Spread betting

innovate

Oh crikey, this sounds massively more complex than arbing on sportsbetting, which I love doing. Thanks for the pointers, though, guys - - I should try and get my mind round this sometime soon.

chrismac1

Yes there is such a thing as arbitrage. I recently signed up with Worldspreads. If you put in £5k you get an account with zero spreads on certain key markets such as FTSE and S&P. One of the conditions is that you do not use this account for arbing. No doubt just like the sports bookies they can quickly flag this up.

You can often find juicy arbs in these volatile markets. Last Friday afternoon I noticed that CMC were trading the FTSE at around 5190 whereas the 3 other spread bookies I was loking at were on 5220, no doubt CMC had made a ricketts of their book that day and wanted it sorted before the market close. My sports betting started out with arbitrage but as time went on I started working out that one side of the bet was better value than the other and just hitting that side, there was a higher profit margin.

So I just hit the CMC side and made a quick buck as the gap narrowed. No doubt I was not the only one doing this.

blinko

chrismac1 wrote: »

Yes there is such a thing as arbitrage. I recently signed up with Worldspreads. If you put in £5k you get an account with zero spreads on certain key markets such as FTSE and S&P. One of the conditions is that you do not use this account for arbing. No doubt just like the sports bookies they can quickly flag this up.

You can often find juicy arbs in these volatile markets. Last Friday afternoon I noticed that CMC were trading the FTSE at around 5190 whereas the 3 other spread bookies I was loking at were on 5220, no doubt CMC had made a ricketts of their book that day and wanted it sorted before the market close. My sports betting started out with arbitrage but as time went on I started working out that one side of the bet was better value than the other and just hitting that side, there was a higher profit margin.

So I just hit the CMC side and made a quick buck as the gap narrowed. No doubt I was not the only one doing this.

How can they know your arbing with another bookie ?

Also how on earth does CMC trade the FTSE at 5190 and the others at 5220 that’s 30 points practically !!

cepheus

I thought this strange, perhaps it was a genuine mistake and they had to cover this. I guess this is rare, the spread betting price should hug the futures price very closely or else you could earn a mint.

Note I think Innovate was looking for 'free' offers from bookies combined with a hedge, like they do with the gambling free offers thread. The easiest way to collect a one off sum from each bookie, is with the combination I suggested above. I would have to think more about the others but it should be possible.

IronWolf

One of the risks with spreadbetting (and this is the main reason I actually buy shares even though its more expensive) is that your position is entirely in the hands of the spreadbetting company. They can close that position at any time, possibly forcing you to take a loss.

Also if the SB company goes bankrupt then you have nothing to fall back on. If you own the shares and your broker goes bankrupt those shares still exist and you still own them.

Also theres the possibility of a company going bankrupt, or being bought out by another. If you dont hold shares you have no rights to assets, or deals in new shares of the aquiring company.

chrismac1

They don't "know" you are arbing for sure any more than sports bookies know it. But the software will flag up "sharp" trades which are hitting out of line prices. Do this often enough and your account will be flagged, and finally limited.

In my view you need to take the same view of stockbrokers' solvency as you do with spread bookies. This is unless you are dealing in paper share certificates. Most of the market is in nominee holdings. When a stockbroker gets hammered it is all too common that these turn out not to have been reconciled properly, so you then have a battle to prove to the liquidator that you have title. You will be OK in the end, but meantime it is no different to a share being suspended.

You'll just have to take my word for it that CMC were 25 to 30 points off the market for a period which lasted about half an hour. As I say, they'd probably made a Horlicks of their book, it was late Friday and the one thing potentially worse than taking a hit would have been to leave a big position exposed over the weekend, when God knows what might have happened. Personally I am not an arber but I have about 4 screens open before placing any trades and every few weeks you can see that an arb exists.

cepheus

Iron Wolf I'm not sure were you get all this from. Here are the terms of the largest firm
IG Markets Ltd, Customer Agreement, January 2010 Authorised and regulated by the Financial Services Authority

3) We are covered by the Financial Services Compensation Scheme. You may be

entitled to compensation from the scheme if we cannot meet our obligations. This

depends on the type of business and the circumstances of the claim. Most types
of investment business are covered up to the first £50,000 (or £48,000 up until 1
January 2010). Further information about compensation arrangements is available

from the Financial Services Compensation Scheme.

4) If a company, whose Instrument represents all or part of the subject-matter of a Transaction, goes into insolvency or is dissolved, the day on which the company goes

into insolvency or is otherwise dissolved will be the closing date of that Transaction
and we will deal with your Transaction as follows:

(a) If you have a long Transaction, the Closing Level of the Transaction will be zero

and on closing, we will open a corresponding proceeds line on your account so

that if the company makes a distribution to shareholders, an amount equalling
the eventual distribution will be credited to your account.

(b) If you have a short Transaction, the Closing Level of the Transaction will be

zero and on closing we will open a corresponding proceeds line on your account
so that if the company makes a distribution to shareholders, an amount equalling
the distribution will be debited to your account. We reserve the right to require
you to maintain Margin on this proceeds line, which could for the avoidance of

doubt be as much as the difference between the suspension price and zero.

blinko

chrismac1 wrote: »

They don't "know" you are arbing for sure any more than sports bookies know it. But the software will flag up "sharp" trades which are hitting out of line prices. Do this often enough and your account will be flagged, and finally limited.

In my view you need to take the same view of stockbrokers' solvency as you do with spread bookies. This is unless you are dealing in paper share certificates. Most of the market is in nominee holdings. When a stockbroker gets hammered it is all too common that these turn out not to have been reconciled properly, so you then have a battle to prove to the liquidator that you have title. You will be OK in the end, but meantime it is no different to a share being suspended.

You'll just have to take my word for it that CMC were 25 to 30 points off the market for a period which lasted about half an hour. As I say, they'd probably made a Horlicks of their book, it was late Friday and the one thing potentially worse than taking a hit would have been to leave a big position exposed over the weekend, when God knows what might have happened. Personally I am not an arber but I have about 4 screens open before placing any trades and every few weeks you can see that an arb exists.

sounds like CMC don't hedge there bets. also note they stopped AIM stocks recently.

Can I ask wher eyou learnt all your trading from ?

EdGasket

A sobering article:

http://www.fool.co.uk/news/investing/2010/05/04/spread-betting-broker-goes-bankrupt.aspx

Even the pros lose !

EdGasket

Here's another link showing SB losers to be around the 80% mark (not quite the 98% I originally quoted but still enough to make your chances of coming out ahead extremely thin):

http://www.lse.co.uk/blogs/expert/naked-trader-blog/lsi3kg/

Quote: 'More than 90% of Day-Traders lose for a start. And the figure for those who don't trade that much is still over 70%.'
I rest my case.