CMCMarkets Review

CMC Markets is a private company founded by its chief executive, Peter Cruddas, and he and his family still control approximately 85 per cent of the business.

A market maker in online retail financial services, CMCMarkets is both a global leader in the provision of Contracts for Difference (CFD's) and one of the largest Financial Spread Betting service providers in the UK. Its' global offices now house over 1000 CMC Markets staff following a 47% growth in staff numbers in 07/08, delivering a localised service to clients in 85+ countries. The trading service allows clients to access twenty-three International financial markets offering over 3,000 individual trading instruments distributed over 30 markets covering Equity, Indices, Commodities and Foreign Exchange all via the MarketMaker® trading platform.

What they say

Marketmaker® was first launched in 1996 in the UK when CMC Markets transacted the first ever FX trade online. January 2000 saw CMC Markets become the first company to offer online commission free CFDs. Following the success of the CFD service, CMCMarkets re-invented spreadbetting and launched Rolling Cash Bets® in 2001. By combining our commitment to tight spreads and the intrinsic tax benefits of spread betting, we believe spreads are the pinnacle of our efforts to reduce the financing cost of trading for retail/personal/private investors."

CMC Markets handled over 20 million trades during financial year 2007-2008 with the trades executed having a total value of $1.4 trillion across the full CFD product range (including Foreign Exchange and Financial Spread Betting). Today the trading platform is used by clients in more than 70 countries with over 98% of global trades with CMC Markets conducted online.

Our hands on experience of CMC Markets backed by reader comments, general experiences and observations -:

General Points (we will strive to keep this review up-to-date)

1. Market Coverage: Spread bets on more than 7,000 instruments offered in 30 global markets, including global shares and indices, as well as other major financial markets such as currencies, commodities, sectors and treasuries.
2. Sectors: Traders can also take a view on the performance of major UK stock market sectors. These are made up of a selection of five to 100 companies in particular industries as a weighted average of their share prices (say telecoms or pharmaceuticals) and spread betters can then use them as a speculative or hedging tool, depending on how other aspects of their investment portfolio are constructed.
3. Account Types: Two types of accounts are available - fixed risk accounts (aka as limited risk accounts with other providers) where all stops are guaranteed (but come at an extra spread for the 'insurance premium') and regular accounts (no guaranteed stop losses). You can also open more than one account or open a Joint Account and/or Company Spreadbet account.
4. Credit: Credit facilities are available for accounts that hold more than £10,000 on their accounts.
5. Deposit Requirements: Accounts (including a joint account option) can be opened on-line and funded with the usual cards. The minimum trade size across all the website's spread betting products is then £1 per point. The minimum account opening deposit is now £200, the minimum stake is £1 per point, and they don't specify a maximum as this will depend on market liquidity. CMC requires you to have a minimum of £200 deposited to open an account. And do keep in mind that you need to maintain £100 in the account, if your account goes below this all your positions are closed.
6. Interest: CMC pays Libor minus 2 per cent on amounts over £10k.
7. Fees: There are no maintenance fees nor inactivity fees but there is a 1.8% fee on credit card deposits albeit CMC say that they can waive this fee for the initial deposit. Note that credit card deposits are expensive for merchants as they have to pay processing credit card fees so they are basically passing on the processing fees to the client - a better way to fund your account would be by BACS or wire.
8. Execution: There are different rules for different stocks depending I suppose on their liquidity, how gappy the order book is and also how popularly they are traded by clients. Some have a widened spread, such as SVT, WOS and EMG when the spread is tight on the orderbook, and others seem to have a requirement of a minimum number of shares on the orderbook before CMC will offer you market price, such as XTA and RIO. The exact amount they need to see on L2 does vary, sometimes from minute to minute. Basically their rules are not hard and fast, and can be difficult to predict.
9. Particularities: With CMC if a trade is declined you get a re-quote meaning that a box jumps up showing the next best bid or offer (depending on whether you tried to buy or sell), and a chance to either deal on the price or not. If you do not deal, nothing gets done. With CMC you can also add to your existing positions, eg. buy, and buy again later (before you eventually sell), but it will not be treated as 2 separate positions, it will just be increasing the exposure on an existing position. You can do this as many times as you like.
10. Spreads: No difference between the CFD trading and the spread betting offerings...apart from the tax exempt status of spread bet gains...a CMC sales guy said to me recently that CFDs were used mainly by overseas clients who did not have to pay UK taxes.
11. International Clients: CMC have ceased offering spread betting accounts to people located outside the UK & Ireland since they say that the tax free benefits are unavailable to anyone outside of UK and Ireland (in which case you can open a contracts for difference account...).
12. Education: CMC Markets have just launched a new initiative, Trading IQ, which is probably one of the best education packages available in the spread betting market place. The Trading IQ programme covers all the basics with a comprehensive manual and an accompanying 40-minute DVD presented by actor James Nesbitt showing how to use the software and manage the risk. This programme includes a day's free trading on the FTSE 100 index (at £2 per point) at CMC's London office if you would like to attend. On this free one day course you get to keep your profits with CMC Markets absorbing any losses.
13. Seminars: CMC Markets do a range of free and paid-for seminars and workshops. The paid-for ones cost around £200 and they teach you a lot. There's no need to pay thousands for certain other trading courses! CMC has also recently launched an eight-week training program called Trading IQ presented by actor James Nesbitt. This programme includes a day's free trading on the FTSE 100 index at £2 per point. You get to keep your profits and CMCMarkets will assume any losses...

