Why do Spread Betting firms insist on not allowing third-party trading platforms?

[Luc.Chase]

Why do so many Spread Betting firms insist on their clients only using the firm's own choice of inferior trading platforms?
Would it not be better for them and everyone else if they just had an open API to allow us to choose what platform we want to use?
Would be great to have any inside info on the logic behind them wanting to get involved in platform-software development and of course generally failing at it.
I do understand that they should provide something very basic for absolute beginners, but when you've got your skills up to a good level you begin to really appreciate being able to use good tools of one's own choosing.

 

[pboyles]

Why do so many Spread Betting firms insist on their clients only using the firm's own choice of inferior trading platforms?
Would it not be better for them and everyone else if they just had an open API to allow us to choose what platform we want to use?
Would be great to have any inside info on the logic behind them wanting to get involved in platform-software development and of course generally failing at it.
I do understand that they should provide something very basic for absolute beginners, but when you've got your skills up to a good level you begin to really appreciate being able to use good tools of one's own choosing.

They need to use their own platform so that they can rip you off with slippage and platform freezes. Though this example relates to forex you can see what goes on behind the scenes. I think some SB brokers use MT4 now.

http://www.trade2win.com/boards/for...tor-virtual-dealer-other-plugins-setting.html

 

[Lord Flasheart]

They need to use their own platform so that they can rip you off with slippage and platform freezes. Though this example relates to forex you can see what goes on behind the scenes. I think some SB brokers use MT4 now.

http://www.trade2win.com/boards/for...tor-virtual-dealer-other-plugins-setting.html

You are a cynic,but beat me to posting that. Thats exactly why

 

[Luc.Chase]

Since they control the data-feed couldn't they do that anyway?
And to be honest, although that may true of some firms, surely it can't be true of all of them. The betting firms I'm using now don't seem to add any slippage or other fishy stuff beyond what is in the real market, but don't seem to understand that I don't want them to provide me with a trading platform... I want to use my own.

 

[gle101]

Yes you got a point here and it is probably the future of SB. The drawback is that it could increase the support level for the company. Also the client having his own "front end" could result in orders not getting executed, in turn resulting in the client blame the SB, when the actual problem lies in the setup and integration through the API. As said before, some SB are already providing the MT4 platform. MT4 is not always the optimal platform for SB, I have found some issues with re-quotes and EA's not always getting executed. Most of the SB have fixed spread and being market makers I guess they want to have control over the platform. Not necessary in the intention to mess it up for the client. Some of the SB platforms have been improved greatly this past year, and I expect this to continue as competition increases.

____________
"Take control with Risk & Money Management"
Planning, Risk & Money Management

 

[Luc.Chase]

Yes you got a point here and it is probably the future of SB. The drawback is that it could increase the support level for the company. Also the client having his own "front end" could result in orders not getting executed, in turn resulting in the client blame the SB, when the actual problem lies in the setup and integration through the API. As said before, some SB are already providing the MT4 platform. MT4 is not always the optimal platform for SB, I have found some issues with re-quotes and EA's not always getting executed.

Sure, but that is equally the case with non-SB firms. It really seems that this is a problem specific to SB firms and not to regular brokerages. And I'm not saying they should not provide some basic platform for beginners and new accounts to quickly get started with. I don't think they would need much extra support knowledge. Anything specific to the platform and not related to the connection set-up would not be their concern. Trading gateways like Collective2.com seem to do it fine. In fact SB firms should collaborate with C2 as well.

I see a few are offering the option of MT4. A good sign I hope although I will not be using it.

Developing software is an expensive affair especially when you know it will only ever be used by your own particular group of customers. Seem illogical for them to not allow us to use own choice of best tools.

They need to use popular interface standards and be platform agnostic. Would be such an easy way for one of them to get an edge in their market, and presumably reduce costs.

