Andy: Why use spread bets? What are the benefits over normal share dealing or other forms of investing and trading? Why would I, as an active trader or maybe a semi-active investor, want to start off spread betting in the first place?
Patrick Latchford, IFX Markets: The obvious first benefits are leverage, allowing you with a relatively small amount of money to take a larger position than you would ordinarily be able to do with share trading, and the ability to go long or short, ie sell shares you haven't got in order to take advantage of any downward moves in the market.
Foster Bowman, Idealing: Well, I think the tax benefits are probably the largest single benefit over share dealing, the avoidance of stamp duty and capital gains.
Brian Griffin, Deal4free: The ability to short sell. If I look at the markets in their current fashion they tend not to be one dimensional, whereas physical share dealing is inherently one dimensional, you buy and hold. Now some people come to me and say: 'I'm waiting for the market to go down before I buy'. I'd argue why not short sell it while it's going down, try and make a little bit of money, and then buy more physical shares if you'd rather on the way up. Also technology is important, physical share trading platforms are infantile in their simplicity compared to the platforms being offered by spread betting companies.
Tom Hougaard, City Index: I think spread betting is complementary to share trading in the sense that you can easily be a private investor managing your own portfolio while allocating a certain amount of money to your daily dealing activities. There's the ease of transaction; it's easy to transact business whether it's to the long or the short side with a spread better. You don't have to send in share certificates, there's no physical ownership, it's just right there and then. You can walk down the street and decide: 'I fancy shorting Vodafone'. Another benefit is you can watch the 9 o'clock news, and you can phone up your spread better and say: 'You know what, I would like to have an out-of-hours quote on GlaxoSmithKline'. You can't phone up Barclays at 8 o'clock, they'll be closed. So it's a 24-hour service.
Andy: Has anyone ever compared the cost of trading through a spread better and through an online broker?
Brian Griffin, Deal4free: We've actually done this on our website and there is a cost comparison calculator which allows a person to compare the difference in costs between trading with their traditional broker and trading using Rolling Cash® spread bets. Even before you consider gearing, simply avoiding things that are inherent to share trading, such as capital gains tax, stamp duty and commissions all makes a big difference. Also the fact that Rolling Cash® spreads are often the same as the cash market spreads means that there is no effective spread difference. However, it is not only the costs incurred whilst trading that should be considered but also the return on investment and that's when gearing comes into play.
Tom Hougaard, City Index: It's probably important to remember that this is not a buy and hold strategy. This is far more short-term orientated.
Brian Griffin, Deal4free: Well there's an argument for both. If I look at my book of business, then I could say the average period a client holds a position is X and that there are people who day trade, and people who buy and hold not for years, but maybe for a few months.
Patrick Latchford, IFX Markets: I wouldn't necessarily compare it, I'd say it's part and parcel of an investment strategy. Sure, you buy the underlying shares that you want to hold for a long-term view, for a pension or for whatever reason. I think spread betting, like CFDs, has an entirely different risk profile, entirely different investment profile; it's more speculating and hedging, whereas share trading is investing effectively.
Foster Bowman, Idealing: I tend to side with Brian. I think if you're talking about shares versus CFDs, there are scenarios where you know the benefits of the CFD stamp exemptions are outweighed by the financing costs for a long period of time. With spread betting, however, the draw of making a tax-free gain is a powerful one. I think, for a spread bet, you can make a strong justification for taking a six-month or even a one-year position sometimes compared to a long position with shares. And that's coming from somebody who offers both, so I would generally advocate a spread bet selection over a share investment, unless you've got a really long-term view.
Andy: I was having a look at this about three weeks ago when I was comparing Footsie 250 stocks and various spread betting prices and, let's say you'd got in and then got out straight away. In nine times out of 10, out of about 30 shares I looked at, it was cheaper to go down the spread betting route. You have an element of the margin costs of the spread betting but because interest rates are so low at the moment, I think it's a negligible cost anyway, but you have all these other benefits that we mentioned, like going long and going short, the leverage, spreading the risk, so that I think it is a serious alternative. If you have a view up to maybe three to six months, I think there's a definite argument for going down the spread betting route; it's not just a tool for short-term punters in and out of the market 50 times a day.
