A: Market Makers are a bit like the 'Bucket Shops' from the turn of the century. When trading with a spread betting provider you are not trading direct but trading off their price feed.
This doesn't mean spread betting providers are out to get you or that trading with a market maker is bad. Statistically most investors end up losing money so by 'bucketing' client trades (and hedging off excess exposure in the markets) they actually make more money than if they were just getting paid from commissions. You also get to have a range of positions sizing and underlying liquidity that is not always available when trading via direct access or through an ECN broker. Also, since there's more competition for your business, brokers spend considerable sums of money on developing their trading platform and charting tools.
It is also interesting to note that most brokers and generally MOST forex brokers in the marketplace are also market makers (to spot them by simply asking them if they have a dealing desk, if they say 'yes' then it means that they are bucketing your trades). If you want to trade in the real market you will need to use an ECN but this comes with certain restrictions; for instance few will allow you to leverage much more than 25:1 (unlike forex market makers which may allow up to 200:1!)
 |
|
 |
|
A: Spread-bets are not cleared on a recognised exchange but all spread betting providers are regulated by the FSA so there is a level of protection.
Also, for instance placing a spread bet on the Wall Street index is identical in many ways to trading the underlying futures contract. If I wanted to short the equivalent of 1 contract on the DOW (aka Wall Street index), I would place a sell order (market, limit or stop) at £2.50 / point. If I wanted to go long the equivalent of 10 contracts, I'd place a buy order at £25.00/point. Spread betting has a number of benefits, not least no capital gains on profits but also a greater level of control over position sizing. Traders trading the DOW increment their size in $5 chunks - spread traders can increment in 1p (0.5 cent) chunks. The prices of spread betting providers also have to closely mirror the market as otherwise it would open the brokers to arbitrage opportunities.
Not only that but trading with a market maker has its own unique advantages which aren't available on a direct market access platform. For instance, stops with a market maker platform are filled 'at market' at the requested level irrespective whether there is liquidity in the underlying market or not. Also, guaranteed stops are available with some spread betting providers - you definitely can't have that with DMA.
Leverage certainly acts to amplify your gains and losses so it does make a difference, but at the end of the day what really matters is how much you are risking on each trade which is really independent of leverage...
A: We all know that spread betting providers are Market Makers, and that they make their profit from the spread, as opposed to direct market access brokers (like IG Markets) where brokers make their profit through the commission.
Some traders feel it is better to have it tax free and a lower entry level although others feel Direct Market Access is the way to go as you are more in control. However, DMA (Direct Market Access) does not disqualify spread betting (reverse is also true), it all depends on what your aims are and the strategy and what market you are trading - in fact IG Group offers both a market maker platform for spread betting (IG Index) and a DMA one (IG Markets).
Please do not copy/paste this content without permission. If you want to use any of it on your website contact us via email at 
traderATfinancial-spread-betting.com (remove the AT and substitute by @).
