A: This depends on the market - for instance with FTSE 100 stock we quote the rolling bet as 0.05% above and below the underlying market quote. Quarterly markets naturally include the cost of carry and dividend components. Likewise most other markets are simply quoted on a fixed spread around the middle of the underlying bid/offer price in the real market.
Once you start with a spread betting firm, and are rolling over trades from day to day, do check the costs to rollover . For example, shorting with LCG gives you an income on roll-over (whereas IG Index incurs a cost). However, going long with IG Index (in terms of rollover, not spreads!) is better, because it costs less than LCG.
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A: LCG quotes a fixed spread of 1 pip on the FTSE rolling...no additional fees etc. If you watch the FTSE futures how often is it actually 1 or 2 pip wide (plus all dealing costs). Not often and it is frequently 2 or even 3 pips wide. LCG is still 1 pip all the time between 0800 and 1730.
Next equities, LCG quotes 0.1pc around the FTSE 100 equities quote - 0.05pc below bid and 0.05pc above offer. The stamp duty alone on Direct Market Access is 0.5pc, plus commission, plus full cost to purchase (or limited margin). All this means that you save massively on trading costs with spread betting.
Mini S&P is actually 2.5 pips wide. LCG quotes a clean price 4.0 wide. For most traders the total commission on a round trip on DMA would be more than the extra 1.5.
Dow Jones...LCG quotes a fixed 4 point spread...now I realise that the Dow is theoretically 1 pip wide but please...smell the coffee...most of the time these days it oscillates all over the place from 1 to 5 or 6 wide or even more on several occasions. Volumes on the dow future have become very thin as well and trying to get your trade on at the price you want is particularly difficult due to the extreme volatility.
In all these instances the margin asked for by the exchanges is many multiples of that demanded by LCG. Also, the average bet size for LCG is around 5 and that is only because equity trades are so big. Normal sizes for our clients in the FTSE, Dax, currencies etc are 1, 2, 3 or 4 pounds. This is not possible in the majority of exchange traded futures. And if you tried to buy 100 shares in a normal UK company (the equivalent of a £1 bet) the commissions would probably be more than the value of the stock. The Dax contract on Eurex is minimum size 25!! Hardly retail friendly...margin requirements on just 1 ftse contract are generally around 3000 which must be topped up every day. LCG offers the exact same trade with as little as 300 on your account AND the margin does not have to topped up all the time (even if the market closes just a few pips away from your stop). Stops can be held over more than just the trading day (not available in DMA) the spread is fixed (not available on DMA) the trade price is generally good in over 100 a pip (not available in DMA)...etc So really you have to add up all the costs of trading. Of course we are not cheaper than the exchanges on some products but in the major ones we are 'comparable' at worst and better some of the time.
For a fact I miss trades on Direct March Access far more frequently than any spread betting platform that I use simply because on a DMA system I am trading against computers who can move the price faster than I (a mere human) can accept it. But obviously others will have different experiences. The one thing that trading on DMA has on a spread betting offering is that there is, truly, nobody else to blame but yourself. If you lose then hard luck...with a spread betting platform if a client loses he/she can always blame the supplier (LCG, IG Index, City Index or whoever). And yes I know that we aren't perfect...LCG is a market maker not an exchange...we do, in the final reckoning, have a choice to accept any bet/trade... over 99% of trade requests are accepted (unfortunately the rejections tend to be concentrated in a tiny number of clients who have been placed on dealer acceptance) traders may not like this but they should look on it in the same way that I look at a missed DMA trade...swear...and make the trade again.
For those of you who seem to love Direct Market Access the conversation I had over lunch should be instructive. A proprietary dealer who I have known and respected for many years...trades in 2 to 10 contracts in the FTSE/Dax...when he places a stop in the 'real market' in just 2 contracts he hardly ever gets his price...the average fill price is over 0.5 pips away (1 to 2 pips in the Dow) from his requested level (he never holds positions over trade data releases). He compared this with his spread betting accounts where his stops were always honored at the requested price! On the other hand he liked DMA because psychologically his losses were not attributable to his counterparty. In reality the problem dealers have with spread betting companies is that when they lose it is the spread betting company who gains. With DMA there is no obvious counterparty and (therefore) nobody to blame.
Spread betting is not used by institutions because they require the asset (contract for difference/share/bond) a spread bet only gives you access to the cash difference of a trade. Also, I would presume that they are a bit miffed that we are honest about what investing actually is...call it trading/investing whatever... it all boils down to you making "a bet" that the market is going to move in the direction that you have forecast).
A: CGSL is the maximum margin that the computer will use to place a stop. It is curious that you say that you wished this number was less ( I would agree with you as I think that stops should always be close) but LCG must try to be all things to all men (errr women). The majority of comments from clients are of the other persuasion. They say that as they still have more funds available on their account then the stop should be further away!
We have tried to have a sensible level for maximum margin that is neither ridiculously large nor restrictively small. In any case it really does only take a few seconds to change the computer generated stop loss once you have placed a trade - there is even a link to the order ticket from the deal confirm which you get. Of course if you move the stop 20 pips further away then we will (not unreasonably) expect you to have the resources available to match this increased risk. If you have a huge number of trades making up a position you can always ring us up and get us to amalgamate some of them...making it easier to change all the orders in one go.
