Spread Betting

[THEPUMA]

-The spreadbetting company takes the other side of your trade (it doesnt get passed through to the market), therefore they want you to lose as they are not there just to profit from a piddly 3 pips spread.

Not true. Certainly the firm I am aware of largely covers their bets on the market and only rarely takes a view. Of course, they only have to cover their net position in the market but most people bet upwards not downwards so they don't net off as much as you might think.

[SantaClaus]

Not true. Certainly the firm I am aware of largely covers their bets on the market and only rarely takes a view. Of course, they only have to cover their net position in the market but most people bet upwards not downwards so they don't net off as much as you might think.

As I said, the spreadbet co. dont pass your orders through to the market, they hedge their total position as you said.

[LostInBrussels]

Don't do it.

I guy I used to work with is about to lose his house from it.

Really? Are spreadbetting losses really enforceable? I mean, if the house has not been put up as collateral, there isn't a lot they can do to get their money back is there?

[Moscow Mule]

Really? Are spreadbetting losses really enforceable? I mean, if the house has not been put up as collateral, there isn't a lot they can do to get their money back is there?

Entirely possible.

Yes they are.

They can issue court proceedings and force bankruptcy, hence the sale of the house.

[Iron Condor]

Really? Are spreadbetting losses really enforceable? I mean, if the house has not been put up as collateral, there isn't a lot they can do to get their money back is there?

The law regarding gambling debts was changed a few years ago.

http://lawprofessors.typepad.com/con...ng-debts-.html

So they can take out CC judgement against you and then try and declare you bankrupt.

[MrMark]

I spreadbet for a living now, but I still contribute to these forums as I worked in IT and banking for 20 years.

There's a lot of un-informed opinion on these thread including some very ambiguous sentences!

There are pros and cons of spreadbetting:

Pros:
-It's tax-free, nothing to pay Hector at all.
-You can use guaranteed stops to limit your risk, i.e. to avoid your stoploss being slipped and possibly infinite losses.
-If you can trade well, a very good living can be made using just a laptop from anywhere in the world. There is no boss to answer to and you choose your own hours.
-Your starting capital can be low.

Cons:
-The spreadbetting company takes the other side of your trade (it doesnt get passed through to the market), therefore they want you to lose as they are not there just to profit from a piddly 3 pips spread.
- They can manipulate charts/price, slip your orders, delay entry. I have even seen them crash the platform just before an important news release. These are all standard tricks.
- 95% of traders blow there account.

To avoid some of the above tricks, either use limit orders with a guaranteed stop and preset profit target, or go through a (non dealing desk) futures broker that passes your orders to the market and doesnt take the opposite side of the trade. But be aware you wll then pay tax on profits. Also, if you use a proper broker, you will need to be well capitalised as you are trading full lots. You will also be exposed to unlimited losses if the market gaps or liquidity temporarily dries up, which can happen a lot during news releases.

In answer to brokers/spreadbetters knowing where your stops are, yes they do! Occasionally they have been known to manipulate their own price to spike out your stoploss, when the underlying market showed no spike at all. In this case you should contact them and dispute it.

However they dont have the power to move the real market and take out your stop. Its the big banks that do that and they are not just aiming for your stop, but 95% of retail traders who place stops at the same level (usually above/below a swing high/low on a low timeframe).

Stophunting usually happens during times of low liquidity (news releases, holidays, Asian trading session) when a relatively small amount of money can move the market for a short amount of time.

And yes, charts do vary. I use Metatrader, but there are plenty others.
Wouldnt trust any chart in isolation.

Great post, and thanks for clearing some things up.

One question - Are you still doing this (and making money from it)?

[ChimpMaster]

Great post, and thanks for clearing some things up.

One question - Are you still doing this (and making money from it)?

It is a good post indeed and you raise a question I also would like to know the answer to.

One of my ex-colleagues now works at one of these spreadbet firms as an iPhone developer, and tells me that the firm will hedge some positions in the market, but not all. What they do is monitor your trading pattern for success/failure/habits etc and work out if you are likely to lose your funds easily. If so, they take a calculated view to not hedge that person's position. So if you have £5000 in your account they hope you will lose it all easily, and then they want you to come back for more - chase your losses.

Ultimately they also want long term relatively successful punters, so that this can provide a stable backbone of margin profit for the firm.

I still spreadbet, almost every day in fact, but it's a frightening and unpredictable game. I've learned the hard way (and still am learning the hard way!), not to believe what you read and not to trust any of the market 'professionals', but instead do your own research. I still have a problem with over-leveraging my position and getting caught with my pants down because of it. My largest position was once > 400 points short on the DAX, which is ridiculous because it forces you to watch each and every price movement for every second until you close the trade out.

Smaller trades which let you sleep at night are the way to go. If you have an addictive personality then stay out of the game - or you will suffer.

[AtW]

One question - Are you still doing this (and making money from it)?

