City punters catch a cold in markets turmoil

Spread betting punters suffered one of their worst ever day’s speculation this week after thousands of City traders and amateur investors placed aggressive bets that the stock market would recover on Thursday – a day the FTSE 100 index suffered its sharpest decline in more than four years.

Simon Denham, of Capital Spreads, said: “It was not quite our clients’ worst ever day, but it was definitely veering towards it. This is slightly disappointing as, until yesterday, our clients had held their heads above water quite well in the current conditions.” Will Armitage, senior quoting dealer at IG Index, confirmed heavy losses for punters “would have been industry-wide”.

Heavy losses came as fearless traders rushed, in record numbers, to place bets on the volatile markets bouncing sharply from previous heavy losses – particularly in the FTSE index, mining and financial stocks. There were heavy bets also on foreign exchange rates.

A spread bet offers traders a wager on whether financial indicators – indices, share prices, exchange rates, etc – will rise or fall. Depending on whether the bet is correct, they can make open-ended gains or losses.

Andrew Garrood, joint managing director of Cantor Index, said volumes on Thursday had been 150% more than levels for an average trading day – an exceptional level of business for the middle of August. “They have been substantially higher than normal because volatility was substantially higher than normal. The two are always linked for us.”

The 250-point, or 4.1%, decline in the FTSE 100 on Thursday was severe, but still far short of being a record decline in modern times. However, combined with the level of aggressive bets on a recovery, Thursday’s fall was one of the most painful for spread betting speculators since the industry emerged in the UK in the late 1980s. One dealer said he had seen punters fix their losses from bets against declines in New York only to return with a bet against rises just as the Dow Jones Industrial Average began a dramatic late rally.

Writing in his widely circulated market commentary before the London market opened on Thursday, Mr Denham, of emerging firm Capital Spreads, said: “Wise traders would still be sitting on their hands unless there is a specific reason for being in the market. The present situation is as random as I have seen it for years and holding positions in virtually anything is a white-knuckle ride.”

Yesterday, he said his comments appeared to fall on deaf ears. “[On Thursday morning, I] made the point that the current trading activities were not the sane ones for punters to be involved with. As a trading company I am happy to see that our clients completely ignored this piece of advice and managed to trade around 22,500 times in the 24-hour period, a quite spectacular record for Capital Spreads.” The previous record was 16,000.

“I wish I could be happy with their overall performance, but sadly, given the volatility, this was not the case. Some punters made very good money but, in the main, most were caught in the headlights and run down.”

The wider markets this week showed a rush of selling across almost all asset classes as investors looked for greater security. “Anyone who claims they know what is going on is lying,” one senior fund manager said.

Nevertheless spread betting firms appear to have found no shortage of aggressive speculators with strong views, steely nerves and the necessary cash to place high-risk bets. As the London markets closed last night, spread betting trading volumes in the capital again appeared to be heading towards record peaks.

Tags: City, Simon Denham, spread betting

This entry was posted on Saturday, August 18th, 2007 at 2:37 am and is filed under Industry News. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.