FSB: Tell us of the powers behind Paddy Power. Who owns it? Is it a public company? How big is Paddy Power?
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Davin: Paddy Power is the largest provider of online gaming services in Ireland and a leading provider of online gaming services in the UK. Founded in 1988 by the merger of three existing Irish high street bookmakers, the company takes an unconventional approach to betting and gaming. Paddy Power is a publicly quoted company, listed on both the Irish and London Stock Exchanges. Although constantly fluctuating, the market capitalisation of Paddy Power is about €1.15 billion.
FSB: Please mention some of the most important characteristics that have allowed Paddy Power to flourish into a company that is now taking head-on traditional gaming bookies like Ladbrokes and Will Hill.
Davin: Innovation has been key to the success of the company. From day one we have sought to be different from the pack. The vision was simple; sell betting as entertainment; make betting with Paddy Power a fun experience that meant a lot more than simply winning or losing money.
Paddy Power is committed to providing customers with the best possible gaming experience through sourcing industry leading software, providing high quality customer service and creating quality content.
FSB: We know that Paddy Power is mainly into sports and entertainment. Why the plunge into spread betting?
Davin: In setting up PaddyPowerTrader, we were responding to the demands of our clients. Some clients had expressed an interest and a need for this type of product. We wanted to make this product as accessible to as many people as possible in an easy to access and learn way. That’s why we launched paddypowertrader in late summer 2007. Trader education is also a top priority for us so that every one can now access financial spread betting services on the stock markets.
FSB: You launched into a market with established competitors. Why were you confident there was room for another player and is the market meeting your growth expectations?
Davin: The principal axis of our strategy is to develop and market the PaddyPowerTrader website and services to all those interested in financial spread betting across the spectrum. We also believe in creating an environment for novice spread bettors to gather information and education.
FSB: How big is PaddyPowerTrader in Ireland?
Davin: Paddy Power is a household name in Ireland and that has certainly helped the brand awareness of PaddyPowerTrader. Interestingly, paddypowertrader continues to spiral in popularity in Ireland, amongst not only financial industry professionals, but also amongst all those with an interest in the stock market.
FSB: What markets do you deal in? Do you offer sector spread betting?
Davin: We provide access to thousands of markets - indices such as the FTSE 100 and the Dow Jones; currencies like Sterling against the US Dollar; commodities such as Gold and Oil; bonds, interest rates and of course, company shares like Vodafone and Ryanair.
However, we don’t offer sector bets yet. We haven’t seen a high enough demand for them. Clients have been looking for more indices. To that end, we recently added more emerging markets indices such as the Johannesburg 40, Brazilian Bovespa and Hang Seng China Enterprises. There’s been a good uptake so we plan to add more indices and equities in the coming months.
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PaddyPowerTrader Platform
FSB: What is the minimum amount of risk capital required to begin spread betting at PaddyPowerTrader?
Davin: There is no minimum capital deposit required with PaddyPowerTrader. Clients can deposit whatever they feel comfortable with. As we have some of the lowest margin requirements in the industry, you could open a FTSE 100 trade with only £30 or €30 in your account.
FSB: In which base currencies can clients trade? Can clients deposit in Pounds Sterling and trade in Sterling? (as opposed to Euros)
Davin: Clients can have a Sterling, Euro or US Dollar denominated account when they open an account with PaddyPowerTrader. From then on, all of the trades will go through in that currency. This means that our clients have no exposure to currency risk no matter what market they’re trading. For example, with a Sterling account, you could do a £1 a point trade in Rio Tinto. Trading Microsoft on the US NASDAQ, you could also have a £1 a point trade. You don’t have to convert you’re stake into US Dollars and be exposed to a risk of the dollar falling.
FSB: What are your typical spreads? (say on the Daily FTSE Index and Dow… and FTSE stocks)
Davin: We currently have a 2 point spread on the Daily FTSE Index and are 3 points on the Dow. We’re 1 point on the DAX, 5 on Brent Crude Oil and 2 on EUR/USD. For FTSE 100 stocks, we wrap 0.1% around either side of the natural market bid offer spread.
FSB: Are there any other trading costs to consider besides the spread? (for instance software fees, inactivity fees or deposit or withdrawal charges)
Davin: The only non-spread related cost is a 2% charge for deposits made by credit card. That’s it. All other costs are related to the spreads.
FSB: How much is the financing rate for holding long share positions?
Davin: The daily financing rate is the Relevant Funding Rate + 2%, divided by 365. For all FTSE shares the Relevant Funding Rate would be the Bank of England’s main rate which is 0.5% at the moment. So the financing rate is 2.5% annually or 0.007% daily.
FSB: If the underlying has a spread and a spread bet (shadow) has a spread is it right to assume that a player pays twice the spread: the underlying has to move up both in its own spread and a spread of a spread bet for that player to earn any money? Please comment on the spreads.