No - his "clever" strategy failed big time last year and he is apparently now sleeping rough on streets.

[SantaClaus]

Great post, and thanks for clearing some things up.

One question - Are you still doing this (and making money from it)?

Yes.

It is a good post indeed and you raise a question I also would like to know the answer to.

One of my ex-colleagues now works at one of these spreadbet firms as an iPhone developer, and tells me that the firm will hedge some positions in the market, but not all. What they do is monitor your trading pattern for success/failure/habits etc and work out if you are likely to lose your funds easily. If so, they take a calculated view to not hedge that person's position. So if you have £5000 in your account they hope you will lose it all easily, and then they want you to come back for more - chase your losses.

Ultimately they also want long term relatively successful punters, so that this can provide a stable backbone of margin profit for the firm.

I still spreadbet, almost every day in fact, but it's a frightening and unpredictable game. I've learned the hard way (and still am learning the hard way!), not to believe what you read and not to trust any of the market 'professionals', but instead do your own research. I still have a problem with over-leveraging my position and getting caught with my pants down because of it. My largest position was once > 400 points short on the DAX, which is ridiculous because it forces you to watch each and every price movement for every second until you close the trade out.

Smaller trades which let you sleep at night are the way to go. If you have an addictive personality then stay out of the game - or you will suffer.

I mean this in the nicest possible way, but it sounds to me like you have got the psychology of trading wrong regarding the over-leveraging comment. Trading on fear or greed is a recipe for disaster.

Losses are an inevitable part of trading and you should be trading at such a size that you can accept a string of losses, because sooner or later that will happen.

Regarding receiving advice from market "professionals", I can tell you I fade analysts advice often. Their advice is emotionally charged from when something has already happened, which makes them very good at getting into the market at exactly the wrong time. As an example, HSBC advised their clients to short GBPUSD a day before it rocketed.

Let me ask you a few questions:

Do you have a trade plan?
What % of your account are you risking? If you are day trading, do you have a loss limit for the day?
Do you have statistics and charts recorded for your last 100 trades?
Based on these statistics, do you have an edge? What is your average win rate? What is your average risk to reward?
Which days, times of day, instruments do you perform best with?

On psychology, do you take potshots after a losing trade? Are you able to look at yourself from the outside and analyse bad trading behaviour?
At the end of the day/week/month, do you analyse your trades to see how your mistakes could be improved?

Notice I talk about losing trades a lot, because its the losers you will learn the most from.

Hope this helps.

[ChimpMaster]

I mean this in the nicest possible way, but it sounds to me like you have got the psychology of trading wrong regarding the over-leveraging comment. Trading on fear or greed is a recipe for disaster.

Yes indeed, this is exactly what I was getting at! Even after years of playing the game, I still have problems with trading psychology - I tend to over-leverage, hold onto losers, not trust/implement stop losses etc. Recently I have focussed more on learning, but it's an expensive lesson.

Losses are an inevitable part of trading and you should be trading at such a size that you can accept a string of losses, because sooner or later that will happen.

Regarding receiving advice from market "professionals", I can tell you I fade analysts advice often. Their advice is emotionally charged from when something has already happened, which makes them very good at getting into the market at exactly the wrong time. As an example, HSBC advised their clients to short GBPUSD a day before it rocketed.

Let me ask you a few questions:

And I will answer honestly :-

Do you have a trade plan? No, I can't say I do, not a consistent structured one anyway.
What % of your account are you risking? Sometimes all of it, though I am conscious of this being a major risk
If you are day trading, do you have a loss limit for the day? No, I often chase my losses
Do you have statistics and charts recorded for your last 100 trades? no
Based on these statistics, do you have an edge? Personally believe no retail trader has an edge.
What is your average win rate? Surprisingly I win a lot, probably 70% of the time. I then get hit hard by a big losing trade that I haven't let go of. For example, in the summer of 2011 I took £2k and traded it up to £27k in just 2 months. I then lost of all it in a couple of days.
What is your average risk to reward? High risk / low to medium reward. For example, last week I was losing £20k on a series of bets that eventually turned out to give me a £1k profit.
Which days, times of day, instruments do you perform best with? Indices - Dow/FTSE/DAX - at all times. Occasionally oil and I have now stopped trading on gold. I stick to macro-economic events as I don't have time for more specific details.

On psychology, do you take potshots after a losing trade? YES. A big disappointing yes. But surprising, this often saves me (not the kind of experience I should be learning from...)
Are you able to look at yourself from the outside and analyse bad trading behaviour? [I]Yes, and even given all that I have (honestly) written above, I have taken leaps in my learning in the past year.[/I]
At the end of the day/week/month, do you analyse your trades to see how your mistakes could be improved? I do analyse, not so much for mistakes though.

Notice I talk about losing trades a lot, because its the losers you will learn the most from. True.

Hope this helps.