 

[capitalspreads]

Just to add a bit of informed comment

it is all a matter of speed.

an EA linked to a very fast computer will always beat a spread betting provider because the spread betting company is quoting thousands of markets at the same time whilst an FX platform will only have around 50 markets to process. People must have wondered why MT4 only ever has a very restricted choice of markets compared to all the serious SB/cfd providers. this is because once MT4 goes over a certain number of markets it overloads the pricing engines.

As the SB provider is always the "market maker" the positions will always be taken by the company and, if they are dealing with a computer that is faster than their pricing engine, then the EA will only ever trade when the price is already in its favour and will do so hundreds of times a day if it is allowed.

how would you feel if every single time you traded you lost? not sometimes. or occasionally or frequently ... every single time. That is what happens when an Algo system is faster than the market maker engine on which it is trading.

LCG (who operate Capital Spreads) also runs a professional institutional FX platform via Currenex (Capital Forex Pro) and the liquidity providers (not LCG but the 16 biggest quoting FX banks in the world) do not like algo/EA traders either and these are companies with some of the fastest systems on the planet quoting into (probably) the best FX platform out there.

this is the real answer, shorn of all the 'conspiracy theories', but i admit it does not make as good reading. Maybe at some point in the near future systems will get good enough to accept EAs and Algos but we do not appear to be quite there yet.

Simon

 

[6am]

As the SB provider is always the "market maker" the positions will always be taken by the company and, if they are dealing with a computer that is faster than their pricing engine, then the EA will only ever trade when the price is already in its favour and will do so hundreds of times a day if it is allowed.

how would you feel if every single time you traded you lost? not sometimes. or occasionally or frequently ... every single time. That is what happens when an Algo system is faster than the market maker engine on which it is trading.

Thank you Simon for your answer.

With enough knowledge and determination I believe it is possible to automate any SB platform. For example in case of Captial Spreads it is possible to decompile the Flash platform to see how it works and then replicate the protocol to make it usable for automation.

Are you not worried that it is possible to exploit your platform if somebody did that. What steps do you take to prevent it?

 

[Luc.Chase]

Just to add a bit of informed comment

it is all a matter of speed.

an EA linked to a very fast computer will always beat a spread betting provider because the spread betting company is quoting thousands of markets at the same time whilst an FX platform will only have around 50 markets to process. People must have wondered why MT4 only ever has a very restricted choice of markets compared to all the serious SB/cfd providers. this is because once MT4 goes over a certain number of markets it overloads the pricing engines.

As the SB provider is always the "market maker" the positions will always be taken by the company and, if they are dealing with a computer that is faster than their pricing engine, then the EA will only ever trade when the price is already in its favour and will do so hundreds of times a day if it is allowed.

how would you feel if every single time you traded you lost? not sometimes. or occasionally or frequently ... every single time. That is what happens when an Algo system is faster than the market maker engine on which it is trading.

LCG (who operate Capital Spreads) also runs a professional institutional FX platform via Currenex (Capital Forex Pro) and the liquidity providers (not LCG but the 16 biggest quoting FX banks in the world) do not like algo/EA traders either and these are companies with some of the fastest systems on the planet quoting into (probably) the best FX platform out there.

this is the real answer, shorn of all the 'conspiracy theories', but i admit it does not make as good reading. Maybe at some point in the near future systems will get good enough to accept EAs and Algos but we do not appear to be quite there yet.

Simon

Would you not have control over this by the way the connector between your system and the trading platform is coded?

 

[capitalspreads]

6am

you are right in that clever buggers do come up with such programmes but we have checking procedures to find them.

we also have the terms which cover these situations.

In reality trading platforms are getting faster and faster so these situations are getting less and less requent. in normal trading environments sometimes a client will get a good fill and sometimes not. In the long run it should all even out..... and even the times when a trade request is auto rejected it is as likely to be because the market has moved out of the spread range in your favour as it is because it moved against you (our systems have to treat both situations the same as otherwise we would not be TCF)

Simon

 

[Bint_Crusher]

Spread betting = broker on the other side of the trade. Broker on the other side of the trade = unregulated stop running. Brokers platform = unregulated stoprunning for dummies.
I know there are some out there that don't insist upon using the brokerage platform so it might be worth shopping around.

