Something to nothing scalping using CFD MM - questions on their traps

[Sicilian Trader]

You will see as far as CFD providers go and volume, they will close this account down once I get over $50-$75 per tick. As far as the Futs my system is a little different.

TH,
Why are you so definitive that they will shut the account down at that level of trading?

Because they always do.
Some providers will not even let me open an account.

Ha!!
Looks like they aren't to keen for me to throw my coin in the bucket today.
Game over!!

You mean the provider stopped your account (as anticipated), or you've reached your maximum loss for the day?

I can't get a trade to execute. takes 20 -30 seconds after I hit the button.

I can see how that can be a bit of a handicap with an average hold time of 30 seconds

TH,
Given the interruption to your account, I'd be interested to know the name of the CFD provider - do you mind providing it?
Thanks,
Greg

No. It wouldn't be fair to exclude the others. They all do it and have.

Before I delve into this post with my questions, I will preface it by saying that this thread (where the quotes are from) would have to be one of the best threads on ASF.

Its short, to the point, and most importantly, eye opening to the possibilities of where trading can take you. Some interesting ideas and methods on scalping. If you are new to this forum and haven't yet come across this thread, then you should sit back and enjoy yourself. A great read indeed.

Now for my questions and comments on the above quotes. Might run out of room, so will post on the next one.

 

[Sicilian Trader]

Re: Something to nothing scalping using CFD MM -- questions on their traps

This is a real concern to me. Just to qualify, its not because I consider myself to be the next 'cardcounter’ about to be kicked out of the casino for taking too much profit. Its due to the fact that I have this concern about CFD providers, especially those who are Market Makers (MM).

And TH, i appreciate your not wanting to disclose who the provider was, I just want to get some clarity around the ways in which to avoid their traps or whether to just avoid them completely if such traps regularly exists.
Reading your posts, especially the one where they slowed you down, actually aggravated me. How they can do that?!

I am looking at trading SPI futures down the track so I have some questions to ask in relation to the above quotes.

1) Does this kind of game playing really go on regularly and are we are powerless when we start trading larger lots. It seems as though these games neutralize one’s positive expectancy to a large extent?

2) Can CFD MM see our stops and sometimes do what they can to make sure they are touched if they see that someone is experience some decent success?

3) Is there anyway of avoiding this if one wanted to trade SPI futures in the ‘future’ ie. Does trading a SPI futures full contract on say IB eliminate this kind of activity as there are no MM in this market/exchange? ( i am still a little unsure on this point)

4) A little unrelated, but if you have a big enough account size why would anyone want to trade SPI / asx200 on a CFD MM platform when they can be trading the full size contract with much less spread and no MM dodgyness? Are there any benefits to the CFD MM option that I am missing or have overlooked?

In my opinion, I have a negative view on CFD MM when trading indices. Does anyone else share that view or anyone care to disagree. I am a newbie and I am keen to learn.

Thanks
ST

 

[Timmy]

A Futures contract and a CFD are COMPLETELY different.

A Futures contract is traded on a Futures Exchange – when you buy or sell a Futures contract you could be buying or selling from anyone in the world. You do not know who you are buying from or selling to, the person/organisation on the other side of your trade doesn’t know who he or she (or it) is selling to or buying from.

A CFD is traded with a CFD provider/supplier (I am going to call them suppliers here – they supply both bids and offers, they will both buy and sell from/to you); when you buy or sell a CFD you can ONLY trade with the supplier – the supplier knows who you are, you know who the supplier is.

Now, some CFDs suppliers do so on a “Direct Market Access” basis – that is their bids and offers EXACTLY match the bids and offers in the actual market they are supplying the CFD for. Other CFD suppliers do so on a “Market Maker” basis – that is the supplier decides EXACTLY where the bid and offer is. The Market Maker also decides WHEN (and IF) you will be allowed to trade. You may hit the “BUY” button on your computer, but the MM will decide exactly when your order gets done, if the MM wants to delay the execution of your order, it will. When you sign the agreement with the CFD supplier (the MM) you agree to allow the MM to do these sorts of things with your orders.

I think an analogy (a dodgy one, very imperfect) might be found in comparing a fruit and vegetable market with, say, Coles. If you want to buy some grapes you can go to a fruit and veg market (say Paddy’s in Sydney, the Queen Vic. in Melbourne, for examples), compare prices and deal with any of the sellers of grapes. Alternatively, you can go to Coles – but Coles will set the price of the grapes and if you don’t want to deal at that price then no grapes for you. You could try Woolworths and see what their price is, though (i.e. use two CFD suppliers - but the 'grapes' you buy from one CFD supplier are NOT the same as from another CFD supplier, so you couldn't buy a CFD from CFD MM Supplier "A" and sell that CFD to CFD MM Supplier "B").