Davin: This is not true for most of the markets that we offer. Our Brent Crude Oil contract’s have a spread of 5, regardless of what is happening in the underlying market. Likewise, our Dow Jones Industrial Average spread is fixed at 3.
Only in equities do we quote a spread around the underlying market. But that spread that we wrap around the market spread is very tight. For large companies, it is a spread betting industry best of only 0.10%. The total spread that would be paid would be far less that than an old fashioned commission and Stamp Duty cost when trading with a traditional stockbroker.
FSB: Is telephone trading available?
Davin: Yes, clients can ring our dealing desk at any time from midnight Monday to 9pm Friday evening.
FSB: Can you please trade out-of-hours?
Davin: Yes, kinda. We offer 24 hour trading on some markets such as the FTSE 100, Dow, DAX and the major forex pairs. But we don’t offer out-of-hours trading on equities.
FSB: Do you pay the dividends on FTSE rolling positions?
Davin: On the quarterly markets the dividend is in the price already so there should be little to no effect on dividend payment date. On rolling bets we will pay 80% of the dividend to a client with a long position. Dividends will be credited/debited (for those who are short) the night before the ex-div date.
In theory, in a totally efficient market, the share price will open the full dividend amount lower at the next open. In practice, the outcome can be different. It is always advisable to check the share price on ex dividend dates. Trading can be very odd for the market in question. Sometimes a dividend gets paid and the market falls far less than the dividend amount and on other occasions you get the opposite effect.
FSB: What are the order types that are available to be placed?
Davin: The most common type of an order that we offer is a stop loss order; an order to close your trade if your losses reach a certain level. We include a mandatory stop loss order with every opening trade as we think that they’re a crucial element of risk management. But the stop loss order level is automatically chosen, at 80% of the margin requirement. This level is unlikely to be optimal though so we encourage our clients to change their stop loss order to a level that is more suitable.
We also have limit orders which are the opposite of stop loss orders. Limit orders closes a client’s trade if their profit reaches a certain level.
Another type of order we have is a new order which is an order to open a new trade at a price which has not yet been reached. It is often useful for client’s to place these orders at critical market points so that they do not have to watch the markets every moment of every day.
The final type of order that we have are One Cancels Other (OCO) orders. They can be used to place both a new ‘buy’ order and a new ‘sell’ order at the same time. Which of these orders will be executed first depends on whether the price rises or falls – however as soon as one order is executed the remaining order is cancelled.
FSB: Are there limits on how far the stop loss order can be placed from the entry price?
Davin: No. As long as you have sufficient funds in your account to cover the extra margin that would be required, you can move your stop loss order as far out as you like. But once you run out of available margin, our platform won’t allow you to widen your stop loss anymore.
FSB: Do you use the true market price for triggering stops and limits or your own quotes?
Davin: We use our quoted prices to execute all orders.
FSB: What happens if a client is margin called? How much time are clients allowed to meet the margin call before positions are liquidated?
Davin: When you open a trade, the PaddyPowerTrader system will take money out of your trading resources. If at any time your account balance with us is not sufficient to cover in full your total margin requirement on any open bets, we may make a Margin Call. Margin is due for payment by not later than 4.00pm London time on the first business day following the day on which the Margin Call is made. Margin can be paid by telegraphic transfer or by approved debit or credit card, direct debit or any other method of immediate/electronic funds transfer acceptable to PaddyPowerTrader.
FSB: How safe are client funds? What is the situation regarding our funds deposited at PaddyPowerTrader?
Davin: Client funds held with PaddyPowerTrader are as safe as they can possibly be. They are 'ring fenced' with multiple top tiered banks. Client funds are doubly covered in that we must place funds to cover all open winning bets and we can’t take away open losing bets.
FSB: What types of client do you aim to attract? Do you have clients from outside Ireland?
Davin: The average age of our clients is in the range 35-45 and about 90% are male. We find a lot of our clients come from IT backgrounds, some are from financial backgrounds and the third biggest group are those investors who are self-employed. Part of our remit is to encourage as many people, from all kinds of backgrounds to familiarise themselves with financial spread betting and become involved.
A lot of our clients are early-adopters who are eager to engage in the online space. Many switched because of the self-responsibility involved in spread betting. You do not need a broker to implement your trades, also equally we do not advise clients, therefore online trading essentially cuts out the middle man. This is an important element that improves user experience and provides access to global markets for retail investors.
In the early days, due to our immediate brand recognition in Ireland, the majority of our clients were from Ireland. That has now changed due to the larger UK spread betting market and our growing profile there. Currently about 70% of our active clients are in the UK with most of the remainder in Ireland. We also hold client accounts from all over Western Europe as well as Asia and Australia. The online platform means that clients can access their accounts from any geographical location. Accounts can be set up in Euro, Sterling or US Dollars.
