Interview with the Chief Market Analyst at CMC Markets, conducted by Guido, co-editor - Financial-Spread-Betting.com. E-mail Guido for questions or to suggest an interview at traderATfinancial-spread-betting.com
FSB: Hello, thank you for agreeing to be interviewed. I think to start the interview; tell us a little about CMC Markets.
CMC: Established here in the UK in 1989, CMC Markets specialises in offering Financial Spread Betting, CFDs and FX.
The last couple of years have been extremely busy and exciting for CMC as not only have we expanded rapidly in the UK due to the rapid growth and development of the retail derivatives market but also globally. In the last 2 years we have opened offices across Europe, Asia, the US and Australasia to offer our CFD and FX products to relatively new markets. We have also spent a lot of resources improving out trading platform, launching mobile dealing, increasing our product offering such as small caps and rolling out a comprehensive education program.
FSB: CMC Markets is a market maker and as such sets the applicable price - what does this exactly mean and what are the implications of this?
CMC: Our prices are generated by taking into account the price of the underlying instrument, market condition, liquidity of the instrument, the size of any one bet, and the term of the bet. Effectively this means that our prices are always a close reflection of the underlying instrument they are based on.
FSB: How different is the platform today from what it when you launched in 1996?
CMC: The platform has evolved based on clients needs over the years and is continually being enhanced. Recent upgrades have included a professional charting package with technical analysis application and back testing module - all free of charge to clients. In addition, we have added features such as one click dealing, mobile trading and CMC Markets Plus, an exclusive information service with market news, daily commentary, financial diary learning tools and discussion forum. The trading platform has a feedback facility so clients can instantly inform us as to what additional features they would like to see included and we are committed to continue enhancing MarketMaker.
FSB: How successful is the concept in Britain?
CMC: Spread Betting is far more popular than CFD trading with CMC Markets' UK clients. This is because they can access the same range of instruments, tight spreads and trading platform without having to pay any of the commission or tax that is associated with CFD trading. Tax laws can of course change.
FSB: What have been the most popular subjects of spread betting activity in recent months? Also, what betting markets do you think will be most attractive this year?
CMC: It really does vary. For UK clients, the UK stock market is always a focus whether it is individual stocks or trades on the index itself. Other markets become popular as they become more volatile. For example, currencies, gold and oil have seen some very active years recently and this has attracted many short term traders to trade these markets. With the volatility we have seen in global stock markets this year due to the China effect, stock indices remain popular and this is expected to continue.
FSB: Please describe your typical client. How sophisticated do you need to be to get involved?
CMC: There probably is no "typical client." We do have many clients who are financial market professionals, but low stake sizes and dealing costs have made financial markets accessible to everybody. Our clients include doctors, builders, IT professionals, policemen, farmers etc. We also have many clients who have maybe only invested in shares in the past and who use spread betting as an alternative to the stock market, and as a way of gaining exposure to markets they may not have preciously considered such as commodities and currencies.
FSB: What sort of stakes are your clients trading for? Where is the bulk of the action?
CMC: Again this varies. As mentioned previously, UK clients are always very active in UK stocks - both FTSE 350 and the smaller capitalized companies. With the volatility seen on the US indices such as the Dow and the S&P these markets continue to see a lot of business in size ranging from as small as £1 per point to many hundreds of pounds per point.
FSB: Do you have clients from outside the UK? Is it possible for expatriates to use a British spread-betting company?
CMC: We now have offices in 12 different countries including the US, Germany, Australia, China and Singapore where they have access to our CFD and FX products. Due to strict regulations we can only offer Spread Betting to residents in the UK and Ireland.
FSB: What is the minimum amount needed to open a spread betting account at CMC Markets? Do you accept credit accounts?
CMC: Clients can open a Spread Betting account with CMC Markets with a minimum of £200. Currently, we do not offer credit accounts.
FSB: What instruments are best suited to beginners? Indices, equities, shares, forex etc?
