IG Index’s feedback

I have had some feedback from IG Index regarding the issues detailed in http://obscenelyrich.wordpress.com/2008/07/17/a-spread-betting-disaster

IG wrote back to me informing me they have investigated the issue and the trades that were concerned.  They have obviously gone to a good deal of trouble to see exactly what went on and have confirmed that some slippage (as the effect of the delay is called) was inevitable, but also that some slippage in my case was ‘a bit harsh’. As a result they have refunded a small portion of the loss that they consider was out of the ordinary range of acceptable slippage.

This good will on their behalf goes along way to repairing the trust that I felt I had lost with their system, but it is still a small amount of the total slippage that occurred (13% of total slippage), but I feel a bit less like I am at the mercy of an indefinable period of time, resulting in indefinable risk due to slippage as they have accepted that there was a mistake and have rectified this to some degree. This gives me some confidence that in future if this happens again, they will follow the same tack and limit the slippage due to large delays.

The total situation was as follows:

Total loss up to stops:                                    £95.93 (4.8%)
Total loss after stop (slippage):                 £76.20 (3.8%)

Total loss:                                                            £172.13 (8.6%)

After the correction of £10.16 (0.5%), the loss is:

Total loss up to stops:                                    £95.93 (4.8%)
Total loss after stop (slippage):                 £66.04 (3.3%)

Total loss:                                                            £161.97 (8.1%)

Please note: I know the amounts are small but it is the percentages that are important and the way the system works. This is important because the figures are only relative to the account size and this will change over time, but the system and percentages will not.

The question is now whether that this is acceptable or not in terms of whether this kind of loss due to slippage occurs frequently enough to remove any profits I make. The advice I have got from everyone is just move on, forget it and get on with trading. I can only do this if I feel I have a chance at success.

I am going to order and read the book recommended by my TU Mentor. (‘Trading in the Zone’ by Mark Douglas) which should help.

I am going to write about the psychological effect this has had on me. I mean this in the sense of the trader’s psychology not my mental health state! I have always glossed over the bit in the trading books which talk about the trader’s psychology before as I didn’t think it really applied to me. However, now I am going to re-read these sections as I certainly went through a few moments of annoyance and blaming the brokers. I’ll write about this soon.

 

A spread betting disaster (revised)

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.

 

 

My spread betting account

My spread betting trading so far
So far, I have mastered the basic strategy outlined in the traders university course. I have only really been trading properly with the strategy for just under a month. This means it is early days yet and in such a short amount of time I wont have seen many of the changes a market can throw at you. So I have mastered it in the current down trend in the market.
This month I have made at present about 7.5% of my capital. This means I have 7.5% more than I started with. Two days ago I was at 12.5% but I lost quite a bit being too exposed as I had so many stocks shorted and the market bounced. This means it is quite volatile and therefore day to day the percentage changes.
What is important to me, is the percentage at the end of the month and then making sure this is at least 10% for six consecutive months in a row. Then I will feel like I can increase my capital.
It is also important to me to keep analysing my results to make sure I continually improve my strategy. At the moment I am losing small (maximum 1% of my capital) and winning big. So I cut my loses and allow my wins to run on.
I will let you know each month how I am doing and will publish the % in the spread betting category.

 

The third and final traders university mentor session

The third and final traders university mentor session

Last week I had my final session with the mentor from the TU. We looked at some of the trades I have been placing and tidied up some of the strategy I had been using. I am pretty pleased with my day to day trading and seemed to be doing all the right things.

I had had a good day, and at the time was trading at about 10% of my capital in profits for the month. This is on target. We started to discuss trading with the FOREX (foreign exchange) as now I had the FTSE 350 day trading down, it might be time to look at faster intra day trading.

We covered a package he uses called Metatrader 4. I have since downloaded this and it is a free charting package amongst other things for a few of the major currencies only. If you are a FOREX trader, I would definitely recommend a look.

The session went well and I am petty pleased I have got to the stage I have in about a month and a half.

I wrote a review of the TU and sent it to them to help with feedback. I am happy to say I would definitely recommend the course to someone wanting to learn spread betting.

