Influence Of Spreadbetters On Stockmarkets

[anonguest]

I suspect the answer to this question is an outright 'No', but am not sure. It would be nice to get some fact/details - if they are available.

Given the growth of gambling markets in general and spreadbetting for the masses in particular I was wondering IF, cumulatively, the activity of spreadbetting firms can meaningfully 'move' markets beyond the actual movement due to 'real' traders, i.e those who actually buy and OWN an asset (e.g equities, gold, cuurencies, etc) - even if it is for mere seconds in the extreme!

I understand that in an ideal world/situation a spreadbetting firm will carry no risk themselves - as they would simply match up those who want to place BUY bets up against those who want to place SELL bets. But of course, in the short term, there could be situations where the they have an imbalance of sellers vs buyers - and would themselves need to somehow reduce the risk to themselves buy actually buying or selling REAL market assets/instruments to do so? Could this activity cause non-trivial movements in the actual markets themeslves?

Edited August 1, 2011 by anonguest

[plummet expert]

I suspect the answer to this question is an outright 'No', but am not sure. It would be nice to get some fact/details - if they are available.

Given the growth of gambling markets in general and spreadbetting for the masses in particular I was wondering IF, cumulatively, the activity of spreadbetting firms can meaningfully 'move' markets beyond the actual movement due to 'real' traders, i.e those who actually buy and OWN an asset (e.g equities, gold, cuurencies, etc) - even if it is for mere seconds in the extreme!

I understand that in an ideal world/situation a spreadbetting firm will carry no risk themselves - as they would simply match up those who want to place BUY bets up against those who want to place SELL bets. But of course, in the short term, theire could be situations where the they have an imbalance of selelrs vs buyers - and would themselves need to somehow reduce the risk to themselves buy actually buying or selling REAL market assets/instruments to do so? Could this activity cause non-trivial movements in the actual markets themeslves?

I am not aware of spreadbetting companies buying any of the actual instruments they allow bets over. I think that like any good bookmaker, they continually manipulate the price of the bet/spread and rarely lose. WHEN THEY DO, IT'S USED AS AN ADVERT. I don't think they have any effect on the actual market and only ministers or govts may crow about such things as when they banned short selling of banks for a while.

[Kinky John]

I suspect the answer to this question is an outright 'No', but am not sure. It would be nice to get some fact/details - if they are available.

Given the growth of gambling markets in general and spreadbetting for the masses in particular I was wondering IF, cumulatively, the activity of spreadbetting firms can meaningfully 'move' markets beyond the actual movement due to 'real' traders, i.e those who actually buy and OWN an asset (e.g equities, gold, cuurencies, etc) - even if it is for mere seconds in the extreme!

I understand that in an ideal world/situation a spreadbetting firm will carry no risk themselves - as they would simply match up those who want to place BUY bets up against those who want to place SELL bets. But of course, in the short term, there could be situations where the they have an imbalance of sellers vs buyers - and would themselves need to somehow reduce the risk to themselves buy actually buying or selling REAL market assets/instruments to do so? Could this activity cause non-trivial movements in the actual markets themeslves?

Can't give you any actual facts because by definition this area is opaque, but I would be amazed if retail spreadbetting investors had any effect on any major markets. Maybe in some of the tiny commodity markets it may be possible, but even then very unlikely. Of course, some of the non-retail spread bets may have effects.

In practice there are vast other the counter markets (OTC) between institutions and large entities such as hedge funds which are arguably more significant in setting prices than the values you see published on exchanges. This is often referred to as dark liquidity (go look it up somewhere like wikipedia). The emergence of this dark liquidity is a wonder of the laissez faire approach to regulation and is a wonderful innovation that enables large institutions to capture more information and trading profits than smaller investors. Ahhh ... we have so much to thank Greenspan for.

[TheBlueCat]

I am not aware of spreadbetting companies buying any of the actual instruments they allow bets over.

I'm pretty sure they would buy the underlying to hedge a big bet if necessary. Don't forget that most of them also do CFDs and, as such, have exchange memberships and back office infrastructures to cope with this. I imagine it's far more likely with the more illiquid stuff that they'd need hedge though.

edit: it's also possible they'd hedge by buying futures and/or options, not just the actual underlying.

Edited August 1, 2011 by tbatst2000

[MonkeyNuts]

I suspect the answer to this question is an outright 'No', but am not sure. It would be nice to get some fact/details - if they are available.

Given the growth of gambling markets in general and spreadbetting for the masses in particular I was wondering IF, cumulatively, the activity of spreadbetting firms can meaningfully 'move' markets beyond the actual movement due to 'real' traders, i.e those who actually buy and OWN an asset (e.g equities, gold, cuurencies, etc) - even if it is for mere seconds in the extreme!

I understand that in an ideal world/situation a spreadbetting firm will carry no risk themselves - as they would simply match up those who want to place BUY bets up against those who want to place SELL bets. But of course, in the short term, there could be situations where the they have an imbalance of sellers vs buyers - and would themselves need to somehow reduce the risk to themselves buy actually buying or selling REAL market assets/instruments to do so? Could this activity cause non-trivial movements in the actual markets themeslves?

Spreadbet firms do have large punters, when those big punters enter the bets, the spread bet firm will offset nearly all the risk in the underlying market. And the market will move.

There was the case of the newcastle united owner who made big bets in HBOS (and lost )

http://www.dailymail.co.uk/news/article-1059237/Newcastle-United-tycoon-Mike-Ashley-lost-300m-HBOS-bet.html

When those bets were initiated it would have effected the HBOS price on the day for sure.

[rw42]

SB market makers would hedge the net position of bets.

If 2 punters go long/short at the same time on FTSE100, no need to hedge till one of them closes out - grats, you're taking the entire spread as profit.

If 10 punters short at £100/pt, and no one is long, and the SB firm didn't hedge, then imagine how long the SB firm would remain in business, say if that had happened yesterday morning.