A spread betting disaster (updated)

Today the market opened and moved against me quite dramatically. This in itself is not a problem in trading. If the market goes the other way to what you are expecting then your stop losses are hit and you lose some money. In the Naked Trader, Robbie Burns considers this a complete success. When you are stopped out and your loss is exactly as your strategy allows then everything is going according to plan.

I had all my stops in place to minimise my risk. Every night I calculate my stops according to my strategy down to the nearest 10th of a point. For some unknown reason, I decided to get up early and check my trading.

I noticed the market going against me and could see my losses increasing. However, as described above this is not a problem for me. However, you can imagine my surprise when the losses kept on going up, as the market moved through the stops and the stops were not executed.

IGIndex, The spread betting company did not execute them! The market was open and there were no gaps in the trading. So I tried to manually execute my stops myself. However, IG’s system would not allow me to do this because of the contingent order which was supposed to be executing in the system. This meant the system knew there was a stop in place, so could not accept another one. All I could do was watch my money disappearing before my eyes.

The stops were finally executed but not before I had lost more money than all the gains I had so studiously won since I started trading. My account size is now smaller than when I started!

I reviewed the losses that were lost after the stop position and saw they were roughly twice the loss that I would have had, had the stops been executed. (44% of the loss due to broker delay, 56% due to market moving to the stop position).

I wrote to IG Index to ask them for an explanation.

It took a few hours, and as you can imagine I was quite distressed at this point, but I did receive a reply from IG. This is it:

Dear Sir,

Thank you for your email. When a stop is triggered in the market it will arrive on our stop monitor to then be checked by one our traders who then close the position. If there is a lot of movement in the markets especially at the open like this morning there is a number of stops to fill and therefore it can take a few minutes to get through the list.

Please do not hesitate to contact us if you have any further queries.

Kind regards,

XXX

—

This seemed to me to be rather strange. If the system does not execute orders automatically then there will always be an undefined delay between the stop loss actual position and the exit point out of the market. I began wondering if this had always happened but I had only noticed it when the delay had been extreme.

 I decided to contact CMC Markets, another leading spread betting firm to see what they had to day about the matter.

With CMC, I have my own account manager so I got a reply very quickly. There reply basically stated the following:

The method of execution for stops is as follows:

1.       The market moves through the stop level

2.       The system automatically flags the trade to execute the stop

3.       The position is then flagged up on a brokers screen.

4.       The broker checks to make sure there is enough stock in the underlying market to execute the position so they can hedge their side of the deal

5.       If there is, then the stop is executed and the bet is ended. If not, the deal is left until there is enough underlying stock

This is very interesting as it does confirm that the brokers to do have a human managed step in the process. Now I can understand why.

I wrote to IG Index again asking for a reason why the execution took so long, as the amounts I am trading are so small that there could not possibly be an underlying stock problem.

I have not heard back from IG and I think that the question is answered in there first reply. The broker was busy so he got to it as soon as he could.

Now, at least I understand the situation. I now had to decide what I could do in future to protect myself from this situation. I wrote to the mentor I had been having my one to one sessions with at the Traders University with. He very kindly replied with some friendly advice:

“I had a few students who were rattled about this the day before yesterday.

The main thing is to remain calm, focussed as this occasionally happens in the market to shake people out. One needs to step back and look at what happened and understand what caused it, so it becomes part of the learnings, no one ever said that trading is easy. If your emotions go astray then why not try picking up the book ‘Trading in the Zone’ by Mark Douglas which is an excellent book around this.

If you are unhappy about your broker not executing quickly enough and their response to you is not satisfactory, then move broker – plain and simple. They need their customers and if people start walking then they provide better service.”

The question I have to ask myself is whether or not any of the other spread betting companies are any better. It is unacceptable to me to have an entire month’s trading wiped out because a broker is a bit busy. The amount lost is so much over the percentage risk that it makes a total mockery of any adjustments that I make on a daily basis.

As detailed in a previous post, my game plan was to trade for about 3-4 months and then if I am continually hitting about 10% profit, to dramatically increase the size of the invested capital. The amounts I could then lose would be much larger.

In conclusion then, I have closed all my bets both open and pending with IG. They do have the best interface for trading with, but I no longer trust their execution. I have written to them again asking for a service level with regards to the delay that one can expect, but if they dnt reply, I am going to close my account with them today and withdraw my money.

I don’t like the user interface for CMC markets so I won’t use them either. I am going to investigate a few others but for the time being I think I will stop spread betting until I find a satisfactory answer to this problem and look at putting the time into my new business.

Quite a bit has been going on with the new business plans and I have been waiting to write about it here. I will update the blog about progress with the business in a different post.