Financial Spread Betting Can Make You Paranoid

Be Careful...

Is Your Spread Betting Company Moving the Market Against You?

thumb_up Tip: Use a Regulated Company

Personally, I still expect any non-regulated firm to move a market against me if it suits their book.

That’s another reason why I only use FCA regulated spread betting companies (there’s an official third party I can complaint to if there are any shenanigans).

What To Do If You Think Your Platform Is Moving the Market Against Your Trade?

1) Remember – Charts Normally Show Mid-points

The charts on your platform are probably showing the mid-point.

E.g. if the FTSE 100 spread is 7499.0 – 7,500.0 then the mid-point is 7499.5 and that’s the number that the chart is showing.

With the Spain 35 at 10320 – 10324, the chart will show a price of 10322.

When you trade markets with wide spreads then charts showing the mid-point price often confuses investors – because it looks like the market never traded at that price.

If you’ve been stopped out, remember to add half the spread to the price on the chart.

(Some spread betting platforms let you change the chart to show the buy or sell price but that doesn’t help much either – it will always be inaccurate on half of your trade).

2) Check the Data: Markets Produce Really Nasty Moves That Make You Paranoid!

On 2 November 2017 we saw the perfect example.

As expected, the Bank of England hiked interest rates but they also released a very dovish statement.

This meant markets like GBP/USD had information to drive them in both directions.

Look at the Financial Spreads chart below for what happened:

What a horrible move.

GBP/USD Spike on BoE Rate Hike

A spike up and down in the same minute, the sort of movement you sometimes see with the monthly non-farm payrolls.

The 11.59 candle closed at $1.32278, over the next minute the market moved up 0.48¢ and then fell 1.62¢.

It’s the sort of move that looks designed by a spread betting platform to close out a lot of Stop Loss orders.

info Remember, spread betting companies like Financial Spreads just track the underlying market.

In this case, their prices “should” just track GBP/USD.

A good way to check this is via a third party e.g. a Bloomberg account.

If you don’t have a Bloomberg account then check the charts on other spread betting platforms. E.g. in this case we’ve looked at Spreadex and IG:

GBP/USD Spike on BoE Rate Hike
Spreadex Chart

GBP/USD Spike on BoE Rate Hike
IG Chart

As you can see, they all have the exactly the same nasty move.

Why? because they just track the underlying market and that’s what the underlying market did. It’s not a dirty trick by your broker.

In this case, you don’t need to feel paranoid about your spread betting company, you do need to remember how the markets can mess up your trades, particularly around the bigger announcements.

Still Feeling Scammed?

What if you compare the different charts and they have different moves?

If the moves are very different, you should complain (see below).

Bear in mind, moves by the different firms should be “roughly” the same but unlikely to be exactly the same.

E.g. you can see slightly different highs and lows on the above.

Also, going back to the mid-point issue raised above, brokers with wide spreads will trigger Stop Loss orders before a broker with tight spreads.

Likewise, brokers with variable spreads (that can become wide over the quick market moves) will often trigger Stop Loss orders before a broker with tight fixed spreads.

This is another reason why I prefer trading with firms that have fixed spreads like Financial Spreads or Core Spreads, it means I don’t have to worry about some unpleasantly wide variable spreads.

My Spread Betting Firm Has Definitely Scammed Me

OK, just follow their “complaints procedure” which should be listed on their website (you can’t complain to the Financial Ombudsman until you’ve done this)

The complaints procedure normally goes like this:

  1. Complain to Customer Support
  2. If you don’t get anywhere with Customer Support then complain to the Compliance Dept
  3. If you don’t get anywhere with the Compliance Dept then complain to the Financial Ombudsman (not the FCA)

AuthorAlex Turner

Senior Editor, SpreadBetMagazine

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