Comparing some Popular Market Spreads at CMC Markets

Good Points

1. Deep Markets Coverage: CMCMarkets offers all stocks from the FTSE 350 and All Smallcap shares plus top 300 AIM companies. You can also take a view on the performance of major UK stock market sectors. This is great to take a more general view on a number of companies without necessarily having to know the exact ins and outs of each constituent.
2. Overall Good Spreads: CMC are known to offer competitive spreads for shares although they are not the tightest. CMC Forex, again competitive spreads, 2-3 pips on the majors and a huge selection of currencies (although be warned that spreads are dynamic and linked to the volumes on the underlying markets).
3. Competitive Margins: Low margin requirements between 0.5% and 1% on main indices, FTSE 100 stocks (10%), US stocks (10%), FTSE 250 stocks (10% to 15%) and so on.
4. Multi-Platforms: Three platforms are now available - a download software based application, a slimmed-down web version (Marketmaker® Web) as well as a mobile platform for those on the move.
5. Good Phone Support: Initially their reputation, or lack of it, on the customer service side was a worry. However whenever I have had to speak to a dealer or ask for assistance they have been great. Also, they have a chat system built into the software which helps rectify issues immediately if they arise.
6. Platform Customisation: CMC MarketMaker is excellent with good charting facilities if you know how to set up the trading layouts. All the panels are movable and resizable so you can arrange the desk as you want it. I have the system just showing the FTSE 100 index price in a little floating window up in the top right hand corner of my screen as I write this - allowing me to keep an eye on that and do other things and even better this system will allow you to set alarms when whatever you are watching reaches a certain level! Being able to set up alerts is really useful and there are three types of alerts which can be selected. The first is a visual alert - it throws a bright red box into the centre of the screen - great if you only have half an eye on the screen. The second is an audio alert - it will play audio files and the third is the email alert - I set this to email my mobile if I am going to be away from the PC for any length of time.
7. Rolling Dailies keep Rolling without Crystallizing P/L: All positions are automatically rolled over until you close out the position, at which point your profit or loss is then crystalised. This means that CMC's Daily Rolling Cash Bets are open-ended contracts that are automatically rolled over into the next business day. The fact that Daily Rolling bets are rolled over every day without having to open/close the bet every day (with just a small financing charge being charged) is more transparent than having to close/re-open the spread bets every day crystallizing any profits/losses. This is proving so popular that CMC claim that around 90% customers are now using the daily rolling spread bet instead of the standard quarterly futures spread bet.
8. Stops: Recently started offering 'if done' orders on the spread betting platform which is good (they have had it on the CFD platform for some time) - an If-Done order is a way of linking two conditional orders together, so that if one of the orders is executed, then the other order is placed in the market as a result. For example, a trade may use a stop-buy order to open a long position with an associated stop-sell order to limit any potential losses. Therefore, if the stop-buy order gets executed, then the stop-sell order is placed in the market. However, if the stop-buy order is not executed, then the stop-sell order does not become active in the market.
9. Guaranteed Stops Availability: Guaranteed stops at CMC Markets are available for all instruments. GSO's must be placed at the same time as entering the market. If you wish to edit the stop, you must close out the position at market and then re-enter with the new GSO attached. CMC also have an additional limitation in that guaranteed stop losses cannot be placed in the last hour of trading. There is no maximum distance you can place the GSO from the current market price. The minimum distance to place a GSO on a share is 5% from the current price (for sectors and indexes it is at 1%).
10. Streaming Newswires: A realtime Dow Jones news feed is also available to clients which is complemented by expert fundamental market analysis from Multex (part of Reuters) as well as detailed commentaries on the key forex pairs from IDEAglobal. CMC Markets also has good news flow which pops out automatically onto whatever site you happen to be on when a significant announcement is made...so latest oil inventory figures or non-farm payrolls or profit warning will be flagged up instantly.
11. Extras: Clients have access to CMC Plus which comes with daily commentaries from CMC's team of analysts complemented with access to CNBC's three live feeds. Video on demand is also available as well as an economic diary.
12. Good Commitment to enhancing the Platform: CMC has invested $60 million in MarketMaker's development over the last few years and it is supported and continually developed by a team approaching 100 in-house staff. More than 13.5 million trades were successfully processed through Marketmaker® last year (boasting 1 trade every 1.7 seconds, 2,117 trades every hour, 50,823 trades every day). Having been a client at CMC for over 3 years now and I have seen that how their software has grown in functionality and stability and how much effort they put on their system. Recent additions include One-Click Dealing, meaning trades can be executed in just one click of the mouse. Technical analysis has also been upgraded this year, providing professional-level real-time charting with up to 42 different indicators.
13. Suitability: Excellent to use if you're profitable and a swing-position type trader. There are usually very few problems in my 5 or so years experience with CMC other than when the markets are moving very fast or, presumably at times when everyone is winning!