Brian Griffin, Deal4free: The evidence suggests that since day one, clients have used it for long-term and short-term views. So it has benefits for both. It's up to the client to do the maths themselves. But if you break it down into its component parts, with commission and stamp duty being exempt, then it can make sense.
Andy: Do you feel spread betting has an image that is holding back its acceptance among ordinary investors and can you do anything about this? People may perceive spread betting for just City high flyers, or they may view it, because it's got the word 'betting', as just gambling.
Tom Hougaard, City Index: It's definitely got an image problem. It's terrible because when you surf the various websites around the UK, you realise how awful the reputation is for spread betting companies. I think a lot of it is probably due to our own success. We saw a tremendous surge of customers throughout the late 1990s and everyone was making money in the bull market but they were very slow to convert; in the bear market now you should probably go short rather than long. So out of the cupboard emerged all these stories about horrible losses and, I tell you what, the press is far more focused on the bad stories than the good stories. I rarely get phoned up by a journalist saying: 'Do you have anyone who's made £15 million?' or anything like that. They'd much rather hear about anyone who lost a bucket of money and is willing to tell their story.
Foster Bowman, Idealing: I think spread betting is the unfavoured stepchild of the financial instrument family. We've had comments come from our client base where people say: 'I'm interested in shares and I'm interested in CFDs, but I'm not really interested in spread bets at all.' And if you ask them why, they don't have a real explanation. I think there's just an association with the gambling side. Maybe it's because the guys that drove the industry started out offering spread bets and/or CFDs but no share dealing, resulting in separate investor groups that have grown up over the past five to 10 years.
Brian Griffin, Deal4free: I would say this was definitely the case several years ago, but Deal4free entered the marketplace primarily because clients were asking: 'Why can't you offer us spread betting as we want to benefit from the tax exemptions.' So we did and we entered the market with Rolling Cash® which is a transparent product that clients understand as the prices are based on the cash market, and we offered it through an institutional level financial trading gateway and we offered all products online. The spread betting market is starting to shed its tarnished reputation through innovation.
Andy: So you think that transparency is helping its image problem now because clients can compare the price?
Brian Griffin, Deal4free: I think so. Most spread betting companies have now joined suit by offering a cash type product and I can say around 95% of all trades I do on the spread bet desks are Rolling Cash® bets. People that are used to trading shares are looking for simplicity in a financial product that gives them the assurance that they're trading on a price that they understand.
Patrick Latchford, IFX Markets: Image problem? - yes. And one of the reasons why is that it's not only the ordinary investor who's got a problem with it. It's the stockbroking community who perhaps haven't initially understood CFDs or spread betting, and have probably passed on that message to the ordinary clients and investors. And whether they meant to or not, discouraged them from expanding their portfolio of products and diversifying their risk.
Brian Griffin, Deal4free: If you look at the broadsheets, tabloids, magazines and educational institutions, there's a growing acceptance of a spread bet as a derivative product in its own right and it needs to be addressed as part of the family of contracts for difference. In a short period of time, it will gain the credence it deserves.
Patrick Latchford, IFX Markets: I think it has come on in leaps and bounds in the past couple of years and it really shouldn't have an image problem. I think it's one of these things where people are frightened away by the jargon. There isn't really that much jargon with spread betting, but they're frightened away by some of the ideas of margin and leverage; and I think you can dispel those today. But if they actually get out there and start doing it, they will see how closely akin it is to buying, selling and trading shares. Spread betting can be a professional endeavour in just the same way as buying and selling shares can be.
Andy: Okay. So moving on from that point, is it really suitable for private investors or just for market savvy City professionals?
Foster Bowman, Idealing: We expected originally to have a high concentration of City-based investors and although we do have those, the weightings are a lot different than what we thought we were going to get. The majority of our client base are not City investors. Some of that may be due to the fact that we have spent three years developing a basic pure stock brokerage business but I wouldn't be surprised if the rest of the guys here would say they have a heavy weighting of your average investor.
Tom Hougaard, City Index: Single mums, professionals, all walks of life, it's really hard to differentiate. Where you do see a difference is that those who are not involved in the market on a regular basis tend to overtrade far more than City professionals who are far more selective in their choice. I think private investors should be aware that there is a leverage question so that when they do enter into a CFD or spread bet, they need to be 100% aware of what they're doing and unfortunately, from experience, I can say that not everyone does in fact know what they're doing. It's a question of education, of going out there and telling them what's going on in the market and how it works.
