Jones: There have been some heated discussions over the last few months from people who say that derivative products like CFDs and spread betting - which allow people to profit from falling share prices - are ruining the stock market for investors. What would you say about that?
Geoff Langham, CMC Markets, CMC Group: Who's to say the market has to go up and who's to say it has to go down for a healthy economy? It makes just as much sense for companies to lose value when they're underperforming as it does for them to increase their value when they're doing well. And I don't see any problem with a company's value being accurately reflected by as many minds and investors in the country coming together and deciding what the price should be.
Ian Jenkins, Cantor Index: There's also the question of scale here. If you put all the spread-betting companies together, their percentage of stock-market trades is still minuscule compared with those of hedge funds and pension funds, and these have always had the ability to go short, so you're only introducing a tiny dynamic into the London stock market.
Dan Moczulski, IG Index: And all you're doing with spread betting and CFDs is allowing the retail client to do what institutional clients have been doing for decades.
Patrick Latchford, Finspreads: If the institutions see a few spread betters moving a price down and there's value in that stock, you can bet your bottom dollar they've got deeper pockets than all of us and they'll invest in that stock straight away, so it's not as if we can influence a stock down. The institutions with all that money behind them will always buy into value. Derivatives provide more flexibility in the market, which in the long term is better for the private investor.
Jones: Let's talk about another conspiracy theory. It is, I think, a common misconception that when it comes to things like stop losses, you make money by me losing money. If I buy my BP for £10 a point at 500p and I put my stop loss at 470p, the 'nasty spread better' will drive the market down to 470 and kick out my stop loss and then move the market back up again - because you're out to get me.
Tom Hougaard, City Index: No, we are purely a reflection of what's going on in the underlying market. Spread betters have no interest in their clients losing. We are purely reflecting what we see on the screen and when the price is trading there we have no option, we have no choice but to adhere to stop losses.
Dan Moczulski, IG Index: None of the firms here has the facility to push one price to one client and a different price to another client.
Jones: And if that was what companies were trying to do then someone's disadvantage would be someone else's advantage. If you drive the BP price down 5% someone's going to jump on it and buy it, anyway.
Jones: Online trading has seen a massive boom over the last three or four years. All of you offer telephone or online trading but does either method make any difference to an investor?
Patrick Latchford, Finspreads: The majority of our clients use our on-line trading facilities. They find it convenient, easy to use, easy to understand and very straightforward. However, we have a number of clients who like to talk to someone at the other end of a telephone when they're putting a bet on.
Ian Jenkins, Cantor Index: I think a lot of our clients would disagree with that. They get to know a broker and feel more a part of it, trying to work an order - what do you think you can get me at this level? What's the market showing? A lot of older clients wouldn't go near a screen: they have an inherent distrust, particularly in the opening 10-15 minutes of a stock market when there are very, very wide spreads - they need the dealer then to show market depth and stuff like that. I think a lot of our clients would be lost without our dealers.
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Geoff Langham, CMC Markets, CMC Group: Many of our clients have jumped on the IT bandwagon. More than 90% of our deals are transacted online. The clients like not having to talk with people, they like dealing with facts and figures, they like seeing the price they're dealing at - they're not waiting for a human to get them a price.
Ian Jenkins, Cantor Index: The thing is you don't always have the internet with you - you can't walk the streets with a PC. Admittedly now we've launched mobile, you're able to deal effectively on a Palm Pilot, but I think clients like the relationship with dealers.
Dan Moczulski, IG Index: You can't generalise on our clients. Some prefer the phone, some the internet, some the mobile dealing platform. One important aspect is that even if you prefer to deal on-line all the time you have to make sure there is adequate phone back-up. To use the analogy of a cash machine, if it's not working you've got to go into the bank. It's important to cover all eventualities.
Jones: Let's talk about opening a position. Say I'm chartist and I know the high for the year on the FTSE was 4600 and I think - if it breaks through here I definitely want to be a buyer because I think it will go through the roof. How can I use an order to get me into that position so I don't need to sit there and watch the screen all day? Is there a way of using a stop order to get me into a trade?
