in general, is a gamble, too. The number of betting shops in the high streets that have fruit machines before one gets near the counter is innumerable and they are in use all day.

I have been using the same SB company for a decade with no problem (visible to my eye, anyway). I am moderate and do not take undue risks. I win some and lose some. However, I do not believe that the instrument one uses to trade is more corrupt than the market, itself, and that is what the would be trader has to realise most. He cannot know, only believe, that he knows the direction that the market will take once he has opened his trade.

 

[pboyles]

Can you think of any business, in any form of commerce, that plays things absolutely straight with their customers at all times? I'd be surprised if you could draw up a very long list.

That doesn't make it right, of course, but it does mean that we continue to do business until we feel that we are being too severely disadvantaged - then we go go elsewhere (long live competition, lol). Why should anyone think differently so far as SBs are concerned? Maybe they are not necessarily "in denial", but just accepting that there may be a slight extra cost from time to time.

If you went into a shop and bought 10 bananas and they only gave you 9 would you -

1. Say 'where's my other banana'.

or

2. Don't count the bananas and accept that there might only be nine and that's just an extra cost that you accept because at the end of the day 9 bananas is probably enough anyhow.

I think you're saying it would be 2.

 

[pboyles]

And how long until someone gets a slippage/banana joke in.

 

[barjon]

If you went into a shop and bought 10 bananas and they only gave you 9 would you -

1. Say 'where's my other banana'.

or

2. Don't count the bananas and accept that there might only be nine and that's just an extra cost that you accept because at the end of the day 9 bananas is probably enough anyhow.

I think you're saying it would be 2.

well if I was buying 1kg of bananas and found when I got home they only weighed 998g because the guy had put his thumb on the scales I probably wouldn't moan too much.

 

[counter_violent]

And how long until someone gets a slippage/banana joke in.

All I want to know is, which DMA outfit you work for?

 

[pboyles]

All I want to know is, which DMA outfit you work for?

I don't recall saying they were any better. Look at MF Global for a start.

 

[Canulearntotrade]

Mr Baghdady

I have a much more entertaining story about the pay to learn to lose money trading industry. Have you ever heard of Mike Baghdady, previous name Mahmoud Baghdady, previous previous name Mahmoud Ali Mahmoud? You could write a book about his exploits, multiple bankruptcies, appearances in the small claims court, staff moaning about not getting paid, former staff allegedly getting a slap around the ear. All of this whilst claiming to be the world trading champion and a millionaire.

You're the second person to mention this gentleman's escapades to me recently pboyle. Hmm. Its not one for broadsheet's but it might be one for the tabloids. Please do get in touch via email if you fancy chatting more about this.
David
[email protected]

 

[barneydunn]

Can I just point out as well that most people will ultimately lose their money whatever their broker is like and that a lot of people who claim they have been disadvantaged in some way by the sharp practices of their broker are in fact just crap traders.