Do Spread Betting Providers Close Winning Accounts?

Q. Do you know if this human accepting every transaction is standard or differs between companies?

OK, so I had my first problem with Cantor Index and price rejected due to volatility..etc. This was made double'y worse by the fact that once a close request has been rejected the close button for the position in question is then rendered useless. Only way round this I could see was to log out and back in. This did cost me obviously. I called Cantor to discuss this and found out that every time I click to buy or sell/open or close each and every request goes through to a human to accept or reject. This concerns me. I thought these things were automated.

A: Not 100% sure and I'm sure different companies have different policies, but I'd imagine it is fairly standard depending on four things: Market, Size, Volatility and Client. For instance CityIndex have an execution policy that says with a few exceptions everything below 'their size' goes straight through at the price you see on the screen and in the years I've traded with ETX Capital they have never pre-approved my trades.

If you're betting £10 a point on FTSE, these will be auto filled pretty much anywhere I'd guess, if you're doing £150 a point, I would expect someone to take a look at it. If you're sniping over the web, prices go stale very quickly in a volatile environment - they may allow a small amount of slip depending on the market, but it won't be much.

In very volatile conditions, they may well check every trade - in which case, it's probably worth doing it over the phone and asking for a price. Not that I approve of this practice mind you but on the web when you've got to take latency into account say I publish a price in a volatile market, price moves against me (the broker), punter tries to trade on an old price - which would put him in profit and me in loss. If I'm a sensible broker I'm not going to allow that (within reason obviously). Now as I probably have clients on the other side of that trade anyway and because I don't want to knock tons of trades back, I'll allow a bit of slip, but if it's a very quick move - I'll knock you back, prevents sniping pit traders taking me to the cleaners on the oil price as they have it before me for example. If you think that's bad, I'd stay away from FX markets ;)

Generally though, I believe that the only time an order should have manual intervention is when the size is greater than the liquidity at Best in the underlying market. And even then the firm should have enough internal volume to take it on automatically in most cases. Technology costs and liquidity is vital.

Q. 'All spread firms/bookmakers will close your account if you win consistenly from them, not just IG.'

A: This is a popular urban myth - it's just not true when you consider the hedging that goes on...etc. I know there have been instances within the industry when accounts do get closed due to shall we say slightly dodgy dealing by the client but a friend of mine is an active spread better and made > £1m last year and still trades today.

Q. Will spreadbetting companies cancel your account if you are too successful?

A: This question was asked to Mr Simon Denham, Managing Director of Capital Spreads.

Simon - Capital Spreads we have never closed/put to telephone only/deliberately delayed/changed your status or whatever. We really do not care about winners and losers. Winning clients are monitored (of course, we want to know what they are doing as they are generally correct) but not often put to dealer acceptance - the only exception is for clients whom we identify as taking advantage of platform latency issues...

I wish I could legally print the names of accounts who have made tens of thousands of pounds trading on our platform and whom we restrict not one jot. If we closed winning accounts don't you think you would have heard all about it on the Internet. I have never hidden the fact that spread betting is a dangerous pass-time (it says it all over our platform). One of the big US futures exchanges did a survey about the profitability of 'Private investors' on the futures exchanges (as opposed to the institutional traders) and they came up with the fact that some 80% lost money, this figure almost exactly matches ours. As I point out at our seminars.

The ones that I find annoying are the ones that attribute nefarious motives to everything we do.. but I suppose it comes with the territory. In reality if you are a good trader/investor you will make much more money on our SB platform (overall) than going direct access... with the (possible) exception of FX. Although we have a bunch of traders who we call 'the cable club' who trade a GBP/USD system with us that makes them a lot of money...very simple very controlled very profitable.

The same question was posed to Charlene from Finspreads as they are known to have actually banned a user (Mr Chris Kobewka) from using their site at one point. Her reply was:

'We do reserve the right to close any account should we deem anyone to be profiting unfairly by abusing our system and software or taking advantage of erroneous markets and prices. Whether a client wins or loses makes little difference to us. Generally a winning client will give us return business and so this is very good for us in the long run. We do not have a policy of closing down legitimate winning clients.'

Of course asking the managing director of Capital Spreads or Charlene (Finspreads) about company policy and expecting anything other than a sales pitch is a bit like asking a fox about chicken-coup security! I do know of some people who have had their account closed...(because 'it is not in the best interests of the the company to continue in this manner'), however this rarely happens and most tricks are attempted by clients not by the companies (who, after all, do have the FSA and the financial ombudsman looking over their shoulders).

It is the fact that spread betting companies do not let clients get up to 'tricks' that seems to grate. A client finds a little edge because of an incorrect price or a delayed feed or somesuch...the spread betting company cottons on to that clients activities and then 'bosh' he can no longer do it. They may in some instances just stop you from trading over the internet and put you on telephone trading only.
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Q. But I've heard of traders being put on dealer referral?

A: Spread betting providers are not opposed to winning traders as such. What they are against are non-preferred trading styles such as very short-term trading; they also aren't much at ease with news traders either - they prefer swing or position traders. Thus, if you try to scalp (mostly, this applies to forex) you might end up in 'dealer acceptance' mode where a dealer will review your traders manually before accepting them and obviously this would involve a delay in your trades being executed. According to Simon from Capital Spreads the only reason they put clients on dealer acceptance is because of clients who try to trade on latency issues.

Q. Using trade latency issues to trade...what is that?

A: Again, answered by Simon, Managing Director of Capital Spreads -:

Frankly all the adverse comment on the spread betting platforms comes from the same people bleating about foreign exchange. Never about indices or shares. This is because these people think that they have a 'right to scalp' and seem annoyed when spread betting providers do not agree with them.

Price latency is...we must get our prices from somewhere because obviously we cannot just 'make them up'. We pull in prices from price feed suppliers and put them through our price engine (fixing the spreads...etc) and then place them onto our web-site. Sometimes (especially when there is a very fast moving market) this will lead to a small latency issue (0.5s) - but half a second can be a lifetime in forex markets.

All prices on our platforms are taken from the real bid/offer in the underlying market concerned. We do not 'Stop Hunt', bias our price, widen spreads blah blah blah.

The latency issue is the only reason we turn clients to dealer acceptance. Other than this there would be no reason for a client to be placed on dealer acceptance. This is the reason I always mention latency when talking about dealer acceptance clients. We do not place winning clients in this category (otherwise some 20 to 30 per cent of all trades would be taken by our dealers, the actual number is around 3 per cent...and most of these are because the trade is of greater size than the auto acceptance will allow).

Everyone goes on about Direct Market Access and how much better it is than spread betting. But you cannot scalp on DMA either not only that but I, personally, do have DMA access in forex (on one of the most liquid FX platforms in London) and several spread betting accounts. I fail to get my trade on the Direct Market Access platform far more frequently than on my spread betting account.

 ...Continues here - What about Binary Betting Companies Closing Accounts?

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