Brian Griffin, Deal4free: I have to agree with everybody here. The most important point for an investor, any sort of investor, is can they afford not to look at spread betting? As I always say at every single seminar, this might not be for you, but you can't just decide it's not for you without at least looking at spread betting and understanding the mechanics.
Andy: What do you think about education? Do you think people need it?
Tom Hougaard, City Index: I definitely think they need education. I think there is this perception among traders and investors that it's actually very easy to make money out of the market and although it may be easier down the line, I think a lot of novices are perhaps a little bit taken aback at how difficult it is to actually make sustainable income, making your portfolio or your equity curve grow step by step. I think a lot of people are misjudging the volatility in the markets, and they are misjudging the effort they have to put in and the effort that professionals put in in order to be profitable in the market. We offer free trading seminars for four hours and I haul them through the most basic technical analysis, chart patterns, what to look out for, what does it mean when the Dow does this, how does it affect the Footsie, what do you need to do to derive buy and sell signals in the market?
Brian Griffin, Deal4free: I think we offer a similar approach to what's already out there. We hold in-house seminars and introduce the product along with the trading software and we always say: 'Don't worry about the profits, learn to minimise your losses. Learn about cash management, learn to make leverage work in your favour and not as your enemy.' We show how clients can trace back to the market to compare pricing as well as how to use stops and limits in their favour. We hope people come out of this with a more informed approach as opposed to just being let loose on something that is inherently, not dangerous but risky.
Foster Bowman, Idealing: I think that this industry, these markets and these products historically have been fairly arcane. A lot of people found out about CFD and spread betting shops from their buddy on the trading desk. The media coverage over the past six to 18 months by the Financial Times, and some of the other periodicals, have done a much better job of covering derivatives broadly. What we've seen occur as a result of that is a higher awareness and a higher interest level from people that previously may not have had the requisite levels of competency when it comes to risk management techniques.
Andy: Okay, so I've opened my account, I'm ready to start going, but all I've ever done is buy and sell shares. What extra things can I trade through spread betting?
Brian Griffin, Deal4free: I think any client should definitely consider indices as part of an offer and indeed currencies for that matter as well. These products are not so easily accessible in the physical market, and even if a client isn't looking to actively trade these products they should still be aware of what is happening with these instruments. This information can help people holding individual equity positions as well as provide an indication as to how they can manage their stops and limits. I also think foreign exchange is an area that's often overlooked. Deal4free spread betting means people can trade as little as £1 per point which was previously unheard of in the FX markets. Foreign Exchange trading, which is not equity-correlated, can also be used to diversify risk.
Foster Bowman, Idealing: I think it depends on what your mandate is. If you are a speculator/technical trader, then you may be interested in trading commodities or foreign exchange or indices; and your focus is probably going to be on liquidity and transaction costs. So if that's where you're coming from, look at everything, provided you get a good service and good liquidity. If your orientation is for the equity market, then stick to shares.
Patrick Latchford, IFX Markets: There's always a danger of delving into a number of different products that you really haven't got any experience of or understanding of. If you're looking at it on a broader scale, your overall exposure, then stick to the stuff you know and keep well away from those products that are inherently going to have greater volatility that you don't understand.
Tom Hougaard, City Index: I like volatility and I think that everyone needs volatility. Furthermore, if you are new to spread betting or trading in general, focus on one thing and one thing only, learn it like you know your own back pocket because that's the only way you will specialise.
Patrick Latchford, IFX Markets: So, you have a lot of choice but focus on the stuff you know, the stuff you're familiar with and stuff that's volatile. Shares have been particularly volatile in the past few years, indices always are, but stick to what you know.
Andy: There seems to be a misconception among some people who have spread betting accounts that when they lose money, it's the fault of the spread-betting company, who's trying to move the trade against them, which we know is not the truth. So am I betting against another trader? Am I betting on which way the market is going? Or am I betting against you?
Patrick Latchford, IFX Markets: Broadly speaking, we make a price to the clients so, in the first instance, you're betting against the spread betting firm. What we choose to do with that risk depends on our view perhaps of just that particular product or our view of that asset class. So, in many instances, we will hedge that position directly into the underlying cash market and that will effectively mean that the client is playing against the market, not the spread betting company.
