Spread Betting.. Has anyone returned made a profit?

[ShadownINja]

influential said:

Yep, that's my logic. Somewhat reduces the pain of defeat!

Am considering betting against England in the World Cup! I'll be a millionaire but unhappy.

[Somewhatfoolish]

ShadownINja said:

limpsfield said:

Depending on the degree of hedging that is put in place which may vary from company to company, what they want is activity to make money off the bid/offer spread.

Just wondering: if you're always paying out to winners, how do you make the money then? Say the spread is 2 pips and someone is always making 50 pips, aren't you making a loss of 48 pips?

Edited by ShadownINja on Thursday 15th April 10:31

The money comes from the losers. Don't forget they can hedge their book *really* easily... not as though they're doing anything terribly exotic.

Edited by Somewhatfoolish on Thursday 15th April 10:49

[DonkeyApple]

ShadownINja said:

limpsfield said:

Depending on the degree of hedging that is put in place which may vary from company to company, what they want is activity to make money off the bid/offer spread.

Just wondering: if you're always paying out to winners, how do you make the money then? Say the spread is 2 pips and someone is always making 50 pips, aren't you making a loss of 48 pips?

Edited by ShadownINja on Thursday 15th April 10:31

The key is to have a large enough book to hedge internally without having to pay the market.

One client goes long FTSE, another will go short. You are netted off and capturing risk free spread. Do that over 50k clients every second of a 24 hour day and it soon ads up

You still run exposure but it is 'total' and not specific to individual clients. Large trades, above your tollerance you simply hedge regardless and take the comm.

If you specifically bet against the client you have to have a lot of staff who are paid to simply monitor what the clients are doing and adjust spread, fill timings etc to ensure the bulk of trading is in your favour. Either that, or you have to run enormous exposure on your book and rely on the stat that most clients lose. However, when the collective wins, as happened last year, you are crucified.

Good spread betting firms make profit becasue they understand and manage risk. The exact opposite of most of their clients.

[ShadownINja]

Thanks for the replies. I am being a bit thick, I think, but what if most of IG's clients do well in one year?

[DonkeyApple]

ShadownINja said:

Thanks for the replies. I am being a bit thick, I think, but what if most of IG's clients do well in one year?

Check out their 2009 (when this happened) results for that answer, then compare to London Capital Group and Worldspreads.

[Somewhatfoolish]

ShadownINja said:

Thanks for the replies. I am being a bit thick, I think, but what if most of IG's clients do well in one year?

If they've hedged their book properly that shouldn't matter.

[ShadownINja]

DonkeyApple said:

ShadownINja said:

Thanks for the replies. I am being a bit thick, I think, but what if most of IG's clients do well in one year?

Check out their 2009 (when this happened) results for that answer, then compare to London Capital Group and Worldspreads.

I know IG are doing well. I just don't understand how if they are paying out to everyone.

[ShadownINja]

Somewhatfoolish said:

ShadownINja said:

Thanks for the replies. I am being a bit thick, I think, but what if most of IG's clients do well in one year?

If they've hedged their book properly that shouldn't matter.

Sorry... in english?

[Somewhatfoolish]

ShadownINja said:

Somewhatfoolish said:

ShadownINja said:

Thanks for the replies. I am being a bit thick, I think, but what if most of IG's clients do well in one year?

If they've hedged their book properly that shouldn't matter.

Sorry... in english?

Ok let's take a very simplistic model and assume the underlying market is 76@77 and so they quote 75@78. Ideally they would prefer when you go long 78 someone to sell 75s. But if more people buy 78s they can always go and buy 77s in the underlying.

Now multiply that through size and you get the principle.

Edit: I'm also pretty sure they make a lot of money in financing costs.

Edited by Somewhatfoolish on Thursday 15th April 13:35

[ShadownINja]

Somewhatfoolish said:

ShadownINja said:

Somewhatfoolish said:

ShadownINja said:

Thanks for the replies. I am being a bit thick, I think, but what if most of IG's clients do well in one year?

If they've hedged their book properly that shouldn't matter.

Sorry... in english?

Ok let's take a very simplistic model and assume the underlying market is 76@77 and so they quote 75@78. Ideally they would prefer when you go long 78 someone to sell 75s. But if more people buy 78s they can always go and buy 77s in the underlying.

Now multiply that through size and you get the principle.

Edit: I'm also pretty sure they make a lot of money in financing costs.

Edited by Somewhatfoolish on Thursday 15th April 13:35

Ah! [Thick mode disengaged] So a decent company would want someone to do well?