 

The second mentor session from Traders University.

A few days ago, I had my Traders University second one to one mentoring session. Just like the first one (see previous post) this session was excellent and allowed me to move further on in my understanding of spread betting and trading in general.

We discussed a couple of the trades I had already placed and some were good. However, I still had not followed all of the rules of the trading system perfectly. I had done some research previously (also detailed in a previous post) where I had been running the strategy over a stocks as if I had been placing them for 2 years.

I had noticed that not all trades were placed on the next day of the strategy as defined in the rules. The rules dictate you should cancel the order if it has not been placed on the next day. I extended their rules from the first day to place the trade if you wait for up to seven days instead. This entered significantly more trades and made more money.

I have therefore being using this extended strategy in my own trading.

My mentor pointed this diversion out and I explained my reasoning. However, he informed me that after day one it became a completely different strategy and should be treated in a different way. You didn’t need to miss out on the trade, but approach it in a new way. He gave me a better strategy and I have applied this to many more trades this week.

This should reduce the risk in future and make more money per trade.

Also, in my own research I found my trades were being placed before my support line had been broken. I.e. they were being placed before the breakout had occurred. This was resulting in some of the trades not breaking out, entering me in the trade and then bouncing back up and stopping me out with a loss. In most cases (66%) this is because I have been calculating the actual underlying market price PLUS the dealer spread and using this as the entry and stop points.

If I ignore the dealer spread when placing an order or stop, the trades work as planned. This was also pointed out in my first one to one session, but I chose to ignore it at my own peril! I think I just needed it proving.

The key to this is keeping records, reviewing and refining as you go.

I now have some more homework and that is to apply various breakout patterns to stocks over the last two years and to make sure I learn how these work.

Since my first one to one session, I have turned my trading from losing money to gaining money. If you don’t count the mistakes I have now rectified, I would be making around 1-2% per day of my initial capital. I am slowly getting back the loses I made initially. When I get back to my initial £2K I think a celebration is called for!

 

 

Creative Destruction

It has been several months now since we started to inform our clients that we would be changing to a business owner type relationship and employing staff to do the day to day work. As you may have read in previous posts, most of our clients could not deal with either the increase in costs to market rate instead of the cheaper rate we were charging, or they could not deal with the change in trust situation and teething problems that come about with employing new people and creating a business.

However, we still had one very large client who seemed happy. However, yesterday we had a very good chat about progress and our client detailed very clearly that the trust relationship is with us as individuals and not as a company. They will be very interested in working with us once we have got our offering solid, but until then they will not be using our services other than offering us as much consultancy as we liked.

They did ask me to work for them full time which I politely declined.

They were very happy with our work, very happy with the work our employees have done, but as we have not got the full time client managers in place yet and don’t have the full company service yet in place, they will wait until we are ready.

We have not been able to fully implement the company as a solid entity mainly because we have still been finishing off consultancy work on a daily rate for this big client. There is therefore a gap in what we can offer as we switch from self employed to owners. I am not available for them at all hours as I previously was, and they now have to book my time rather than expecting it. We definitely need to employ someone who is available during business hours dedicated to a specific client.

This is the last big client that we have and it is a shame we will not be working with them for awhile.

(There is still some work for me to complete as a consultant and some from my hired contractors to finish but that should be complete in about 6 weeks).

This is an important realisation for me. I have built this business up from nothing for five years as a business where we work in the business. I have had to completely lose all of our clients in our efforts to move to a business ownership type relationship.

This is obviously worrying on one level, but refreshing on another. We will be able to completely start over again with our new plans. It is not for the feint hearted.

We are very nearly there now with finishing our business plans and have almost completed our new website and sales materials. We have a few more items to iron out, such as how we will employ a full time client manager, whether we look for a partner in the business or funding to cover his wages.

We should be ready to launch into the world in about 2 months. This will be after my son is born and we have had some time to be at home together.