FSB: Any idea of total volume of the spread betting market? (as an industry)
Davin: We did a bit of analysis on this in October 2009 and roughly thought that there were about 77,000 six month active traders in the U.K. Then Investment Trends released their high profile financial spread betting survey findings in December and estimated that there were 83,000 active traders in the UK.
For what it’s worth we also estimated in October that there had been 103,000 spread betting accounts opened in the UK in the prior year. In contrast to the actives figure, this figure did include duplicate numbers for traders who had opened accounts with multiple providers.
FSB: What markets are most popular with your clients?
Davin: Indices are by far our most traded market class. The FTSE 100, Dow Jones Industrial Average, DAX and S&P 500 are our most traded indices markets, in that order. After indices is forex, and in particular, EUR/USD, GBP/USD and USD/JPY. We have found that our UK clients trade forex more than our Irish clients, who prefer indices more. Equities and commodities make up about 10% of the trades each.
FSB: Do you see any differences in trading when the stakes are raised? How do experienced traders behave in such situations vis-a-vis speculative traders?
Davin: I haven’t really noticed any differences in trading when the stakes are raised. In our analysis, nothing significant has ever popped out in that area.
FSB: Which typically is your busiest month of the year?
Davin: It’s difficult to have a definitive answer for you on that one as we have only been in business for two and a half years. But at this early stage, October and November seem to be busy months. Obviously in 2008, that had a lot to do with the once-in-a-lifetime market volatility, but we found again in 2009 that they were busy months. Maybe it’s to do with the evenings getting shorter; more people are indoors trading.
FSB: Tell us of some of the busiest periods you have experienced over the years (could be elections…etc) you have been in business.
Davin: Our busiest month ever, in terms of trades, was October 2008. That was the time when the markets made the front page ever single day. It was impossible for the average person on the street to get away from the carnage. From the S&P 500 futures reaching limit down to 10% swings on the FTSE 100, it was crazy, but still very interesting. As our offering is accessible to people from all walks of life and we have no minimum deposit, it was inevitable that we would see a big uplift in account openings and trades.
FSB: Please describe some interesting strategies which your clients are using to spread bet the markets.
Davin: I’ve heard of plenty used in my time. One that crops up time and again is to place straddling orders above and below the oil price just before the oil inventory figures are released on Wednesday at 15:30. For example, at 15:10, as you can see on the chart below, US WTI Light Crude Oil was trading at 77.70. Every week we see many of our clients place long and short orders above and below that level, looking for some price volatility. Maybe 50 points either side of the oil price at that time. When the release comes, the price will usually move and keep going. On the chart, you can see that US WTI Light Crude Oil fell immediately, which would have quickly triggered sell orders. The price continued to fall for the rest of the trading day.
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FSB: What differentiates you from other competitors?
Davin: We were created to commit to a simple promise to allow more and more people to get involved in the financial markets. Now everyone can dabble in the markets and can use our platform to try commodities, forex, equities or indices. Our tight spreads and low margins attract traders from all different backgrounds.
We welcome novice traders but we always urge them to be fully familiar with both the concept and the reality of trading before they open a real financial spread betting account. Our demo platform allows clients to learn all the ins and outs of financial spread betting in a safe, risk free environment. Users of the website are provided with the opportunity to sign up for either a demo account or a live account. The demo account gives people the ability to use the platform with real live spreads and a £10,000 virtual cash balance.
That is a great combination when teamed with our blogs where you can follow the life of some real traders making real trades. We also provide educational and interesting articles on key financial markets concepts. Added with a real time trading calendar, technical indicators signals from Trading Edge and trading news provided by RANsquawk, we feel that we give our clients the tools that they need to become profitable traders.
Paddy Power has been at the forefront of developing online innovation. PaddyPowerTrader has been continuing that tradition. We continually seek to upgrade our offering by providing new trading aids.
FSB: Do you organize any training seminars or meetings which our readers could attend?
Davin: We run seminars in London and Dublin once a month. They’re interactive, which means that everyone in the room either has their laptop or one of our computers. So they can all follow the action as we demonstrate trades, using the graphs, a few basic strategies and so on. Feedback has been very good. You can register for free on Paddy Power Trader.
We also run ad-hoc events. For example we had an evening event on March 11th 2010 in London. It had a great line-up of speakers - 'High Performance Trading' author Steve Ward, Lex van Dam from the BBC2 series 'Million Dollar Traders' and expert trader Tom Hougaard all made presentations. The whole evening was about how to manage the emotions of trading and what you can do to make yourself a better trader.
FSB: Are there any bonuses or other perks for frequent spread bettors?
Davin: We don't have any at the moment but we are looking into it. Innovative and creative offers is how Paddy Power made its name and PaddyPowerTrader hopes to continue that going. Check out the PaddyPowerTrader website in the near future as we may have something interesting that you may like.
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