Brian Griffin, Deal4free:If I had 100,000 clients that consistently made money, I'd have the biggest dealing room in the city and I would make the greatest amount of revenue. It's a sad statistic that our clients don't all consistently make money but again going back to psychology if they come to the venture thinking that we are endeavouring to do our best for them and referring, back to the point Patrick made, giving them the best price and the best service and the most effective spread and giving them the technology up dates as it happens, and giving them every single chance to succeed, then that's the approach they should take. They are against the market and we're helping them to access that market. The market will do whatever the market will do. I don't know what it's going to do. We're all in it together and that's probably the best approach.
Tom Hougaard, City Index: I think the customer is always trading against the market. There are instances, for example, when the market's closed, like going back to the GlaxoSmithKline at 8 o'clock at night. Well, you could argue that, at that point, you're not trading against the market, you are trading against the spread betting company. Similarly, if you phone us up at 6.30 in the morning and say: 'Where is the daily Footsie?', you will trade against the spread betting company. That is probably the only time we are really trading against the spread better.
Foster Bowman, Idealing: People are trading against the market basically. We don't offer prices outside market hours.
Tom Hougaard, City Index: The question is probably derived from the fact that some people have been caught out in a fast moving market. They may have a stop loss or they may have tried to get on the phone and been put on hold for 10 or 30 seconds, but we all know that if the market is going straight down, those 10 seconds seem like 10 minutes. From our point of view, it's always in those bottleneck situations that you're going to have dissatisfied clients and you're trying to accommodate people the best you can. I don't think this is something which is specific to spread betting.
Patrick Latchford, IFX Markets: You're only as good as your last trade. Your clients remember forever if you've given them a bum deal going in or going out. Reputation at the end of the day is the most important thing in this market.
Andy: How does your business make a profit?
Patrick Latchford, IFX Markets: We take a little slice on the spread.
Tom Hougaard, City Index: Someone buys £100 on the Footsie, someone sells £100 in the Footsie and you immediately offset those two. We do run positions so I cannot say we are 100% hedged at all times.
Andy: Let's say you've got 50 clients and 40 of them are long on the Footsie and 10 of them are short, and you think the guys who are short are right, you won't necessarily hedge?
Tom Hougaard, City Index: It's a discretionary decision from the dealer who's responsible for that particular desk.
Brian Griffin, Deal4free: This goes back to the earlier point you made about the whole psychology of the client and I think it's important that if this round table conference or any other conference delivers this to the potential client base that we're just a conduit and if they make money we're delighted at that fact.
Tom Hougaard, City Index: The reason we want them to win is very straightforward. When I do these seminars and I go out and I speak, I get asked the number one question: 'You're a spread better, so you must be happy when I lose money because then you win.' The reality is the more you win ,the more you are trying to continue this string of success.
Patrick Latchford, IFX Markets: We're very happy to have consistent winners and, like everybody else, if we see good winners, then we're keener to hedge those straight away as opposed to running it for five minutes and taking a view.
Andy: How would you feel if suddenly all of your clients started losing money. Would that impact on the profitability of your business?
Foster Bowman, Idealing: Yes. I think that anybody who loses money consistently won't stick around as clients any more.
Andy: Ten years ago, there were two spread betting companies and three of you today are from companies that have come into the spread betting market over the past three or four years, maybe even less than that. Don't you think that the spread betting market is a bit of a bubble?
Foster Bowman, Idealing: The spread betting market is a small market and it's a growing one. I think you will see continued migration from the basic vanilla stock brokerage industry over to the CFD and the spread betting market so I don't think it's a bubble at all, I think it's growing rapidly from a small base. I think it's here to stay unless the regulators change some aspects of the spread bet instruments.
Brian Griffin, Deal4free: I think the past three years have seen a dramatic change in spread betting, something we hinted on earlier, product innovation is important and it's not just Deal4free with Rolling Cash® . We've also seen competitors' new products hit the marketplace that have been instant successes. I think that there will be as many companies offering spread betting in the future, in fact more, and I would like to think that the next people to offer spread betting or a look-alike product will be financial institutions and I think we've already seen the start of this with a blue-chip stock broking company offering CFDs through a company that's not sitting that far away from me. It will become a mainstay and a normal market product, it will go mainstream.