This process of creative destruction is what Alan Greenspan talks about as being at the core of capitalism. It is what drives business forward and creates wealth. It also creates stress and anxiety and it is a balance of these two forces that either grow or stagnate countries and individuals. Winston Churchill said that an entrepreneur is defined as someone who goes from one failure to another without losing enthusiasm.

I don’t count our business as a failure in anyway, as it was exactly what is was designed to be, but if you apply this to creative destruction, I think Churchill’s observation  applies. An entrepreneur is someone who can consistently perform creative destruction and never lose enthusiasm.

The saga continues…  

 

 

Update on the business asset

Update on the business

I have been focusing on writing posts for spread betting a lot lately, so I thought it was time to update on my progress with turning my self employed business into an asset, and me into a business owner.

You may remember that I had decided to reduce the number of clients we had, in order to remove those that were not be financially viable when employing other people. These clients tended to pay us under the market rate and we were really working for them for historical reasons. We gave all our clients notification of our price increase (about 1.5 times our old rate). This is still not full market rate, and is less than we would charge new clients.

Only the very largest of our clients could deal with the increase to our new rate. We tried to help our clients wishing to find alternative providers to find someone new. However on all occasions everyone else in the market place is charging as much as our new price or more.
This has left our old clients in a bit of a quandary and they are trying to find other self employed  people who will work for much less than market rates as we were doing, but is a great confidence builder for us as we now know we are well priced in the market and not under priced.

This has left us free to focus on our much larger clients who understand the need to charge competitive rates, can afford to pay us and who value our service regardless of the increase in cost.

Our remaining clients have at times been very helpful but as I detailed in an earlier post have had problems changing their perspectives of us as a freelance company to a proper business. It has taken time, but we have proved that we can manage bigger projects well (better in some cases) with contract staff instead of us doing all the work. They are still not completely confident and some big projects that they have had, they have given to less able companies, but more established, so I know we have a long way to go to convince them.

An example is where one of our clients asked us to scope a big project for them, we put together the plans for the project and got excited about the new challenge. They then took our plans and gave it to a less able company and gave them all the work! I asked why they had done this and they said they feel the other company is more established and if something goes wrong more liable. I felt this was extremely rude to us, and I declined to work on the project at all as a paid consultant as they had asked. They wanted my skills to guide the other company as they were not as able and pay me my day rate. Basically they could accept we were a viable company and only wanted me as a freelancer still, this was very frustrating in the short term.

However, not one to complain or make a scene, I quickly realised that the way forward is to find new clients who meet us for the first time as a business.

By freeing ourselves of all clients who have not been able to adapt either financially or psychologically has left us in the situation where we are earning less then we were for ourselves but have freed up an enormous amount of time for strategy, growth and winning new clients.
(I have made sure we are earning just enough to cover our basic outgoings to ensure we do not reduce our net worth or asset buying capabilities)

For the past month or so, we have been working on a brand new business plan and structure for our new web site. The site is nearly finished, but the textual content still needs writing as this will come in part from our business plan when it is finished.

The plan now is to finish the planning, update the new website, get our promotional items together, and possibly recruit a new business / sales director.

We will look to start getting our new clients after my first child is born in September.

As soon as the next phase is complete or if there are any more interesting steps along the way, I’ll write about them here.

 

Back on track

I have not written much this month as I have been on holiday in Devon. A nice quite B and B with no internet connection and miles and miles of fields and sunshine. I stayed in the heart of Dartmoor in a place so remote you feel like you have gone back 500 years.

I did of course take my laptop. And in the evening whilst my wife was reading, I took upon myself the task of completing my homework and choosing some random trending stocks and working out how many points I would have made (or lost) with the strategy given by the Traders University.

It was quite fascinating to see that different sectors and different stocks have completely different outcomes when using the strategy. For example Barclays stocks consistently lose you money using the strategy but most mining stocks win you loads.

By going through the stocks of 21 different companies over the last 2 years I have learnt the following:

1. All of the markets changed drastically between June and September last year from Bull to Bear. I want to investigate why this was. What changed everything last summer? Surely the ‘credit crunch’ and Sub American prime cant have affected the entire FTSE 350.