In answer to your specific questions.
1. With a MM CFD supplier there is nothing to stop them playing this sort of game, except their reliance on you as a customer (you may eventually decide to take your business elsewhere, to another supplier, or go the the real marketplace - the stock or futures exchange - yourself) .
2. Yes, they can. But they tend to use other tactics instead, such as delaying your execution.
3. Trading a Futures Contract is trading on an exchange, not with a provider. There are other pitfalls, but MMs knowing exactly who you are, what you are trying to do, delaying/not allowing execution, is not some of them.
4. I don’t trade with MM CFD suppliers so I won’t comment, but there are some traders who can figure out how to deal with MM CFDs to their (the trader's) advantage.

Hope this helps.

 

[Sicilian Trader]

Now, some CFDs suppliers do so on a “Direct Market Access” basis – that is their bids and offers EXACTLY match the bids and offers in the actual market they are supplying the CFD for.

Timmy,

very informative and i know a lot more now, thank you

With these little tricks (ie. slowing down execution - even just based on this one alone!), i cant see how anyone would want to trade CFD's with a MM. They are effectively nibbling away at your 'edge', and one may not realize their edge is gone until they have made another 500 trades, scratch their head and think to themselves - 'hang on, these aren't my normal system results across this many trades'

Another question, you mention 'DMA', can one use DMA instead of MM and avoid some of these traps? When using DMA, i understand that the supplier is going direct to the actual market to buy that share, but is the same true for say the SPI? Or is the only way of getting the real thing - or any part of it - is go to the futures exchange?

Also, when you say 'exactly matching', does it mean that the DMA provider is not on the other side of the trade therefore cant slow you down or see where your stops are etc?

In the future, I am considering trading the SPI with MF Global who provide DMA, will that give me what I am trying to achieve, or is the only option to go to the actual market, the futures exchange to trade the SPI?

I guess I am just keen to take small steps before I go onto a full sized contract, but I don't want to be disadvantaged by a MM whilst I am learning.

Thanks
ST

 

[Bobby]

Best thing you can do if your going to use them is get live independent data ( SPI ).
You have mail Sicilian .

 

[Naked shorts]

Its my understanding that trading with a bucketshop MM isnt actually classified as trading.....its gambling. Is there any tax payable on gambling profits?

 

[James Austin]

With these little tricks (ie. slowing down execution - even just based on this one alone!), i cant see how anyone would want to trade CFD's with a MM.

I guess I am just keen to take small steps before I go onto a full sized contract, but I don't want to be disadvantaged by a MM whilst I am learning.

ST

people use MMs because of the minis, minis are a cheaper source of skill and system development than futures providers. Its that simple!

a common approach is sim trade, then minis, then standard contracts.
a graduated process often works best when learning.

also,
not all MMs slow your trade down when trading $25 lots, some actually take your trade to the futures market if you have a good track record because they dont want to pay you when u get it right, nor do they want to lose you by slowing your orders.

if you have a poor track record they wont bother, they just wait for you to make another mistake. so not all MMs slow you down as you increase contract size.

 

[johenmo]

So as someone who is thinking of CFDs but has to do some homework first, and is reading various threads, it sounds as though the choice of provider can have a big impact on your success.

How big would you say?

 

[Cartman]

Its my understanding that trading with a bucketshop MM isnt actually classified as trading.....its gambling. Is there any tax payable on gambling profits?

can't speak for others, but yes i have to pay tax on my "bucket shop" accounts --- but i had a previous trading history as well, so that may have some effect --- speak to an accountant if in doubt --- everyone's situation is different..

 

[Bobby]

also,
not all MMs slow your trade down when trading $25 lots, some actually take your trade to the futures market if you have a good track record because they dont want to pay you when u get it right, nor do they want to lose you by slowing your orders.

if you have a poor track record they wont bother, they just wait for you to make another mistake. so not all MMs slow you down as you increase contract size.

James your on track with the bit about why bother to hedge when they know who is a crap trader , just a trader or a good trader . so few regular winners !

Only noobs would trade off there data alone .

 

[Naked shorts]

can't speak for others, but yes i have to pay tax on my "bucket shop" accounts --- but i had a previous trading history as well, so that may have some effect --- speak to an accountant if in doubt --- everyone's situation is different..

So I just checked out the IG Markets PDS for more information on this, here is what I found.

CFDs can be characterised as cash settled Over-the-Counter (OTC) derivative products, in that your dealings with us under the Customer Agreement do not
provide for a party to make or accept delivery of the underlying instrument. The
ATO takes the view that CFDs are in law categorised as contracts of gaming and
wagering, however this alone is not determinative of the tax treatment of gains and
losses.

Gains
The ATO has taken the view that gains from trading CFDs will be assessable income-
(i) where the CFD is entered into as an ordinary incident of carrying on a business;
(ii) where the profit was obtained in a business operation;
(iii) where the profit was obtained in a commercial transaction for the purpose of
profit making; or
(iv) where the profit is made in carrying on or out a profit making scheme.

