UBS trader jailed - the difference between spread betting and direct market trading

[SlowlyButSurely]

In the news Kweku Adaboli, the UBS trader was jailed after amassing huge losses last year. Apparently he also would spread bet his own account from home and pissed away hundreds of thousands meaning he was in fact in debt despite earning over £300,000 p.a.

My question then is how bad is spread betting in relation to using more traditional methods Such as direct market access?

I know it has its benefits such as being tax free and also offering leverage (which can also be a bad thing) but what are the other negatives, and unless you are trading direct to the market are you bound to eventually go broke despite having a sound trading method?

Or alternatively was Kweku just a gambling addict that was irrational in his trades and like most fell victim to over leveraging. I ask only because in The Times many traders said they lose money with Personal spread betting accounts.

 

[0007]

An incompetent trader will lose money regardless of his broker/trading style/method - eventually. Spread betting just allows you to do it more quickly and effectively. I'm not knocking spread betting -- in the right hands it's a very useful tool.

 

[SlowlyButSurely]

Good comment and makes sense. Just looking to get a good discussion around this as although i use an sb broker i often wonder if there are any real dangers (besides obvious ones such as Broker being dodgy) and whether DMA brokers offer any benefits until you start trading larger positions

 

[Splitlink]

In the news Kweku Adaboli, the UBS trader was jailed after amassing huge losses last year. Apparently he also would spread bet his own account from home and pissed away hundreds of thousands meaning he was in fact in debt despite earning over £300,000 p.a.

My question then is how bad is spread betting in relation to using more traditional methods Such as direct market access?

I know it has its benefits such as being tax free and also offering leverage (which can also be a bad thing) but what are the other negatives, and unless you are trading direct to the market are you bound to eventually go broke despite having a sound trading method?

Or alternatively was Kweku just a gambling addict that was irrational in his trades and like most fell victim to over leveraging. I ask only because in The Times many traders said they lose money with Personal spread betting accounts.

A professional trader should have known that trading is a dangerous game when one moves into stakes that attract the attention of the bet accepters.

This guy probably had, at least, one dealer monitoring his account all the time. In other words, he stuck out and they went for him not, necessarily, to get him but to protect themselves.

If he is a bad trader then he has had it. As simple as that. A good trader, working on the "only trade x% of your capital at a time" principle, advice that I have read often on this site, would, if he is a businesslike person, still be in business.

He is addictive to gambling as others are to drinking. Newcomers should treat him as an example of how not to trade, not fear the peple with whom he trades.

 

[rsh01]

In the news Kweku Adaboli, the UBS trader was jailed after amassing huge losses last year. Apparently he also would spread bet his own account from home and pissed away hundreds of thousands meaning he was in fact in debt despite earning over £300,000 p.a.

My question then is how bad is spread betting in relation to using more traditional methods Such as direct market access?

I know it has its benefits such as being tax free and also offering leverage (which can also be a bad thing) but what are the other negatives, and unless you are trading direct to the market are you bound to eventually go broke despite having a sound trading method?

Or alternatively was Kweku just a gambling addict that was irrational in his trades and like most fell victim to over leveraging. I ask only because in The Times many traders said they lose money with Personal spread betting accounts.

The ubs guy has no relevance to your thread title. He was punting (and losing money) at work with DMA, and punting (and losing money) at home with SB, but whatever he was doing it provides 0 insight to the differences of SB v DMA. Not sure how you have managed to link the two.

This topic (SB v DMA) has been covered countless times. A google search or thread search here shld provide enough material to answer your query. In the context of what you read in the times - more newbies will be trading with SBs as they can trade small stakes (pennies per tick) whereas DMA is fixed tick size, and you have easy access to many 'markets'. I don't envisage many part timers trading DMA, whereas I wld guess the majority of SB clients are part timers (though I don't know the figs to confirm this). Yet there are successful traders trading with SBs, as well as with DMA. Besides, you can trade DMA with some SBs, which kinda makes your query moot, as you can have the advantages of both (eg 0 tax in the UK being one main SB advantage), though you pay more for the privilege.