CMC: Probably the most important thing that a beginner needs to bear in mind is the risk aspect of the market traded. For example, if we look at something like Vodafone which rarely moves more than a few percent in a day, if that is trading around the 160p mark it would be rare to see a day where it moves more than 10 points. Compare this with the Dow Jones index, for example, where daily ranges of 100 points are not uncommon. The volatility of the market traded should be taken into consideration - again all markets can be traded from as low as £1 per point so beginners would be encouraged to start small, regardless of the market in question.
FSB: CMC Markets offers over 1000 instruments to trade which is great. However, some uncommon instruments can take somewhat a longer time to execute. Please comment.
CMC: We actually offer in the region of 2500 instruments and this number is increasing all the time. A few "uncommon" instruments do sometimes take a little longer to execute than the rest of our instruments. The main reasons for this are that these instruments are generally either very illiquid or the liquidity of these instruments is not immediately transparent (i.e. instruments where the underlying market is still largely open outcry as opposed to electronic). The number of instruments that fall into the category is very small and as more and more markets phase out open outcry trading and migrate towards electronic trading the number of instruments that fall into this category will be tiny.
FSB: 'CMC Markets offers extended trading hours on a number of Stocks and Indices'. Does this mean that one can trade when the markets are closed? And if so, can stops be moved while the underlying stock markets are closed?
CMC: CMC Markets offers extended trading hours on a number of UK equities. These equities are traded as 'American Depository Receipts' - or ADRs, and are available until 9pm GMT when the New York Stock Exchange closes. We also offer 24 hour trading on Indices where we make a price based on the US futures market. It is important to note that betting on extended hours shares may mean that the underlying markets move against you and therefore increase your margin.
FSB: How is spread betting commonly used? For hedging or speculation?
CMC: Spread betting can be used to hedge other positions but it is typically used for short to medium term speculation on the direction of an underlying financial market.
FSB: How far out do the contracts go?
CMC:At CMC Markets, we offer 2 types of contracts. Although CMC Markets do offer the standard quarterly Futures Spread Bets, our Daily Rolling Cash® bet has proved so popular that over 95% of CMC Markets' Spread Betting customers prefer to trade using this kind of Spread Bet. With the daily Rolling Cash® bet, customers do not have to close out their trade at the end of the trading day. If the trade is still active, we automatically roll the open trade into the following trading day. This eliminates the additional cost of the spread you would have to pay if you want to keep the position open for the next day (although a financing charge may be applicable). This also allows us to offer tighter dealing spreads than futures spread bets.
FSB: What type of stop losses are available? We have heard that you will soon be offering contingent orders on your spread betting platform - are these live yet?
CMC: We offer a range of flexible risk management tools including stop orders, limits and OCOs. All of these orders can be placed online and are free to use. We will be offering If-Dones on our Spread Bet platform during the second half of this year.
FSB: Do you charge a closing spread on contracts (say FTSE or Wall Street bets) that are still open at expiration i.e. if one allows a bet to run to expiry is the spread still charged on the close?
CMC: All non CRBs (Controlled Risk Bets) are rolled forward to the next available contract month. No spread is charged in this process.
FSB: Are there any other fees which our readers need to be aware of besides the spread? Do you charge a quarterly trading account fee or an account inactivity fee or a fee for spread bets made over the phone...etc?
CMC: We do not charge any inactivity fees or indeed any administration costs for trading with us. Spread Betting obviously incurs a spread and there is a small financing charge if you hold a long position (typically LIBOR +3%/365 per night). If you hold a short position you may receive a financing payment from CMC Markets.
FSB: Please describe one or two interesting strategies which your clients are using to spread bet the markets.
CMC: For the medium term trader (i.e. week to months) a popular strategy for UK stocks seems to be just buying strength. With stock markets rising over the past few years, many spread bet clients use these products as almost a surrogate stockbroking account, buying strong trending shares then holding in the hope of further gains.
At the other extreme, we see short term traders on the likes of the US and European indices using basic principles of support and resistance to set up swing trades over a few hours and days - looking for pullbacks or rallies to short term highs and lows to put positions on. We cover some of these strategies in the regular free seminars we run for existing clients.
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