Marvin – Thanks for your replies to some of the previous points.
To be honest I think that you will always be in a lose / lose situation as a spreadbet representative commenting on this type of message board (although Simon from Capital Spreads clearly does a terrific job). The problem is that the audience is so varied. Most authors on books about public speaking will tell you to “Know your audience”. On these boards it is so varied; some new and inexperienced, some old and experienced and some with hidden agendas. This makes ‘knowing your audience’ very tricky indeed.
There are a few points that I would like to make regarding various experiences myself and others whom I know have had happen to them whilst spreadbetting. Personally I have made a considerable amount of money through spreadbetting so statistically I apparently fit into the ‘small minority’. My winnings have come from both shorter and longer time frame speculation. In general I have never had any problems with any company with regard to longer term speculation. I often do stuff with options writing on Dow / FTSE / DAX and would generally hedge using direct access if that were required. The overall level of treatment on these instruments I would describe as ‘good’.
Unfortunately the same can not be said with regard to trading in the shorter time frame. By “shorter time frame” I mean anywhere from 10 seconds through to several hours. I have found that the spreadbetting companies hate it when you make nice gains in those time frames. It is when those gains occur that the companies will take action to mitigate their losses. Their first and indeed main weapon is good old fashion slow fills (or “dealer referrals” as you guys like to politely call it). This is generally a clear attempt by the companies to physically increase the costs of trading without increasing the advertised spreads. The truth is that any of the spreadbetting companies has the computer power to instantly execute clients trades in exactly the same way as a dealer referral (ie the computer can be programmed to carry out the same checks but in a fraction of a second). The reason why this doesn’t occur is because the spreadbet companies want, and indeed need to, introduce a significant dealing delay in order to bring about a situation which leads to a significant increase in trade rejections. Experienced traders clearly recognise what is going on when this occurs. Of course the spreadbet companies will always come back with comments about punters trading on slow prices but this is not the punters problem. The T&C of most if not all spreadbetting companies are implicit on this subject – “The client is speculating purely against the price of the company’s instrument and not against the level of any underlying market. The company retains the right to price their instrument in any manner they see fit blah blah blah”. Implicitly therefore it is down to the company to ensure that the prices quoted are as they would like them to be. Instead of banning customers why not just work at making the prices work in a manner which is appropriate for the situation. Obviously if a company provides quotes which are several seconds slow then customers looking for value (which is essentially what everyone involved in trading any market is looking for!) are going to be drawn to your particular quotes. If your wife sent you out to get her a new car you’d compare prices and buy from the garage which appeared to offer the best deal…yes? No different in spreadbetting is it.
The problem that I have found is that you can trade perfectly honestly and you’ll still be labelled by the companies. A friend of mine opened an account and I traded some Binary Bets for him. After two weeks and a couple of thousand pounds profit he was placed on ‘dealer vetting’. There can be no other reason for this action apart from the fact he was very profitable. Other friends of mine have found similar problems and the patterns are generally very similar. I’ve also traded a number of ‘grey markets’ with certain companies and again I found that they just kept moving the goalposts until such a point was reached that they are no longer prepared to quote me grey market prices. When I confronted them on the issue I was told that “You should take it as a compliment, we’re reluctant to take bets from you any more as you rarely get it wrong”. This therefore leads to a situation where it is clear that in some cases a company simply doesn’t want your business. Someone has already mentioned this fact in this thread.
To be honest I think all these comments about hedging are just a method of creating a diversion which keeps certain companies from having to publicly debate certain issues. Some of the spreadbetting companies are public companies registered in the UK and therefore have to register accounts. Some of these companies’ profits are obscene and are clearly not gained by running “a fully hedged book”. I would therefore question the comments made about all the companies having the same basic business model (in respect of a fully hedged book). I also recall some years ago that IG Index allowed a fly-on-the-wall documentary to be made about their London trading operation. It was quite an eye opener to be honest even though I already knew quite a lot about the goings on inside a spreadbetting company. Most surprising was the lack of hedging that appeared to go on. In fact I don’t recall the subject of hedging ever being raised in the programme. The company seemed to have daily meetings at board level where the financial dealing director was invited to set out the profit and loss on their main markets at that particular point in the week. In the weeks that the programme was being filmed the clients were clearly beating the company up on its market futures related products like Dow and FTSE. This however was being more than balanced out by clients who were incorrectly predicting a reversal in the London House Price market. The net result was that the company was ahead in that particular week. One of the senior dealing staff did appear to admit that morale in the dealing room dropped if customers out-fox them too often. In this particular case I think he was blaming volatility in the market which meant that bad trading habits weren’t being punished (in respect of customers bad habits ie averaging positions and running losing positions). As I already said, what struck me most was the willingness of the company to take on this ever increasing risk. They seemed to suggest that they knew it was only a matter of time before customers luck ran out.
The upshot of everything I know is that I don’t trust any of these spreadbetting companies. In order to make such large profits they take on a far bigger risk that a flat order book. Their ability to manipulate the order flow of successful customers puts them a in a position where they can not fail to make money no matter how good the short term punter is.
Steve.
