New options for armchair punters

Financial spread betting companies are taking a confident gamble that demand for their services will remain in good form, despite in spite of an ongoing probe by UK regulatory authorities.

The industry’s optimism has been bolstered in recent weeks by the launch of two new financial spread betting services in the UK, allowing punters more choice to bet on movements in major world exchanges, indices and commodities markets.

According to industry estimates, there are currently 50,000-100,000 account holders in the UK with demand for spread betting – both sport and financial – having grown at a rate of 25 per cent annually in recent years.

The industry cites many reasons for the growing appeal of spread betting over fixed odds, or other forms of betting. The first being that financial spread betters can gain from falling as well as rising marketstrade, a major attraction during bear markets.

Unlike conventional trading, spread betters can also dabble in the stock markets without paying stamp duty, dealing commission or brokerage fees. And Winnings are also tax free.

The industry says the internet has fuelled growth by making trading information rapidly available in the homes and on the laptops of a new global pool of punters.

“Stocks and shares are no longer the playground of yuppies,” says Will Armitage, senior quoting trader at IG Index, an established spread betting firmbusiness.

Seizing on the online appeal is ETrade, the UK’s oldest internet-based stock broker, which this week launched its spread betting service.

ETrade, which has 3.5m existing trading clients worldwide, is offering rolling daily and futures-style bets on financial markets covering UK and global shares, stock market indices, major currencies, commodities and fixed interest products such as corporate bonds, in line with that offered by most providers.

Interactive Investor, which has 1.4m existing trading customers, also joined the fray last month with the launch of its spread betting platform, which is white-labelled through Finspreads, a subsidiary of IFX. Interactive claims to have the lowest minimum bet size in the UK of just 50p.

The emergence of new competitors is a robust sign for an industry which less than eight months ago was told by the Financial Services Authority that the risk warnings on some of its promotions were inadequate.

This action translated into a £70,000 fine against Cantor Index, an established playeroperator, for misleading promotions. The FSA said Cantor had failed to explain sufficiently a key risk of spread betting – that you can lose substantially more than your initial stake if the spread moves in favour of the broker.

With the FSA said to be keeping a close eye on the sector, there are signs that new entrants are going to new greater lengths to raise awareness of the risks.

Interactive Investor is offering a free eight-week online course to educate its new clients on aspects of spread betting from how markets work to the mechanics of trading.

During the course, clients are limited to 1p per point stakes with the minimum stake rising to 50p after the eight-week period.

The course, which has 500 clients signed up, is an innovation advance on the information evenings already held by some established firms.

“We are trying to get customers to learn about the product and how losses and profits will translate from a 1p bet,” says Interactive Investor’s Jim Lloyd.

Lloyd admits that more than half of his clients will lose initially, until they become more experienced. “If they don’t win we hope they will hopefully stop using the product,” he says.

ETrade is also planning seminars for its new clients and says, like other firms, it emphasises that customers can place stop-loss facilities on their bets, which halts trading at pre-set points.

“We understand fully why the FSA is doing what they are doing,” says James Elias, head of UK retail at ETrade. “With every communication that goes out we highlight very clearly the risks associated with spread betting.”

While UK-based firms are being watched, for their promotionsa new competitor entering the market on Monday won’t be facing the same scrutiny from the regulator.

Futuresbetting.com is a new online service targeting a niche market of highly experienced UK financial futures and commodities traders. But, as the spread betterit is based in Gibraltar, its promotions and activities won’t be scrutinised by the FSA.

This entry was posted on Saturday, March 5th, 2005 at 10:20 pm and is filed under Uncategorized. 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.