Bad Points

1. No Demo: No demo account although video walkthrough is available. You can, however see the live platform after filling the application form (no deposit necessary to access platform). The downloadable platform is not for newbies.
2. Downloadable Platform: Main trading platform is not web based unfortunately although they have recently launched Marketmaker® Web (a lite web version of the platform), you install their platform onto your PC and it's not the most user friendly, but OK when you get the hang of it - I use them for any trades that have to be rolled over as they do it automatically and cheaply too.
3. Platform Stability: Reports of platform freezes/disconnections especially during busy periods. You might also experience re-quotes (delays) especially in fast markets. One thing I would say is that you need to ensure that you have good memory on your PC otherwise the CPU can get overloaded leading to the platform freezing.
4. Execution Limitations: Apparently, CMC will not allow you to open a March short and a Sept long in the same instrument. In fact, further to this CMC will restrict you to trade only the nearest available contract. If there were multiple contracts available, of 888 for instance, in both June and September, then you would only be able to trade the June contract. Even if Marketmaker is quoting a price for the September contract, it will not be available until the June contract has expired. The contract which is available to trade is the contract that is closest to the current date.
5. Stop Limitations: With CMC you can't amend your orders, you must cancel previous active orders and put in new ones. This is not so with Finspreads, for instance where you can just amend your orders without needing to cancel previous ones. Another thing I like with Finspreads is their chart - allows you to use up to 3 moving averages, CMC Markets only allows 1 moving average. A real disadvantage I see is that CMCMarkets will not automatically cancel any stop orders tied to a position once you've closed the position. This means that you still need to manually cancel the stops once you've closed an order unless you have specifically linked a pending order (i.e. through an if-done). This can land you in trouble if you forget to cancel a stop. Mobile trading is handy but doesn't keep track quite as quick and be careful to cancel stops and losses.
6. In order to save money CMC have decided to only offer their in-house charts and have taken the ITT charts off their platform (ITT stands for ITT Financial - owners of Prorealtime). Unfortunately this is not their area of expertise and I would say they have delved into the old familiar territory of false economics as their new charts are somewhat inferior to the Prorealtime package.
7. Not Suitable for Scalpers: Their platform is best for 'long term trading' or 'short term investing'. If you try to scalp them you will quickly end up on dealer referral. Being put on 'refer to dealer' effectively means it takes at least a few seconds to confirm your trade and/or you get a re-quote when you open or close a trade. Seems to me that CMCMarkets have never wanted the scalping business although they are not prepared to admit this. That is not in the least surprising, since they are dependent on trading on the LSE order book to match positions taken by what is probably a largish number of traders, often acting in unison or nearly so. Even with clever computers they would be dependent on trading using aggressive orders thereby costing themselves the spread and making 'dealing for free' totally uneconomic for those trades.
8. Re-Quotes: CMC has somewhat a reputation for running stops and moving prices that do not reflect the underlying index. Also, there have been reports of re-quotes (although re-quotes can also be in the clients favour) and spiked out stops. However, it would be unfair on them to single them out, as their behavior is common throughout the market maker world. As they say 'CMC Markets is a market maker and as such sets the applicable price. It is the customer's responsibility to decide whether or not they wish to deal at those prices.'
9. Spreads Fluctuate in Fast Markets: Spreads may get wider (reports of spreads as big as 30 at times) if there is a huge increase in client trading on a particular product. As they say: CMC Markets quote a two-way price and the quote indicates the price at which we are prepared to deal with you. However, this price is not available irrespective of the size in which you want to deal. As term 6.4 of our terms of business state, "if you place a Bet which by virtue of its size is deemed by us to be abnormal by reference to the relevant instrument or its volatility or its liquidity, it may be subject to special conditions and requirements as notifed to you by us at the time you place the Bet. In particular, we may quote a revised price or spread applicable to the proposed Bet which you are free, at your absolute discretion, to accept or reject."
10. If an index is 'reshuffled' and a stock drops out of an index - say from the FTSE Smallcap index, CMCMarkets may cease to make a market in that stock and may require existing client positions on that stock to be closed after a deadline date - which policy doesn't seem fair.