Patrick Latchford, IFX Markets: I think we're at the beginning of a seismic shift in the investment landscape. Alternative forms of investment are going to continue to proliferate. A lot of traditional stockbroking firms as well as the online stockbroking firms have taken up CFDs and they're reporting a good uptake. So, whether or not in the short term there will be seven, four or 50, it is hard to say. But I think the product's here to stay and more complex training for private clients will continue to grow as they realise they can't get the kind of returns they used to get.
Tom Hougaard, City Index: It started with CFDs and I think it's a slow shift, because all shifts usually are, as people come around to the fact that: 'Well, I know it says betting in the word, but it really isn't betting, it's just another way of transacting a business in the financial market.' I see consolidation within the business. I think many of the spread betting companies will actually be taken over by the financial service companies so they, in turn, can offer these products to their existing clients. This will probably take seven to 10 years, but I have no doubt in my mind that that will happen.
Andy: What happens if my spread betting company goes bankrupt? I ring one day, the receivers are in and I've got thousands of pounds with you because I've been a consistent winner. Am I protected?
Patrick Latchford, IFX Markets: Yes, you are protected. We hold your money in segregated accounts From Finspreads' point of view, owned by IFX Group plc, you have the additional benefit of knowing that we are a public limited company and abide by the rules and regulations of being a public limited company. Therefore you've got the comfort of knowing that we have the right capital base, the appropriate balance sheet for the kind of business that we're doing.
Brian Griffin, Deal4free: I think the most important point here is that we are regulated and the companies have to be fully capitalised to undertake the ventures which they're undertaking. And again, the client is afforded all of the protection of being a private client with segregation of funds.
Andy: So, I'm now going to set up an account. First of all, I need to know how to do this, what are you going to look for from me in terms of experience and do I have to put up an absolute fortune?
Tom Hougaard, City Index: It's very straightforward. You contact, in this case, City Index client service, there's a freephone number, and you ask for a brochure pack. You fill out the application form. We want to know you haven't got any outstanding bad debts. Do you have a fixed address, the standard things that you would associate with opening a bank account.
Andy: Let's say I've never traded derivatives before, just bought and sold shares. Is that going to cause me a problem in opening a spread betting account?
Foster Bowman, Idealing: I think most of us, including iDealing, conduct the same level of due diligence in assessing whether or not someone knows what they're doing. It's important for the firm just to protect themselves and to ensure someone has enough experience. How you define enough experience is really a discretionary assessment.
Patrick Latchford, IFX Markets: At Finspreads, one has to show that you can afford it. More important is the idea of encouraging people to start to trade through the Academy so that, if they're relatively inexperienced, they can learn all about the product and trade for a penny a point, see how it works first hand, so that they know the pitfalls and the problems before they commit any kind of money.
Brian Griffin, Deal4free: Well it's incredibly simple to open an account you can apply online or call our sales team; the process takes only a few minutes. It's £1,000 to open an account.
Tom Hougaard, City Index: Minimum £250 and we do have credit facilities.
Patrick Latchford, IFX Markets: We have credit facilities and if you have £100 in your pocket right now, I'd let you open an account.
Foster Bowman, Idealing: You've got to have £2,000 to open an iDealing account.
Andy: So I've got my account, paid the money in, I'm raring to go. How do I do it?
Brian Griffin, Deal4free: We send you a complete pack of information that also includes a CD and the CD contains your encrypted software which you load onto your PC. In addition to that, there's an online help pack within the CD-Rom and there's also a complete product description within the CD-Rom so it's kind of self-sufficient. In addition to that, we have a 24-hour helpdesk that allows clients to ring and speak to a client representative 24 hours a day, which is important I think.
Andy: So I can trade on the phone if I want to?
Brian Griffin, Deal4free: 24 hours a day and the minimum trade size is £1, the same as online trades. We're there 24 hours a day, so there's either a helpdesk representative or a dealer there to answer questions.
Foster Bowman, Idealing: You sign up for your account online. Your order entries can be placed by telephone or online. I'd say there's a preference for the online route.
Brian Griffin, Deal4free: At Deal4Free, in excess of 98% of all trades are done online and I think the clients who do trade online soon realise the inherent advantages.