 

[capitalspreads]

eerrr.

unregulated stop running? I think you will find that spread betting companies are very heavily regulated indeed.

I find the argument from clients is normally the other way round. They get very upset when they are stopped out at the low of a market move and always say "but you could see the market was about to bounce! Why didnt you leave it for a minute?

The problem is that "No, we do not know where any market is going" and a stop with a spread bet company is exactly the same as a stop on an exchange (except a stop with us does not become a 'market order'). To move the FX or indices markets even a few points would take hundreds of millions of pounds (in FX) or tens/hundreds of contracts in indices. The costs of try to 'stop hunt' makes it a ridiculous occupation.

SB companies cannot just quote any price they like. They must evidence it against the exchanges from which they get their prices. The FOS is very clear on this.

This does not mean that one set of stops in the market does not lead to others going off. I think Gold is probably the best evidence of this as moves in either direction seem to get sudden spurts as levels get taken out. But this affects all versions of trading not just SB.

In reality who on earth do you think is on the other side of virtually every trade that is made in the markets. Market Makers only quote on exchanges if they cannot be crossed with another MM so (unless a MM is offloading a position) nearly all trades are made between a client and a MM (not very frequently between two clients).

Simon

 

[Bint_Crusher]

eerrr.

unregulated stop running? I think you will find that spread betting companies are very heavily regulated indeed.

I find the argument from clients is normally the other way round. They get very upset when they are stopped out at the low of a market move and always say "but you could see the market was about to bounce! Why didnt you leave it for a minute?

The problem is that "No, we do not know where any market is going" and a stop with a spread bet company is exactly the same as a stop on an exchange (except a stop with us does not become a 'market order'). To move the FX or indices markets even a few points would take hundreds of millions of pounds (in FX) or tens/hundreds of contracts in indices. The costs of try to 'stop hunt' makes it a ridiculous occupation.

SB companies cannot just quote any price they like. They must evidence it against the exchanges from which they get their prices. The FOS is very clear on this.

This does not mean that one set of stops in the market does not lead to others going off. I think Gold is probably the best evidence of this as moves in either direction seem to get sudden spurts as levels get taken out. But this affects all versions of trading not just SB.

In reality who on earth do you think is on the other side of virtually every trade that is made in the markets. Market Makers only quote on exchanges if they cannot be crossed with another MM so (unless a MM is offloading a position) nearly all trades are made between a client and a MM (not very frequently between two clients).

Simon

Thank you Simon the spread betting salesman. Are you trying to convince me that If I place a limit order to go long at a specific price in an effort to catch a reversal that my order will be contiguously filled? And also are you trying to convince me that you don't squeeze just a little bit past the price in order to catch those inconvenient little stop loss orders? Also if you as I realise
use multiple exchanges cna you convince me that the prices quoted to the trader is the best one and you don't perhaps massage the prices just a teensy weensy bit?:smart::smart::smart:whistling

 

[MORRIS2001]

Any platform can be decoupled and replaced with a 3rd party GUI.

There are several reasons why this has not been done much to date.

Firstly there are almost no 3rd party front ends capable of robustly handling the number of markets an SB has to offer.

In addition the SB firms data is proprietary and it is vital to retain control of this data. You don't want to unwittingly pipe your data to a competitor.

Most 3rd party platforms like MT4 are issued by firms looking to run their own book. No SB is going to pipe data without getting a 1 for 1 flow return. If the user of the 3rd platform isn't running a book and just piping flow for a 1 to 1 hedge with the SB their income from the flow will be too small to cover the basic costs of marketing etc so it's a commercial non starter.

There are also issues with few firms actually owning their own tech. Most firms already use a 3rd party front and back end and so don't have actual control over their systems. The big rush for the last few years has been to break away and bring the tech inhouse. Once this happens the possibility of an API to external clients becomes more feasible.