Further, the ATO has taken the view that even an isolated CFD transaction can be
considered to produce assessable income for the taxpayer. It should be noted that
the ATO’s interpretation of what would fall within these parameters is very broad
and appears likely to include all CFD trading, whether frequent or not.

However the Ruling also contemplates that a gain from a CFD entered into for the
purpose of recreation by gambling (and not for a profit-making purpose) will not be
assessable as income (or capital gain). The Ruling acknowledges that a taxpayer who
enters into a CFD only once, or very occasionally, who has no expertise in the price
of the underlying by which the gain or loss of the CFD will be calculated, does not
engage in any income producing activities of a character bearing some association
or connection with the CFD or its underlying, and in particular who gambles in the
ordinary recreational way and who has entered into the CFD in circumstances such
that the CFD may be seen to be part of that recreation, may establish that the gain
or loss is a product of recreational gambling (and not the result of a profit making
endeavour).

So I guess if you show that you know what your doing, then you will be taxed. Act stupid and don't get taxed. Can anyone confirm this?

IG Markets PDS found here:
http://www.igmarkets.com.au/content/files/igm_pds_may08.pdf

 

[James Austin]

Only noobs would trade off there data alone .

MM futures charts are pegged to the actual futures.

Overlay the MM futures chart and the actual futures chart, they should be almost identical.

 

[Bobby]

MM futures charts are pegged to the actual futures.

Overlay the MM futures chart and the actual futures chart, they should be almost identical.

You would think that BUT time & time again I have seen
a difference wither its a slight time lag , or difference between bid & offer it happens .
Yep it always returns to the status quo , because arb opportunities are there to grab

Thats why those who trade need the outher source of data .

Watch out for the so called flicks when you press the button on the bid - offer , sometimes you get a crap price & can't prove it happened , I've suffered this rubbish , never again ..

The power of this forum is that we can name those who don't do the right thing , THEY know this !!

 

[Trembling Hand]

ST there is nothing to worry about here. The steps are simple yet people tend to want to worry about everything except what matters.

Steps to trading futs are as follows,

1. Backtest
2. Sim
3. Trade live on CFD minis if new to trading or small account
4. Once profitable move to cheaper & real futs
5. Increase volume
6. Pick colour of Ferrari

CFDs are a good learning tool but are VERY expensive and you would be mad to trade off the data that they provide. Worrying about MM stop sweeps and dodgy practises will just get you paranoid and bitter before you even get to playing with the big boyz in the futs who are far more dodgy and ruthless than any bucketshops. Get over it, it's a game of taking money off someone else.

 

[skc]

Agree. Learn to count cards first before worrying about if, when and how the casino will kick you out.

The bigger MMs out there have dynamic hedging capabilities so they may accommodate your large volume, earn the spread off you and happily let you trade as their client. So the casino may not kick you out afterall.

NB: Read and understand the difference between a MM's "cash" vs "futures" contract in terms of interests and dividend adjustments.

 

[Sicilian Trader]

ST there is nothing to worry about here. The steps are simple yet people tend to want to worry about everything except what matters.

Steps to trading futs are as follows,

1. Backtest
2. Sim
3. Trade live on CFD minis if new to trading or small account
4. Once profitable move to cheaper & real futs
5. Increase volume
6. Pick colour of Ferrari

CFDs are a good learning tool but are VERY expensive and you would be mad to trade off the data that they provide. Worrying about MM stop sweeps and dodgy practises will just get you paranoid and bitter before you even get to playing with the big boyz in the futs who are far more dodgy and ruthless than any bucketshops. Get over it, it's a game of taking money off someone else.

thanks TH and everyone else, just being excercising caution before I decide which platform and market to trade. I want to feel as comfortable as practicable with my platform / cfd provider so i know if i am losing money while i learn, i am losing it at the slowest possible pace.

Would rather look slightly foolish in asking many questions than feeling foolish with the 'proverbial' in my hand in the real markets. I feel alot more informed about my decisions now. Great resource this.

I have some ideas on my intraday trading systems, as i have 'some' experience in this and I would like to test them properly, so can anyone assist me on the following:

1. Backtest (have trial version amibroker, and getting familiar with its functions)
2. Sim (sfe)
3. Trade live on CFD minis/micros - (am looking into Gomarkets due to spread and RT costs), Esignal as data provider
4. later
5. later
6. Pick colour of Ferrari midnight blue, 360 modena

in anyone elses opinion, are there other brokers, sim platforms or backtesting platforms that you would suggest or am i heading down the right path with my proposed providers?

thanks
ST

 

[Trembling Hand]

If you can afford to open an IB account ($10,000 USD min account opening) you can get the data for free or next to free for most futs markets. Ninja has a great sim which you connect to IB for free if you are doing manual trades.

 

[Sicilian Trader]

If you can afford to open an IB account ($10,000 USD min account opening) you can get the data for free or next to free for most futs markets. Ninja has a great sim which you connect to IB for free if you are doing manual trades.

great, thanks TH