Tom Hougaard, City Index: The thing about the City Index website is that you can do absolutely anything you want. You can put in stops, you can even put in orders that have not yet been executed, we call them limit orders. You can access, you don't even need a piece of software, you can go into an internet café in Majorca and place a bet if that's what you want.
Patrick Latchford, IFX Markets: With Finspreads, as long as you've got access to the internet you can trade on your Finspreads account and you should and would expect instant execution once you've asked for a quote. The incidences of people trading online must be about 70% and 30% trading over the telephone. People do like to keep some interface going with the people on the desk, they enjoy the service and so that's why we still have a reasonably high incidence of people trading on the phone.
Andy: How do I get money out?
Foster Bowman, Idealing: It depends on whether you can receive CHAPS or BACS, but with CHAPS, you can have it the same day. It needs to go to your designated UK bank account.
Andy: If I start losing money and I want to top up my account, how do I put money in?
Foster Bowman, Idealing: The same way: CHAPS, BACS or cheque or transfer from one of your other brokerage accounts. A lot of people move monies from their standard brokerage account or their ISA or PEP.
Brian Griffin, Deal4free: We have an online electronic facility that a person can set up which says, with their agreement, they can instantly transfer money from their debit card. So it's like walking into a supermarket to make a payment.
Tom Hougaard, City Index: Yes, same procedure, standard.
Andy: If I become a regular customer, do I get preferential rates, will you give me lower margin rates and stuff like that? Is there any benefit in me being with you guys for a long time?
Tom Hougaard, City Index: There are certainly instances where clients can negotiate. It's not something that is normal, so it's perhaps wrong to give the impression that you can negotiate.
Andy: How do I limit my losses?
Foster Bowman, Idealing: Well, stop losses, the most basic risk management technique, placing a stop on your position.
Patrick Latchford, IFX Markets: They are an important investment tool. Losses are unlimited if you sit there like a chump running your losses forever and a day. You can always cut that position and take that loss. People do lose money because they do watch their positions go worse and worse and worse in the hope that things are going to improve. Sometimes, they have to just take their medicine and close that position.
Tom Hougaard, City Index: We operate something called guaranteed stop losses. Now, a guaranteed stop loss does not apply to every single stock out there in the market. It only applies to, in the case of the UK shares, the Footsie 100 shares. You are buying yourself an insurance premium and you're going to have to pay for that. So there is a difference and the reader has to differentiate between a stop loss, which just covers the normal day-to-day of getting stopped out, or the extreme case scenario where something goes wrong, and you have a guaranteed stop loss. But that involves a premium, a wider spread when you are shedding the bet.
Brian Griffin, Deal4free: You can do a guaranteed stop or you can use a regular stop, it's down to the clients themselves. The most important point here is that the client has to take a view on how much they're willing to lose per position they take on. Stop losses are for the people that may actually live to fight another day.
Andy: Do most of your clients use stop losses?
Brian Griffin, Deal4free: I would say that our order books generally have a healthy number of orders in terms of stops.
Patrick Latchford, IFX Markets: It's something we'd encourage people to use.
Foster Bowman, Idealing: Obviously, we offer the ordinary stop losses, but we decided that guaranteed stops are an unhedgeable risk. One of the ways that a spread betting firm might find itself insolvent is if it suffered some absolutely cataclysmic market event that put it under.
Tom Hougaard, City Index: I wish more people were actually using stop losses and I think it all boils down to investment psychology. I feel that a lot of people have a hard time putting on stop because it is an ego thing. They are afraid to be proven wrong in their decision so they would rather not put a stop loss and say: 'Well, if it hits there, then I'll definitely get out.' Unfortunately 99% say that they will, but they don't. Unfortunately, a lot of people associate that loss with being poor husbands, poor wives, poor people in their job. We are enthusiastic about stop losses because that's our way of retaining our clients.
Andy: We're going to go back to the great conspiracy theories about spread betters and brokers in general out to get us. Would any spread betting company be tempted to push their quote towards all of the stops, trigger off those stops, set off the losses, and then move the quote back to where the market was?
Brian Griffin, Deal4free: Again, starting off from something I raised earlier. Because it's an online price and because it's the same price being disseminated to realistically several thousand clients at any one time, several thousand clients who are market savvy and fully funded, if I place an offer that is better than the market even to trigger a stop, which is conspiracy theory number 27, then I will get lifted maybe 5 or more likely 6,000 times on the other side.
