Why does spread betting include slippage?

[b0lty]

I'm quite new to this but a little confused over slippage and why it should exist with spread betting. It's my understanding that spread betting doesn't involve performing any actual market trades, hence why it's tax free. So if all spread betting "trades" are merely being performed on the spread betting firm's computers and furthermore they're merely bets made against the spread betting company, rather than against other traders (gamblers), why should there ever be slippage unless it's "artificially imagined" ?

It's not like I need to buy any actual market stock off of someone else in order to fulfill my order.

Am I missing something fundamental here or is slippage simply another means for spread betting firms to increase their profits?

 

[mike.]

Their aim is to mirror the underlying market prices as close as possible ( within 1-2 pips/points ) As their book may require them to hedge your bet in the actual market, If they occur slippage in a fast moving market then unfortunately it is passed down to you too, on the flip side you can also gain positive slippage.

Its Something you shouldn't really experience unless you are trading a volatile market, Major news release for example. If you notice excessive neg slippage then maybe time to change brokers.

 

[tokyojoe]

I'm quite new to this but a little confused over slippage and why it should exist with spread betting. It's my understanding that spread betting doesn't involve performing any actual market trades, hence why it's tax free. So if all spread betting "trades" are merely being performed on the spread betting firm's computers and furthermore they're merely bets made against the spread betting company, rather than against other traders (gamblers), why should there ever be slippage unless it's "artificially imagined" ?

It's not like I need to buy any actual market stock off of someone else in order to fulfill my order.

Am I missing something fundamental here or is slippage simply another means for spread betting firms to increase their profits?

Hi bolty, although you are not dealing with the market directly, you will find the price reflects the actual market price quite closely during market hours, therefore the volatility/spikes/slippage etc will closely mirror direct market.

Out of hours you are at the mercy of the great unknown, slippage/spikes, etc (not for me) there are guys who do it on this forum, they have learned to deal with it pretty effectively from what I can see.

 

[b0lty]

Thanks Mike.

Would that mean if they're not hedging your bet you'd receive no slippage? Or is that a daft comment? I guess they're hedging on the overall balance of customer's trades rather than individual's positions?

 

[b0lty]

That's another point that's interested me Tokojoe. I'd be looking at trades over several days, so a little concerned about what will happen to the price out of hours. Will the price fluctuate as much as it could during the day? Will you see spikes at night that end up wiping out stop loss positions, only for the price to return to the market value by morning? On that note, if that's a possibility, are there any spread betting brokers that only open at the same time as the markets?

 

[tomorton]

Yes, spikes in SB can hit stops especially on stocks at their exchange's open. They are a minefield with no good solutions.

It used to drive me mad when I was spreadbetting stocks, to the point where I have been known to cancel stop and limit orders on my London stock SBs after 1630, then re-instate them after 0800: although the SB firms I have used won't let you trade on these between these times, you can place or amend orders at any time.

Spikes can be a real response to market activity or risk so sometimes they are an indicator that a trade you have on carries a high leel of risk / volatility, perhaps more than you have anticipated when opening it - so they might have a use in shedding light on a trade even if you're not taken out.

But they can also be artificial, generated purposely or accidentally by the SB firm's price generation system or their data feed and only apparent on the SB chart. They can even later be edited out of the chart so that 2 days later, surprise surprise, there never was a spike. They can also be concealed by whether the SB chart shows bid price or mid price. And as far as I have heard, SB firms don't chart their spreads at unusual trading hours such as around their own Open or around news like rate decision announcements.

A decent SB firm will reinstate your position or account if a spike has been due to bad data (in my own experience even before they have been contacted).

Beware also that demo SB account charts show exactly what live account charts show if you're using them to compare SB firms or to back-test strategies.

 

[gle101]

Yes I think the question of slippage is a valid as we are for the most part dealing with "fixed" spread market makers. In fact when a broker have fixed spread, why the need for slippage? It is my viewpoint, that there should not be any slippage if the spread is same and not variable. There is no supply and demand issue (unless there is a huge stake size which demands the broker to hedge). The problem of slippage might arise, when there is a large gap in the real market, but that is another issue altogether.

 

[mike.]

Thanks Mike.

Would that mean if they're not hedging your bet you'd receive no slippage? Or is that a daft comment? I guess they're hedging on the overall balance of customer's trades rather than individual's positions?

