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 few 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 15 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.
CMC Markets Next Generation Trading Platform
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.
Spread Betting
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 thousands of 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 11,000 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 reason 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.
FSB: What qualities separate winning traders from losers?
CMC: I think this is a general financial markets question, not just one specific to questions. It is a clichéd answer but true nonetheless: using stop losses, the ability to cut a trade when it does not go the way you were expecting, and having the confidence to run your winners. Also, not risking too much of your account on anyone particular trade is always an important consideration – a series of losses should not put you in the position of seriously damaging your balance.
FSB: Do you have a ‘favourite’ trading rule?
CMC: Trade with the trend – another cliché – but over the past few years we have seen strong trends across the boards- in stocks, FX and commodities. It would have been expensive to trade against these strong trends so I am all in favour of making life a little bit easier and going with the trend – whether it is up or down.
FSB: Would you say that the traders who are spread betting now more sophisticated than they were a few years ago?
CMC: I think there is much more awareness now of how these products work, the advantages they have over other forms of trading and how to use stops and limit orders then there was even a few years ago.
FSB: Which typically is your busiest month of the year? Tell us of some of the busiest periods you have experienced over the years (could be elections…etc) you have been in business.
CMC: Our busiest months correspond to months of high volatility in the underlying markets which do not occur at particular times of the year.
A recent example of this was at the end February when the Chinese government released a statement announcing they had approved a special task force to clamp down on illegal share offerings and other banned activities in the market. The market took this badly, fearing further tightening measures in the future causing market volatility to rise sharply. On the back of this we executed roughly 30% more trades in March than in February.
FSB: What is growing faster at the retail level – Spread Betting or CFDs? And why?
CMC: Spread betting in the UK is probably growing faster than CFDs due to the fact that spread betting offers all the benefits of trading CFDs plus it is free of Capital Gains Tax (tax laws can change). In most circumstances, if you are resident in the UK it makes much more sense to use a spread betting account instead of a CFD account.
FSB: Is interest paid on the balance of the accounts? Any other perks or account benefits which our readers should be aware of? For instance, is it true that you offer a real-time Dow Jones News Wire (is this offered to all clients..?)?
CMC: Interest is paid on balances in excess of £10,000. All clients get access to free real time prices; an award-winning trading platform with fully integrated charting package including 42 different indicators and back testing module, real-time financial news from Dow Jones News Wire, one-click dealing and the most extensive client education offering in the market.
FSB: I understand you run training workshops to help get potential customers up to speed. What goes on?
CMC: We run a wide ranging educational program. For anybody that is interested in learning about trading, we run workshops every week explaining how spread betting and CFDs work and how people can use these tools to trade financial markets. For CMC Markets’ accounts holders, we run a number of more in-depth free seminars for example, spread betting basics which covers the mechanics of spread betting (e.g. what is margin; how to use stops and limits; the different markets that can be traded etc), and an ‘Introduction to Technical Analysis’ which is a 3 hour workshop where I cover trading strategies such as support and resistance, Fibonacci and stochastics etc . What is proving to be our most popular seminar for clients at the moment is the Live Trading Workshop. Clients come in to our professional training suite and learn how to use our trading platform by trading on real accounts – but using CMC Markets money. This has proved an effective way for clients to find their way around the software and learn how to place trades and orders such as stop losses. Places are limited to 20 people per session so it’s a great opportunity to ask questions and learn from the experts.
FSB: What happens should I have a spread bet position in a quoted company and the company went into administration (or liquidated)?
CMC: We aim to replicate the action that occurs in the underlying market.
FSB: Are there any risks in shorting shares?
CMC: The risk you have is the same risk going short any market. Your maximum profit is fixed – i.e. the most the instrument can fall to is zero. The maximum risk is in theory unlimited – the market could go up to infinity in theory. So you have unlimited risk which is why it is sensible – as with all trades – to use stop losses.
FSB: Does the CMC Markets platform work for news trading?
CMC: If you have a strategy geared around trading off news, there is no reason why you could not implement that strategy with us.
FSB: What services are you offering that others aren’t? How do you compare your spreads to the competition? Why should clients choose CMC Markets as their spread betting provider of choice?
CMC: We are known for offering some of the tightest spreads in the industry. Also, our trading platform is one of the best in the business as not only is it fast and reliable but has superb charts, news facility and one-click dealing. The reason why we have won ‘Best Spread Betting service’ awards is this combination of low cost dealing and cutting edge technology. Past performance is no guarantee of future performance.
FSB: What does the future hold for CMC Markets – Is there anything new going on with these days? Any hint to what is going to be the next top product you’ll be launching?
CMC: We do have a number of exciting developments in the pipeline which are due to be released later on in the year, but as this point in time I need to remain tight lipped….watch this space!
FSB: There are now over 14 spread betting firms in the UK, and fierce competition is driving spreads down. Do you believe that the market is growing sufficiently to support this number of providers?
CMC: Some of the larger financial institutions are realising the success of this small niche market and are looking to enter the market. Many of the spread betting firms are partnering up with the main high street banks and this is opening up spread betting to a new retail audience which can only be a good thing for the industry.
FSB: More and more retail investors are switching to spread betting. This shift away from share trading to dealing in derivatives concerns some observers as it takes liquidity out of the cash market, particularly for smaller stocks. Please comment.
CMC: This shouldn’t be a concern as latest anecdotal evidence suggests that up to 30% of volume on the London Stock Exchange is driven by CFDs and spread betting – the cash market is arguably more liquid than ever and products such as these have helped that in my opinion.
FSB: What books would you recommend?
CMC: There are lots of excellent books on trading out there and personally I would focus on the ones that look at trading psychology and risk management rather than those that promise to teach you how to make your fortune easily.
FSB: Have you any parting words for our readers?
CMC: It’s a marathon not a sprint – don’t see financial trading as a get rich quick thing and try to double your account in a month, because this would mean taking on silly levels of risk. Just focus on trading well and grinding out steady profits.
Please remember that whether Spread Betting or trading CFDs, these are derivative products and carry a high degree of risk to your capital. You may lose more than your initial stake and should only speculate with funds you can afford to lose. Therefore ensure that you understand the risks involved and seek independent advice if necessary.
FSB: Thank you for your insight and time, Mr. Jones.
CMC: It’s been a pleasure – no, it really has.