Foster Bowman, Idealing: It would be a silly risk.
Brian Griffin, Deal4free: Because we offer a price-driven service for spread betting CFDs and FX, it's not possible, not prudent and completely nonsensical for us to skew our price in any one particular direction. The benefits are seriously out weighed by the non-benefits.
Patrick Latchford, IFX Markets: There's no benefit and you're going to get arbitraged out if you do skew the market. But, as you say, people do have an issue with the way they're treated by firms and they will complain. It comes down to reputation and good service.
Tom Hougaard, City Index: It's absolute nonsense and it boils down usually to sour grapes. I have more instances where I hear the chief dealers shout out: 'Leave him', which essentially means give him another 20 seconds or 30 seconds and see if his stock gets hit again.
Andy: It's not a conspiracy against them, then?
Tom Hougaard, City Index: It has to be said that we make mistakes and we're the first to admit when the client comes and points it out to us. If we know we've made a mistake, we'll rectify it immediately and reinstate the position.
Brian Griffin, Deal4free: In [such a] high-volume business, this does happen. Mistakes are made and, of course, we will reinstate the client ['s position]. It's just a matter of good business.
Patrick Latchford, IFX Markets: There are seven firms offering similar products. If the client's not comfortable with the service, if you're not looking after your clients, they are going to walk out of the door.
Andy: Let's say the worst thing happens. I lose all my money in my account. Do you automatically close my account?
Foster Bowman, Idealing: No. You obviously wouldn't be able to create a new position if you had zero in your account but you can keep it open, send in some money at a later date and start again.
Patrick Latchford, IFX Markets: The same applies. Of course, we're keen to see your business continue and we don't close the account unless you ask us to.
Andy: Is spread betting mainly a tool for short selling?
Brian Griffin, Deal4free: It's a buying and selling transaction.
Foster Bowman, Idealing: We're seeing much more of a long bias now. My guess is that we're looking at maybe one short sell for every three or four long.
Patrick Latchford, IFX Markets: Where's the prejudice coming from? Is it coming from the individual investor or the financial press, the fund managers or the stockbrokers? I think it's coming from the influences in the market who don't want, don't understand or don't know the full advantages of diversifying their portfolio through a number of different instruments. It's not only the education of individual investors [that is needed], it's education of the whole financial community.
Tom Hougaard, City Index: All our clients have made stacks of money over the past three or four months because they've all just piled in on the long side and those who tried to short have had their heads handed to them. It took some time to get the bear market going before people realised: 'Hey, I can actually make good money on the short side here.'
Andy: What do you think about hedging via spread bets?
Tom Hougaard, City Index: I think it's a fantastic idea and I wish it had been used a lot more, especially in this bear market.
Brian Griffin, Deal4free: Well, I can prove it with some clients of mine who've used it to probably lessen the burden and the pain. For example, Vodafone when it came off quite steeply went to below £1. If a client had stop entries with a spread bet firm, at least they would have lessened the blow. They can very easily take their profit from the spread bet whenever they desired and turn that profit into a physical share position by simply transferring it to a physical broker and buying more Vodafone shares. Again, what does this do? It improves the average on their physical share portfolio. They may have a long-term view on a share which is probably prudent, but they need to have an alternative avenue to hedge. Now whether you use that through options, spread betting or CFDs is entirely up to the client, just that if they're resident and domiciled in the UK it makes sense to use spread betting.
Patrick Latchford, IFX Markets: I think spread betting is naturally geared more towards shorter-term trading. Of course, we do have people hedging their portfolio positions. But the point about hedging is you're fixing your profit or you're fixing your losses which will be very appealing to a lot of people. I can only assume that a great many people who have traditional stock broking accounts would have, in years gone by, been delighted to have done that.
Andy: Are there any sectors, contracts, currencies, indices, particular markets where your clients are clearly more or less successful?
Brian Griffin, Deal4free: As Tom said, before clients need to trade what they understand. If I was to say where do clients consistently make money, its probably in UK shares and indices.
Foster Bowman, Idealing: If someone wants to start dipping their toes into spread betting on UK shares, they would do well to focus initially on the larger, most liquid issues.
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