Most spread betting companies do not insist on stops...if this is a big problem for any client I always recommend that they go to another provider. Given the problems that many of the smaller spread betting companies have experienced due to margin I truly believe that the LCG model is the fairest to all as it protects the funds of all clients against the actions of one big 'whale'. Some of Global Trader Europe's clients discovered that their money had been removed from segregated funds accounts to fund the companies hedging from a couple of huge clients. This can never happen at LCG as all clients must have the available resources on their account to cover the risk up to the stop loss plus 20%.
A: The plus 20% is to take into account occasions when the market gaps on opening. If a market closes the day just a few pips away from your stop but then opens the next day 20 or 30 points through your stop then LCG requires that there is a reasonable possibility that you have enough money to cover the slippage. If we only took the exact amount of money for your stop then we would end up with a lot of people owing us small sums of money.
A: I had quite a few conversations explaining what an 'OCO order' was and why they should use them rather than just 'new orders'.
Our orders module allows the creation of OCO orders and contingent (if done) orders .. you can place orders good till a particular time. (i.e. you might want to pull an order 1 minute before the Non farm numbers). The limit profit and stop loss orders are linked to open positions and are therefore deleted when you trade out of the position.
An OCO order means one cancels other... clients use this for break outs etc...
An order to buy above the market and an order to sell below the market...(for instance).
In such instances whichever is filled first cancels the other.... quite useful on figure releases.
A: No, we have no plans just yet to add trailing stops... sorry - the demand is very small and the cost (and opportunity for error) are huge.
A: On the quarterly markets the dividend is in the price already so there should be little to no effect on dividend payment date. On Rolling Bets we will pay 80% of the dividend to a client with a long position and the share will probably open the full dividend amount lower on the next opening. In rolling markets we merely quote around the current market price so if the price falls or not on ex-div date is entirely up to the market itself. In a totally efficient marketplace if the dividend were 10p then the price should drop by this on the morning after ex div but in many cases it does not. Dividends will be credited/debited (for those who are short) the night before the ex-div date.
Note on dividends it is always advisable to check on ex dividend dates not just in spread betting but in 'real' equity trading as well. The market can be very odd. Sometimes a dividend gets paid and the market falls far less than the div amount and on other occasions you get the opposite effect.
A: The reason that we do this is because of the tax situation. If a client owns a share that is going to have a big dividend (on which he will have to pay 25 to 40% tax) it would be much better for him to sell the shares before ex-div date and take a spread bet out as he would then get 100% of the dividend in a price reduction and then on the day after the ex-div trade back into the shares. We reduce this to 80%. When you take into account spread/dealing costs...etc the 20% reduction in the dividend removes this temptation (!). This might (we believe) make LCG compliant in attempts at tax avoidance which would at the very least (if it became very prevalent) bring the eye of the taxman very firmly in our direction.
In the real world you have somewhere between 25 and 37 per cent tax on dividends. We believe that the 20% charge plus attendant dealing costs make it less likely that LCG can be seen to be aiding tax avoidance.
A: We do not pay dividends...we make a debit/credit to reflect dividend price action.
You must remember that this is a bet, you do not actually own any shares. You may get 90% of the dividend via a CFD but you will then have to pay tax on this whereas with the bet you get 80% flat. If I were you I would ask why you don't get 100% on the CFD as you then have to pay tax on it.
To have no tax on earnings you would have to be earning less than £5000 (approximately) and we would then not then give you an account anyway.
A: If we only charged 80% on shorts over ex-div dates, every single client we had would just sell the day before the ex date in the knowledge that they would be able (probably) to buy back the next day with a guaranteed profit. Very nice for our clients but I am quite fond of London Capital Group and do not want to drive it into administration just yet!
A: This is not entirely fair as, if it was up to me (given that we only give deposit accounts) I would give an account to whomever wanted one...why not? £1 from a small account is still the same as £1 from a big client. In fact at LCG we prefer the small medium accounts to the big ones because with small accounts the 'market risk' is with the client but with a big client taking big positions the market risk then defaults to us.
The reason we do not accept clients below a certain income level is because we must ensure that we are within regulatory rules (which are suitably vague) and which we therefore take a very conservative view of. We do get a few complaints from prospective clients saying that this or that spread betting company gave them an account so why won't we. In response I would say that this is why we have had not one bad debt this year and only a couple of margin calls in the entire 9 1/2 months. (and I can tell you there have been some hairy days this year, remember May! )
In the end it comes down to what kind of internal risk the spread betting company is willing to run...we have a very low risk criteria and this is likely to remain our policy. This should be of some considerable comfort to our existing clients.
A: Basically we are a betting company NOT a bank. If we pay interest it would involve us in reporting to the inland revenue on interest rate payments to our clients and we would have to take 25% tax off etc etc and pay this to the IR. If you want interest on your unused funds then transfer them out to your bank!
