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Do Spread Betting Providers Hedge Client Positions?
June 21, 2010 1:37 pmVideo
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It is true that the spread trading company is your counterparty.
Broadly speaking, spreadbetting firms make a price to the clients so, in the first instance, it is true that you’re betting against the spread betting firm. What they choose to do with that risk depends on their view perhaps of just that particular product or their view of that asset class. In many instances, they will hedge that position directly into the underlying cash market and that will effectively mean that the client is playing against the market, not the spread betting company.
But do spread trading firms hedge client positions?
So suppose you have 50 clients and 40 of them are long on the FTSE and 10 of them are short and the spread trading dealers think the guys who are short are on the right side, they won’t necessarily hedge?
The answer is that this is up to the dealer who is responsible for that particular desk and it is his discretion whether to decide to hedge. Spreadbetting providers are happy to have consistent winners and obviously if they see good winners, they’re keen to hedge those straightaway as opposed to running the positions for a few minutes and taking a view.
The sad statistic is that most day traders lose
It’s a sad statistic that not all traders consistently make money but again going back to psychology if spreadbetters consider spread betting companies as their trading partners who are giving them the best prices and good spreads then perhaps they will realise that they are really against the market and spread betting providers are simply helping them access that market. The market will do whatever the market will do. I don’t know what it’s going to do. We’re all in it together and that’s probably the best approach.
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