As someone else posted on a recent thread - if you have a sound strategy it will make money using DMA or SB. What you pay to your brokers/SB is for you to work out whether its too much/competitive etc. If what you pay in fees/slippage is knocking you out the black then you are a fool for sticking with them/not doing your research. You have counterparty risk with both SBs and brokers providing DMA and there are dodgy brokers and dodgy SBs. Some styles of trading suit DMA better - eg scalping.

 

[SlowlyButSurely]

The ubs guy has no relevance to your thread title. He was punting (and losing money) at work with DMA, and punting (and losing money) at home with SB, but whatever he was doing it provides 0 insight to the differences of SB v DMA. Not sure how you have managed to link the two.

This topic (SB v DMA) has been covered countless times. A google search or thread search here shld provide enough material to answer your query. In the context of what you read in the times - more newbies will be trading with SBs as they can trade small stakes (pennies per tick) whereas DMA is fixed tick size, and you have easy access to many 'markets'. I don't envisage many part timers trading DMA, whereas I wld guess the majority of SB clients are part timers (though I don't know the figs to confirm this). Yet there are successful traders trading with SBs, as well as with DMA. Besides, you can trade DMA with some SBs, which kinda makes your query moot, as you can have the advantages of both (eg 0 tax in the UK being one main SB advantage), though you pay more for the privilege.

As someone else posted on a recent thread - if you have a sound strategy it will make money using DMA or SB. What you pay to your brokers/SB is for you to work out whether its too much/competitive etc. If what you pay in fees/slippage is knocking you out the black then you are a fool for sticking with them/not doing your research. You have counterparty risk with both SBs and brokers providing DMA and there are dodgy brokers and dodgy SBs. Some styles of trading suit DMA better - eg scalping.

I had no point, I'm not trying to slag off SB or anything really, I was just interested in what people might think of the whole fiasco as when reading through the article in the Times it seemed to me that rather than placing the blame solely on this trader and UBS for not spotting it sooner they tried to shift some of the blame onto SB's saying that they offered 'dangerous amounts of leverage'

I use an SB myself as it's tax free and suits my needs, but thanks for your comment, just trying to get some views on it all

 

[rsh01]

I had no point, I'm not trying to slag off SB or anything really, I was just interested in what people might think of the whole fiasco as when reading through the article in the Times it seemed to me that rather than placing the blame solely on this trader and UBS for not spotting it sooner they tried to shift some of the blame onto SB's saying that they offered 'dangerous amounts of leverage'

I use an SB myself as it's tax free and suits my needs, but thanks for your comment, just trying to get some views on it all

havent seen the times article but seems a bit odd for them to take a stance against SBs. he had leverage with both, though he hid the leverage from UBS by booking fake trades.

UBS got off stupidly lightly today with the poxy FSA fine, for someone to be able to hide a £10bn loss from everyone putting the company and thousands of peoples jobs at risk is unbelievable. this in the wake of all the apparent tightening of risk controls across the banking industry eg sox, basel etc etc.

 

[Splitlink]

I had no point, I'm not trying to slag off SB or anything really, I was just interested in what people might think of the whole fiasco as when reading through the article in the Times it seemed to me that rather than placing the blame solely on this trader and UBS for not spotting it sooner they tried to shift some of the blame onto SB's saying that they offered 'dangerous amounts of leverage'

I use an SB myself as it's tax free and suits my needs, but thanks for your comment, just trying to get some views on it all

The media wil always slag off anything that smells of gambling. It is selfrighteous, holier than thou and sells newspapers. I use SB, too, and have done for years with no complaints. That is not to say that I advise it for everyone because we must all know our own safety limits.

 

[SlowlyButSurely]

Found this article whilst reading something else and the guy makes a fair point

Kweku Adoboli / UBS/ The week review « disgracedbanker