Curiosities

1. CMC Markets was initally established as a web-based forex firm. After a sheepish start, and over recent years, CMC Markets has developed into one of the leading global derivatives provider.
2. CMC stands for Currency Management Corporation (CMC), the parent company of CFD and Spread Betting provider CMC Markets.
3. Peter Cruddas, founder of CMC Markets and a well-known businessman and philanthropist earned £16m last year from chairing his company, the derivatives company CMC Markets. Peter Cruddas is the largest donor to The Prince's Trust and The Duke of Edinburgh's Award International Association for whom he is Global Benefactor.
4. CMC Markets was founded in 1989 and today has operations in the UK, Australia, Canada, Germany, Singapore, China, New Zealand, Hong Kong, Sweden and the US with clients in over 70 countries worldwide.
5. Nowadays CMC is one of the global leaders in online derivatives, have an annual transactional turnover of about £1 trillion and Goldman Sachs have acquired a 10% stake in the business in 2007 which netted Mr Cruddas with £140m.
6. CMC Markets Plc acquired Digital Look in May 2007 -> 'Founded in 1998 by former JP Morgan executive Mark Pritchard, and financial journalist Andy Yates, Digital Look has grown to become one of the UK's largest and most popular financial and investment portals offering a comprehensive range of market leading data, tools, and research to help private investors and traders make informed investment decisions.'
7. Takes 95% of all trades via the web. It was the first to pioneer the idea of the rolling cash bet (where the financing element is charged separately to the account each night so the price of the spread bet is much closer to the underlying market), though many other firms have since followed suit.
8. Hedging: 'Some analysts said CMC's hedging practices, as described in its prospectus, showed less hedging of risk than expected, although Mr Cruddas said the company's hedging was appropriate.' Financial Times. However, I spoke to the new head dealer sometime ago, and he said this was incorrect and that CMC Markets has now adopted a policy of actively hedging client trades.
9. The company employs over 1000 people around the world. Between 4,000 and 6,000 new CMC accounts are being opened each month by private clients. In August 2008, CMC announced 130 redundancies at their London offices, amounting to about 10% of the UK workforce but industry insiders suggest this was because CMC Markets had become too top heavy compared with its competitors.
10. During the fiscal year ended March 2009, the CMC Markets Group transacted over 30 million trades at a value of US$1.5 trillion and now has over 76,000 active client accounts. This represents a growth of 36% in active customers and a 50% growth in trading volumes over a one-year period. The financial results for CMC Markets for the year to March 2009 were somewhat dimmer showing a pre-tax loss of £15.1m, compared to profits of £57.2m last year (2008), on revenues up 6.5pc to £193.2m. CMC attributed the loss from writing down the goodwill from three recent acquisitions, and £16.1m of restructuring costs relating to the loss of about 350 staff and the closure of seven regional offices. The company is currently preparing a flotation on the main market in the next 18 months to three years.

Regulation

CMCMarkets is regulated by NFA(USA), FSA(UK), ASIC(AU), BAFIN(DE), OSC(CA) and CBRC(China).

Verdict: CMC offer a wide array of betting opportunities. The leverage is great, the liquidity is good on most markets, the spreads aren't too bad for forex, stocks and indexes (silver is a shocker, gold is bearable) but their charts need improving. Overall I would say CMC Markets offer a good backup platform. Avoid if you are a beginner. Best for swing traders. Not suitable for scalpers.

More information on CMC Markets here

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