2. Not all stocks are equal. Even in Technical analysis each stock has its own peculiarities. By tracking these stocks for over 2 years and marking different key indicators against certain points I have been able to determine where the strategy works consistently and where is doesn’t.

3. I can now track back through a particular stock in about 10 minutes and learn enough to know if that stock is good with the strategy or not. When I first started it took over an hour for one stock.

4. One of the most important indicators I am now using is the ADX filter. There is a definite correlation between this indicators positions and whether the strategy works or fails. Using this indicator over the last 2 years would have increased the amount of points won by 15%.

All of this comes in very handy now when I am determining whether to place a trade or not.

I have continued to read the book ‘The financial spread betting handbook’ by Malcolm Prior. This book is very good and his strategy for spread betting is IDENTICAL to the one given by the traders university. He also adds information about the ADX filter, which as I mentioned above is a massive bonus.

I would recommend this book to anyone and I will add it to the list of recommended books on this site.

When I came back, I eagerly updated my daily data download for Sharescope as although I love the countryside, a week without the internet for me is like being cut off from civilisation!

I checked my filters for the stocks which match the strategy and then for each one, I mapped back through the last 2 years to see if it worked for these stocks or not.

For some it did, others consistently made a loss. There was no way to know this without going back through the stocks data. The signals are all the same for different stocks but the outcome very different.

I then placed those trades that matched the ADX values and had consistently made a profit and whose sectors trended with the stock.

So far this week all the trades have made a profit and I am up 2% on my capital value. Not bad for 4 days, and much better than the consistent losses I was making before.

My plan is to make 10% per month of my capital. As my capital is 2K, this month I am hoping to make just £200. If I can do that, then next month I will try to make £220 and so on. In 17 months I would have over £150K and be able to live of the money I make. So far out of £200 I have made £45 so on track as it is now day 4.

All the bets are still open and I will tell you how they go.

 

The first ‘one to one’ session with my mentor from Traders University

The first ‘one to one’ session with my mentor from Traders University

I was eagerly looking forward to my first session with my mentor from the TU course that I attended. I have been trading for 3 weeks but have had little success and was beginning to wonder whether the strategy was up to much. However, after my first session with one of the TU mentors, I am back to being very enthusiastic.

He showed me there were quite a few things I have not been doing correctly or thoroughly enough. I do have a tendency to assume that I know best and go off and do my own thing. In this case this was probably not the best thing.

The main points I have not been following are:

Keep my entry points close to the close of the last day so I can get into the trade at the first possible moment. I  was using the ATR(10) to place my entry points away from the last days close. This is not correct. The strategy details placing your stop roughly the ATR(10) away.

Note: (ATR(10) is the average movement of the stock over the last 10 days).

I have altered my orders that are ready to be placed for this weekend accordingly.

Also, I have not been analysing the trend lines and resistance / support lines in accordance with the their strategy. This means most of my trades that have been entered, have not really been up to much as there was less movement to be gained in the trend.

I have some homework to do now which is to analyse 3 trending sectors and pick 3 trending stocks and find all the power plays and pivot plays over the last 2 years for each one. I need to record the number of points each one would have made or lost according to the strategy. This should give me enough experience to quickly identify the entry points and also gauge how much I could win or lose by them. Basically, it will allow me to learn the patterns.

Also my mentor recommended a book by Thomas Myers called ‘A course in Technical Analysis. I will get this and let you know if it is any good.

He also answered some of my questions about calculating the dealer’s spread into your stop and limit positions. The difference in the spread should be negligible compared to the amount won and therefore don’t add the spread difference to your stop loss. This is another good correction for me to make in future.

All in all, I was very impressed with the information from the mentor and he did spend about 50 minutes with me instead of the 30 minutes allocated.
We might even have some business in common between his company and my own, so I am looking forward to see if his company may become a client of ours. (I’ll let you know if anything comes of it)
So, it is still thumbs up for the trader university course so far!

Sorry if this post has been quite technical, but this is a journey to riches and it seems that for this aspect of the journey being technical is called for.