[Somewhatfoolish]

ShadownINja said:

Somewhatfoolish said:

ShadownINja said:

Somewhatfoolish said:

ShadownINja said:

Thanks for the replies. I am being a bit thick, I think, but what if most of IG's clients do well in one year?

If they've hedged their book properly that shouldn't matter.

Sorry... in english?

Ok let's take a very simplistic model and assume the underlying market is 76@77 and so they quote 75@78. Ideally they would prefer when you go long 78 someone to sell 75s. But if more people buy 78s they can always go and buy 77s in the underlying.

Now multiply that through size and you get the principle.

Edit: I'm also pretty sure they make a lot of money in financing costs.

Edited by Somewhatfoolish on Thursday 15th April 13:35

Ah! [Thick mode disengaged] So a decent company would want someone to do well?

Assuming they are doing their best to stay risk neutral, they will want you to trade as much as possible and thus earn the spread over and over...

[DonkeyApple]

ShadownINja said:

Somewhatfoolish said:

ShadownINja said:

Somewhatfoolish said:

ShadownINja said:

Thanks for the replies. I am being a bit thick, I think, but what if most of IG's clients do well in one year?

If they've hedged their book properly that shouldn't matter.

Sorry... in english?

Ok let's take a very simplistic model and assume the underlying market is 76@77 and so they quote 75@78. Ideally they would prefer when you go long 78 someone to sell 75s. But if more people buy 78s they can always go and buy 77s in the underlying.

Now multiply that through size and you get the principle.

Edit: I'm also pretty sure they make a lot of money in financing costs.

Edited by Somewhatfoolish on Thursday 15th April 13:35

Ah! [Thick mode disengaged] So a decent company would want someone to do well?

Yes, because you can milk a client who is making money for a lot more on the hidden extras like spread, funding, data fees, loss of interest on capital, currency transfers etc.

In answer to your previous question:

I sell you something that doesn't exist for 100p. At the same time I buy an identical something that doesn't exist from someone else for 95p. You are happy, the other chap is happy and I am 5p richer without taking any risk or laying out any capital. On top of this, I then charge both of you a series of fees for funding your positions, again, one pays me 2.5% over base and the other pays me similar. I can also charge you both if the trade is in a non base currency plus any number of other minor fees.

Multiply this thousands of clients and by how ever many seconds there are in a day and it adds up to quite a bit of money.

[Somewhatfoolish]

(in reality they don't stay risk neutral, they have differing exposure to different clients)

[ShadownINja]

Thanks. I get the idea. Sounds like win-win for a profitable "trader".

[Somewhatfoolish]

ShadownINja said:

Thanks. I get the idea. Sounds like win-win for a profitable "trader".

There are only very specific ways in which spread betting is a good idea... it's fair to say for most kinds of trades the disadvantages outweigh the advantages.

[ShadownINja]

Somewhatfoolish said:

ShadownINja said:

Thanks. I get the idea. Sounds like win-win for a profitable "trader".

There are only very specific ways in which spread betting is a good idea... it's fair to say for most kinds of trades the disadvantages outweigh the advantages.

Want to expand on that?

[Somewhatfoolish]

ShadownINja said:

Somewhatfoolish said:

ShadownINja said:

Thanks. I get the idea. Sounds like win-win for a profitable "trader".

There are only very specific ways in which spread betting is a good idea... it's fair to say for most kinds of trades the disadvantages outweigh the advantages.

Want to expand on that?

The advantages to spread betting are that one can do smaller size than the underlying (usually), use more leverage, and in things like FTSE 100 shares the inital transaction costs are probably less. Then there's the tax issue. None of these are usually going to be very useful aside from small size and the tax advantage - and the latter is very often trumped by the disadvantages.

[ShadownINja]

Somewhatfoolish said:

The advantages to spread betting are that one can do smaller size than the underlying (usually), use more leverage, and in things like FTSE 100 shares the inital transaction costs are probably less. Then there's the tax issue. None of these are usually going to be very useful aside from small size and the tax advantage - and the latter is very often trumped by the disadvantages.

Ahhh, yes, I knew that. I thought there was something else I wasn't aware of. I guess they let us play in the sandpit amongst ourselves. I don't think someone doing 50p/pip is going to wipe out IG's 2010 profits.

[limpsfield]

I love these threads.

Tomorrow I will start a thread on something I have no idea of but expound apparently knowledgeably upon it.

Why don't Lotus do a car that is a fast as Veyron for £20k?

[Somewhatfoolish]

Because they're controlled by Tesla who are in league with the global warming industry, duh