However, even then there are commercial issues. Mainly where the credit checking is carried out, platform end or at the brokers' servers. If the former then you would never allow a 3rd party platform connection.

Finally, automation exposes your book to sudden skewing risk. You can monitor and control flow down your own platform. For example a client tries to deal in £500 a point in the FTSE, you can see that order and quote according to underlying market liquidity so your client gets the trade and you are able to hedge. But if the same order comes in instantly from 500 clients doing £1 a point that flow is going to slam in under your radar and your book gets hit for a massive position at the wrong price for that volume.

The simple fact is that API work is infinitely more complicated for a SB firm than any FX operator or a broker who only offers DMA execution as the product is far more complex.

API volumes work best when the flow is being routed direct to an exchange so is a broking deal not a bookmaking one or the flow is going into a book that is big enough to handle it as basic 'chatter'.

 

[Ross Spur]

Any platform can be decoupled and replaced with a 3rd party GUI.

There are several reasons why this has not been done much to date.

Firstly there are almost no 3rd party front ends capable of robustly handling the number of markets an SB has to offer.

In addition the SB firms data is proprietary and it is vital to retain control of this data. You don't want to unwittingly pipe your data to a competitor.

Most 3rd party platforms like MT4 are issued by firms looking to run their own book. No SB is going to pipe data without getting a 1 for 1 flow return. If the user of the 3rd platform isn't running a book and just piping flow for a 1 to 1 hedge with the SB their income from the flow will be too small to cover the basic costs of marketing etc so it's a commercial non starter.

There are also issues with few firms actually owning their own tech. Most firms already use a 3rd party front and back end and so don't have actual control over their systems. The big rush for the last few years has been to break away and bring the tech inhouse. Once this happens the possibility of an API to external clients becomes more feasible.

However, even then there are commercial issues. Mainly where the credit checking is carried out, platform end or at the brokers' servers. If the former then you would never allow a 3rd party platform connection.

Finally, automation exposes your book to sudden skewing risk. You can monitor and control flow down your own platform. For example a client tries to deal in £500 a point in the FTSE, you can see that order and quote according to underlying market liquidity so your client gets the trade and you are able to hedge. But if the same order comes in instantly from 500 clients doing £1 a point that flow is going to slam in under your radar and your book gets hit for a massive position at the wrong price for that volume.

The simple fact is that API work is infinitely more complicated for a SB firm than any FX operator or a broker who only offers DMA execution as the product is far more complex.

API volumes work best when the flow is being routed direct to an exchange so is a broking deal not a bookmaking one or the flow is going into a book that is big enough to handle it as basic 'chatter'.

MT4 with SB still seems to work a lot faster than most of the in-house or third party platforms, not mentioning any C*Cs.
re, the effect of £500 pp compared with 500 £1pp bets, I'd imagine that software can easily weed out unusual trade patterns and act accordingly. In any case, can't the SB ultimately fall back on the 'manifest error' get-out clause?
As a matter of interest, what percentage of trades would you say are directly hedged?

 

[MORRIS2001]

MT4 does have the advantage of being streamlined for a very small number of markets. Typically just FX and silver and gold for most providers. This does mean you are piping streaming data and orders too and fro under vastly less demanding conditions.

MT4 usership may also have the advantage of being spread over a large number of servers with fewer platforms on the same network. This isn't necessarily commercially viable for an SB firm. I would also hazard that the nature of spread betting means you get much higher time specific loads hitting you. MT4 users are spread globally and with the nature of FX being more naturally 24 hours the loads are spread more evenly rather than being UK centric flow peaking at predictable times during our short trading window.

With regards to flow checks, yes firms in the most have systems to try and spot and safeguard against this but their systems are designed to let as much conventional flow in and accepted within tolerances and there is always the risk that flow from an API can accidentally meet these parameters and the first they know is the book is imbalanced and in need of hedging but the underlying market has moved.