 

Spread Betting

My experience so far with Spread Betting

As you know, two and a half weeks ago I attended the Traders University for a weekend course in Spread Betting. I have been following their instructions to the best of my ability so far. I have placed 34 bets in 12 trading days and 6 of these have been placed in the market.

I have also started reading a great book called ‘The Financial Spread Betting Handbook’ by Malcolm Prior. I will of course write a review of this book once I have finished it, and add it to the book list if I think it is good enough and forms part of the journey.

I have also been checking out some other trading platforms to make sure that the one I am with offers the best spreads. It might be different brokers offer different spreads for each trade, so it seems a good idea to have a couple or three brokers to see which is the best.

I have got my IG Index account which I have been using so far, see Getting the Right Broker post. I am now opening two more accounts, one with City Index as they offer free air miles and one with Capital Spreads because someone has personally recommended them to me. City Index insist on you sending them an original house hold bill through the post, which I found a little annoying, and both insist on you send a photocopy or scan of your passport. IG Index asks for neither of these.

Capital Spreads username etc came through the post yesterday, but I haven’t had a chance to look yet, so I’ll let you know how I get on with them.

For those of you who don’t know what Spread Betting is, I will cover this very briefly here as it is easy to find out by doing a quick search. The basic premise is that you make a bet on whether a particular share, index or commodity (there are lots of things to bet on) will go up or down in price. For each point (pence in the UK) you bet a certain amount.

If the price goes your way, you win the amount of points the stock moved multiplied by the amount per point you placed. If it moves the other way, you lose that amount.

To limit your risk, you can place what is called a stop. A stop means the broker will exit you out of the bet if the price hits the same price as you place your stop. So if the bet goes against you and the price hits your stop, you exit the trade and the broker collects the money you lost from your account. So theoretically the amount you can lose is the number of points between your entry and your stop multiplied by the amount per point you place.

I say theoretically because you only get out of your stop if the broker can sell (or buy) at that price. If not you get the next best price. The difference is called slippage. This can be a lot if the markets move over night due to international trading.

To help you in placing the right bets, you use the stock charts and a range of indicators and averages etc to help you identify trends and patterns in the history of a stock. In this way, you are better placed to ‘guess’ the next move in the stock and hopefully make some money.

There are lots of patterns that form repeatedly in the charts and there are books, if not libraries devoted to working out what these are. This is technical analysis (See Different Types of Stock Analysis post.)

One of the key things I have learnt so far which I haven’t seen mentioned anywhere else is about the time frame of patterns. If you analyse the trends at a particular time frame you need to expect that your bets will be won or lost in a related time span. So, as I detailed in a previous post, I have been learning to day trade on FTSE 350 stocks as they are quite slow moving and this gives you time to learn. The results of this are that you don’t see your win or lose for several days.

I am currently trading with 5 open bets ALL of which are losing me money. Not much, I am down about £118 so far in total, with the biggest bet being BHP which is losing me about £38!.

However, according to the analysis I did, these movements against me are well within the tolerance of the movement of that stock within the time frame I am betting over. They have not stopped out yet and therefore I need to wait until they either stop out or make money.

I have considered I am overlooking something, or that the whole thing is just chance and I am not ruling that completely out yet. My ‘one to one’ session with the traders university mentor has been postponed until Sunday so I am looking forward to seeing what he says.

So many people seem to make money out of spread betting I am not ruling it out yet, but as one entrepreneur said, if you have a million traders and only 1% of them are consistently lucky that’s 10000 people who make a lot of money. I am not interested in a system of luck, only a system that can give very good returns consistently.

That is what the traders university promised and it is still way to early for me to know if this is possible yet. The book mentioned above has some very good reviews from other traders on Amazon so hopefully it will help me a lot.

I’ll let you know how I am doing periodically and if I manage to ‘break through’ the knowledge and understanding of this new system in order to reliably make money,  I will share that here for others to use.

In the mean time, if you have any knowledge of spread betting please do get in touch and share your experience or post comments if its helpful to other people, as I do believe we can help each other to make some money with spread betting.

Good Luck!