In reality (for instant access money) banks will generally pay you b****r all interest anyway.
But, yes, we do make money out of the funds on deposit (we would be a pretty poorly run company if we did not) It is a reasonable slice of our profitability.
A: My understanding of controlled risk stops is that they are only offered a long way away from the current price AND you have to pay a much wider spread. Spread betting companies are no fools...for instance the closest you can place a guaranteed stop in US equities is 10% of the entry price away (I mean ..great! 10% away!! What is the point) the only way this is going to help you is if you are the wrong way round over a profit warning.
So. 1. you have to have a position in that particular stock in the first place 2. your position is the wrong way round and 3. the market has to move more than 10%. (and you get charged for this !?) I am truly sorry but as far as I am concerned being charged virtually double spread on every opening trade is just not worth it. Spread betting companies make an absolute fortune out of the perceived protection of 'Guaranteed Stops'. (why do you think they offer them??) or in some SB cases give smaller clients the option of only having a guaranteed stop account or nothing. Do you think that they do this out of the goodness of their hearts??
This year using our boring, ordinary, margin with stops on all positions has resulted in precisely zero BAD DEBT. Our stops policy has proved the test of time.. it allows much lower margin requirements with reasonable security without scr***ng the client on each and every bet.
Guaranteed stop price is a charge of 2 pips (at least) and for currencies in normal times it is 3 times the spread so on 'cable' the controlled risk spread is 6 so the closest you can place the stop is 18... (ours is just 5 pips on a three pip spread).
Before economic numbers this is widened to six times the spread so the closest you can place the stop is 36 pips away... I would love to see a single client of ours claim that he was slipped more than 36 pips!! Even on non farm payroll numbers. The average slippage is well below 1 pip. Over 90% of stops are filled at the required level.
Everyone always mentions 9/11...sorry but this was 5 years ago...a lot of guaranteed pips to give away in the meantime.
A: So in the 'Legg Mason Incident' (sounds like a thriller) the shares closed at 105.31 on day one and opened at 91.70 the next. The closest you could have set the stop would have been $10.53 away at $94.78. So in this case yes it would have saved you $3.08 but it had to gap a huge amount for the guarantee to kick in. on your £10 bet you would still lose 10,530 quid (10 x 1053 pips as this is the closest you could place your stop). So the saving using the guaranteed stop would have been £3,080. But you would also have paid double the spread on opening the bet. (as you would do with all opening guaranteed stop bets). So even in this extreme case you can see how quickly any benefit is diluted and eroded away.
Many clients love guaranteed stops and use them all the time. We may at some time in the future look at them but I can assure you that our boring ordinary stops are far far cheaper in the long run. At the moment this is not part of our development work.
You have to remember that not many top companies fall over 10% in one go. And even if they do you have to have a position in that particular company. Even when Party Gaming and Sporting Bet dropped 50% in one go we only had one client with a position big enough to require a margin call. (our first margin call of the year!).
A: Well I am sorry this happened but in our defense it was not us who gave out pre market opening news announcement about 3.5% falling output figures which meant the shares opened at 445. Down 20 pence.
If you had the open position in 'real' shares and instructed your broker to place a stop at 460 where do you think you would have been filled? I can tell you for free... at 445 (or thereabouts, as well). I know because that is where we sold out of our hedges in the stock on the open.
On every single page of our site it says "stops are not guaranteed". Spread Betting with LCG is a mirror of the real market. Sometimes, as in this case, it hurts. As it does in the 'real' financial world when a share you have bought falls.
The market then spent the next 10 minutes down at this price before reversing and actually traded up BUT we are not to know this.. When the stop gets hit we just fill it.. the market could have just continued down.
Again, I am sorry that the bet you made went wrong but the price movement had nothing to do with our company.
A: As I say we do not influence markets.... if a stop is subsequently shown to be a low or near a low (or high as the case may be) it really is not our fault that this happens.
If we make a mistake (and we do make them) then we are always willing to go through actual market bid/offer history to check that nothing has gone wrong.
If you have particular trade queries then our customer services department (rightly praised many times in this thread) will look into them.
Sometimes the bid/offer in the market goes incredibly wide on some shares (even normaly liquid ones). Therefore 'our quote' will then reflect this sudden widening. When 'our quote' triggers a stop level in these events in equity markets we wait for a confirmation trade before executing the stop. Occasionally in the rush of executing activated orders a stop that is fairly triggered by our terms (as all orders are 'our quote' / NOT MARKET QUOTE) gets filled. We can always go back and look at price action from our various feeds to see what happened.
I have to say that when I used to trade myself I often found that I was also being stopped out at highs or lows. And this is not surprising when you stop and think about it because in general the majority of traders are thinking the same things at the same time. So stops get placed by loads of traders at the same point and then the markets in their usual fashion go hunting for them ... and then when they have got them the market just reverses because the 'weak' longs (or shorts) have now been chased out.
A: You cannot have an equal and opposite position in the same market (but you can open two accounts if you so wish) - you can, however, go long one contract and then sell another contract in the same underlying market. (rolling FTSE.. daily FTSE future, Dec FTSE...etc)