They will have their own set of rules, but i would imagine that clients betting £1 per point long will cancel out trades on those whom are £1 p/p short, so broker collects the spread from both trades. On the other hand, a client makes a trade £100-500/ point then he may get a slight delay until the broker hedges his trade. [MENTION=67940]Highbury fx will be able to give you more of a insight as to what happens on the broker side of the screen.

 

[BSD]

Coz they're bucket shops out to make a penny for themselves.

Not to provide the customer with a fair and transparent trading platform they can make money off.

Virtual dealer pt1 - a demonstration of Virtual Dealers "Delay" setting, shows how to automatically create slippage with every market order.

This video shows how a broker can easily inject prices into the market to create spikes of various sizes and if needed hunt your stops. This feature is rarely used in the industry at this time. There are much more advanced plugins and tools offered by a number of software companies, whos main purpose is to make a Brokers life easier.

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

Who all believes they manipulate price for the benefit of the customer ?

That's why CFD outfits aka spreadbetters or other bookies are illegal in the US.

Dunno why they don't outlaw FX operators too. They outlawed all bucket shops already in Livermores day for a very good reason, they made money when the customer lost. Simple as that.

 

[BSD]

I thought Oanda were a bit better than the rest of the bucket shops. That's where I had one of my first accounts.

Maybe that's naive, maybe that's changed since co-founder Michael Stumm - for whom I had lotsa respect - was forced out.

But whatever the case may be, I have a neighbour who got interested in trading because of me, and I showed him what I do, and had him open a demo account at Oanda because its free and unlimited there and see if he could hack it.

Thing is, I trade futures, and the prices he saw had nothing, but absolutely nothing to do with the real exchange traded and regulated markets.

Seriously, there's only one reason imaginable for that, and profitability of the customer isn't high up on the list !

 

[tomorton]

That's why CFD outfits aka spreadbetters or other bookies are illegal in the US.

I can't think consumer protection in the US counts so highly that SB should be banned.

Isn't it more likely the big players in the finance sector just don't want low-end competition?

 

[mike.]

Its more to do with the US on-line gambling laws than anything else, as the title says,spreadbetting....classed as online betting, period.

 

[BSD]

I can't think consumer protection in the US counts so highly that SB should be banned.

Isn't it more likely the big players in the finance sector just don't want low-end competition?

Haha that is certainly an excellent point must agree.

Also the second carries weight I believe.

Not as if Goldmans Sachs - actually broker of choice if you trade with the Bright Brothers - exactly had a white vest.

The Great American Bubble Machine

From tech stocks to high gas prices, Goldman Sachs has engineered every major market manipulation since the Great Depression -- and they're about to do it again

The first thing you need to know about Goldman Sachs is that it's everywhere. The world's most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.

Read more: http://www.rollingstone.com/politics/news/the-great-american-bubble-machine-20100405#ixzz3QOz2BC00
Follow us: @Rollingstone on Twitter | RollingStone on Facebook

 

[tar]

Thing is, I trade futures, and the prices he saw had nothing, but absolutely nothing to do with the real exchange traded and regulated markets.

Seriously, there's only one reason imaginable for that, and profitability of the customer isn't high up on the list !

Which market you are talking about ?

 

[BSD]

Oh we went through the list tar.

If I remember right the Euro BUND was off by sthg totally ludicrous like 50 odd points when we compared !!!

 

[tar]

Oh we went through the list tar.

If I remember right the Euro BUND was off by sthg totally ludicrous like 50 odd points when we compared !!!

50 points ! This could be an opportunity as well - for arbitrage - ...

 

[b0lty]

So if spread betting firms are suspect, is there any other means where by you can take a short position where it isn't in the interest of a broker for you to lose out?

 

[BSD]

When my buddy got going he'd call me up and say hey Markus I'm long the BUND at 158.70 whaddaya reckon - even though I told him he has to think for himself but that's a different story lol -, and I'd check and see 159.20, and tell him hey mate what's up you had a vision impairing early snort into your supply of Brazilian Marching Powder or what ???



Exchange traded and regulated instruments, Bolty, where everyone gets the exact same price.

 

[mike.]

So if spread betting firms are suspect, is there any other means where by you can take a short position where it isn't in the interest of a broker for you to lose out?

I could be reasonably confident that you could spreadbet for 6 months + and never experience any slippage or broker shenanigans, a lot of it is rumour. Providing you dont trade big news events. just my opinion.

Ive had zero slippage in over a year.
That doesn't mean it doesn't ever happen.

 

[BSD]

Thing is how do ya know that when all you see is the price your spreadbetter quotes you and unless you're paying for real time quotes from the real exchange which is the only way to get the real price in real time ?