In the matter of what % is hedged or not, while it is the £64m question it is one that cannot be answered.

Every firm runs their book differently from low levels of hedging to high.

But within this range are continuously changing variables. In a traditional book you would have a maximum deal size per instrument that would trigger automatic hedging to remove all risk. This would vary as your book and or balance sheet varied along with market conditions, typically volitility.

Likewise you would also have total exposure limits on each market. Small cap equities you might have as zero whereas cable you might be happy to run several million either way.

The size of your book has relevance as well. A larger book doesn't just give more two way flow that hedges naturally but also allows you to cross hedge across asset classes. Each asset normally has some form of correlation with others so allowing some form of netting off. Why pay to hedge VOD direct when it is a significant constituent of the FTSE index and using the FTSE flow coming in from clients is the cheapest way to hedge a basket of FTSE equities. Ie it costs you nothing as opposed to LSE clearing costs on each shape.

Costs of clearing hedges can also have an effect and lead to firms running larger exposures if they aren't getting a good price at the clearers in contrast to competitors.

There is also the matter of A and B book clients where one group is hedged more and the other less. Sometimes this is extremely prevalent in a firm and sometimes it doesn't exist at all.

In reality it is a balancing act. Firms have to offer the best execution they can to look after their clients and keep them away from competitors but at the same time manage risk well enough to not have losses that damage the business.

There is a legacy going back decades of some firms not hedging at all but the market will always catch them out. Such firms can't last long. At some point their clients will end up on a run that creates client gains greater than the balance sheet.

In theory a listed firm would be more wary and cautious with their hedging. The reason being is that the book doesn't always win and with having to report numbers regularly as well as alert the market to material changes they cannot afford a long run of book losses or a large manifest hit as the announcement could/would destroy the share price.

I seem to recall IFX having to announce a large book loss to the market a decade ago and while it would have been made back the following month/quarter the share price tanked and ultimately led to the demise of the business.

I think it was 2008 when equities had a strong and prolonged rally and an unhedged firm would have taken very heavy losses. The rally on oil from the sub $40 level would also have had a devastating hit to firms not hedging enough.

I know this doesn't give the answer but I hope it sheds a little light.

 

[dealer911]

A couple of companies are set to roll out spread betting on MT4 later in the year - will probably be a limited product range but as soon as a couple of providers offer this facility the others will follow - most Expert Advisor's lose money anyway so not a major threat - the next generation of traders only want to use API's so I think it's inevitable that the major companies will either adapt their platforms or allow 3 party like meta.

 

[MORRIS2001]

A couple of companies are set to roll out spread betting on MT4 later in the year - will probably be a limited product range but as soon as a couple of providers offer this facility the others will follow - most Expert Advisor's lose money anyway so not a major threat - the next generation of traders only want to use API's so I think it's inevitable that the major companies will either adapt their platforms or allow 3 party like meta.

Yes, this is definitely the case. As you allude to the product range is a big issue but EA vols are based around just FX and again, as you suggest the vast majority ensure clients lose. As such, it becomes easier to use some 3rd party platforms which are not designed for multi asset trading or real hedging.

Many platforms have been built to be sold to the firms which run a business model which looks for only small clients and hedges absolutely nothing. The old formula that your client funds are actually your next quarter's profit.

 

[Ross Spur]

Yes, this is definitely the case. As you allude to the product range is a big issue but EA vols are based around just FX and again, as you suggest the vast majority ensure clients lose. As such, it becomes easier to use some 3rd party platforms which are not designed for multi asset trading or real hedging.

Many platforms have been built to be sold to the firms which run a business model which looks for only small clients and hedges absolutely nothing. The old formula that your client funds are actually your next quarter's profit.

Quite a few of these platforms were originally from Ariel Comms, I think, who used to brag about the 'adjustable slippage' facility.

 

[The Leopard]

ibetfinancials is an sb firm. They use CQG and other platforms.