Ian Jenkins, Cantor Index: Absolutely. Simply put, it's an 'opening stop'.
You can open and close with stops and limits. With a stop - whether it's an opening or closing stop - you're always looking to do a deal at worse than the prevailing market level. With a limit, whether it's opening or closing, you're always looking to do a deal at better than the prevailing market rate.
Jones: Let's say that 4600 is the big level. I could put an order in to buy £10 a point if the FTSE gets to 4610.
Ian Jenkins, Cantor Index: And you can then leave a stop on the back of that.
Jones: So when the trade gets filled, when I've bought at £10 a point, then there's a stop loss that I've placed earlier on which becomes active. I could say - I want to buy here and if that order gets filled I want to have a stop loss at 4550, for example, so I can automate the whole thing.
Dan Moczulski, IG Index: A good example of when you might use it is if a piece of news is coming out and you don't know whether it will be good or bad. Let's assume that you're hoping it is good news and that the market will ramp up. Leave an order to buy the market 20 points above where it is.
Jones: So you're buying into the strength, banking on that strength carrying on.
Next, let's talk about limit orders. If BP is trading at 500 and I want to pay 490, all of you will take limit orders to buy at that price. They're effectively orders to sit there waiting to see if BP trickles down and the order gets filled. The spread betting companies will do the work for me. Four or five years ago, this was something you couldn't do through a traditional stockbroker. There are some now who will take limit orders and stop losses but I think this whole order process has been driven by the spread betters from day one.
Tom Hougaard, City Index: You're absolutely right - you can do everything on-line. You can put in your limit order, put in your stop loss if your limit order is initiated, and the next step is to trade in stop losses. We have a process where once your position is going into profit it continuously moves your stop as the stock price goes up.
Jones: What can spread betting companies give me to help me understand more?
Patrick Latchford, Finspreads: Finspreads has a specialisation in this area. We like to think we're the home for people who have never spread-betted before, for a number of reasons.
Firstly we have a Training Academy which takes them through eight easy steps of how to understand what a spread bet is and all the implications around spread betting. We educate those clients over an eight-week period. We allow them to trade in very small size during that period, as little as 1p a bet. That allows them to get a feel for what's going on - not on the demo cam but in the real market.
Geoff Langham, CMC Markets, CMC Group: At CMC we also offer a demo account which is exactly the same as the real account, although obviously not using real money. Our investors and new clients find that very useful - it allows them to learn the intricacies of the software, shows their account balances, the effects of the trades, the values of the trades - everything you need to know to manage your positions.
We also offer weekly seminars that you can attend on spread betting, technical analysis and fundamental analysis, along with the various packages we offer through the software such as charting and fundamental news. All that's supplemented with television that everyone can tune into. Our minimum balance or opening account is £1,000, and you can trade as low as £1 a point with us.
Jones: Dan [Moczulski], what sort of stuff do we get if we open an account with IG?
Dan Moczulski, IG Index: All that's just been mentioned. One other service offer we're keen to stress is that clients also get an account manager, and we have a team of people to help you before you open the account.
Opening the account doesn't cost anything, doesn't require you to put a deposit down, and you have a manager who sticks with you for the lifetime of your account. Learn from the account managers, ask them questions to make you feel comfortable before you trade. We'd all agree that a situation where a client does not understand how a bet works after he's placed the trade is unattractive to both parties. We stress that if there is anything a client wants to go through, they can just give us a call or send us an e-mail. We will do everything we can to make sure our clients are comfortable with how spread betting and their accounts work.
Ian Jenkins, Cantor Index: One of the main ways people will break their fear barriers down is by talking to dealers and coming into the office. We have a Monday night when people can come in and as soon as they meet the dealers they realise it isn't nearly as fearful as they think.
Brought to you in association with MoneyAm Shares Magazine
