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The Winners View Is Doubly True

The winners view is doubly true in the field of financial spread betting, a type of punting (investing, say some) where the payout is based on the accuracy of the wager rather than the simple result.

So let’s take the FTSE 100 as an example. If you bet £10 per point that the Footsie will rise, and it gains 25 points, you make £250 (£10 x 25 points). The more the market moves in your favour, the more you make — occasionally with truly sensational results, as we  show below.

 But be warned — the opposite is also true. If, in our example, the market falls 40 points, you’ve got a £400 (£10 x 40 points) hole in the housekeeping budget that needs explaining to your other half.

So enjoy our list of phenomenal triumphs — but remember: the bookie almost always hedges, so while our heroes have been cracking open the Dom Perignon, there were those on the other side of these bets frantically scraping around for the price of a can of Special Brew.

Euro/Dollar

Betting against the euro seems like the type of thing everybody has been up to, but few have been as successful as the big boys wagering with IG Index. The favoured bet among these punters has been in the euro/dollar markets, where the euro has fallen dramatically from $1.45 to $1.25 in the past 12 months (a 2000-point move as these markets are traded to two further decimal places). IG reports that some whales have been selling at $25,000 a point, so that’s a profit of around $50 million.

French francs

Like an indigenous winner of the Tour de France, its seems like an age since France could boast possession of its own currency. But it is not only our Gallic pals who miss it.

Prior to the introduction of the euro in 1999, there was one money broker who capitalised on a massive discrepancy between short-term and long-term interest rates on La Balle, with the latter trading much lower  in expectation of a rate cut. It  never transpired.

“For several weeks, using futures, contracts [the money broker] borrowed long and lent short — I have described it this way for the sake of simplicity,” recalls Cantor Index’s David Buik.

“He kept doubling up  his positions, having started at about £10 a point, for the best part of a  year and eventually he liquidated his positions, having taken the best part of £5 million out of the ring.”  Ooh la la.

Facebook

Then there’s the one about the whale who shorted Facebook when it made its underwhelming New York debut in May. The big-hitter bet the stock would fall on May 21. The shares slumped $4, meaning that as our man had piled in for more than $8000 a point, he walked off with a profit of almost $3 million.

The bet was so huge, said one insider, that when the spread betting firm went to lay off the massive exposure, its broker insisted that the bet had to be closed that day. It duly was. In that one session, our anonymous big-hitter made returns of more than $400,000 an hour. Not bad for a day’s work.

Apple

Apple’s slogan used to be Think Different. But sometimes you just need to think bigger. Already a millionaire, a 50-year-old director could afford to go long with 2000 Apple contracts for difference with City Index in February 2009 at opening price of $99 (CFDs are essentially spread bets for big boys).

By mid-October 2010, he had cashed in half of them, with Apple’s shares at $307 (profit $208,000). But he dipped back into the market again a few days later, adding a further 3000 CFDs (so 4000 in total) at $307.50. The punt remains open and Apple now trades at around $700 a share. Our man is currently showing a profit of more than $2 million.

Google

Sometimes you just get plain lucky.Google floated in 2004 at $85 a share and, after the shares initially surged, a rookie spread better placed an order to buy at $99 at £1 a point with Capital Spreads — only she seems to have forgotten about it almost immediately and did not log into her account again for almost a year.

When she did, she saw she had made a £20,000 profit, but assumed it to be an error and alerted customer services.  It wasn’t. The price then stood at $300, meaning it had moved up by about 20,000 cents at a £1 a point). The lucky punter quickly decided that spread betting was not for her and immediately cashed out.

The Dow

Occasionally, it is all about timing. One bold punter turned a £700,000 profit buying the Dow Jones Industrial Average in November 2010 when US Federal Reserve chairman Ben Bernanke began pumping $600 billion into the US economy and bubbling up the stock market.

Our man, an IT worker, bought the Dow for £10 a point at 10,900 but things were going so well that he upped the ante twice — eventually closing out for £1000 a point with Spreadex when the index hit 12,000 in January.

UK interest rates

How about making £110,000 in 10 seconds? Another Spreadex punter managed this feat in November 2008, when the Bank of England stunned everyone by slashing interest rates from 4.5% to 3% — the biggest cut in history. Our man bet on a bigger reduction than the 1% expected by buying Spreadex’s short sterling futures market at 95.80 (the contract is priced at 100 minus the expected sterling interest rate). The market jumped to 96.31, netting him 51 times his £2120 stake.

The Dax

A clever trader decided in January 2000 that the level of the Dax could not be sustained, particularly as the Neuer Markt was starting to hang in rags. So he sold the Dax at 6955 — starting with a modest stake but, as his confidence grew, increasing the size of his bet. He closed out at 3550 in September 2001, taking £1.1 million out of the ring.

“He was never to be heard of [in spread betting circles] again,” says Buik. “What a shrewd fellow!

IG Group Sales Bounce Back Despite Fear Of New Spread Betting Rules

IG Group Britain’s largest spread betting firm is set to unveil better than expected revenues for the year to May, brushing off a quiet patch just six months after £1.1bn was wiped off the FTSE 250 company’s value.

Shares in IG Group rose 5.5pc on Wednesday after the business said revenues for its financial year would rise 7pc versus a year ago, with fourth quarter numbers also up despite a “quiet” period in financial markets.

The forecast – which comes ahead of its results statement in July – will come as welcome news to the group, given that only six months ago its shares tumbled almost 40pc after the City watchdog outlined a string of new rules around spread betting products.

Concerned that ordinary investors were losing huge chunks of money because they didn’t understand what they were getting into, the Financial Conduct Authority said in December that it wanted to control the way firms can offer spread betting – a way of betting on which way a financial instrument will move – to retail consumers.

The UK is not alone in wanting to protect inexperienced traders, with regulators across Europe looking to clamp down on the industry in a move which has rocked the market.

However extra regulation could give larger firms such as IG a competitive boost, with Numis analysts on Wednesday warning that they expect “the number of providers to shrink as many of IG’s smaller competitors are already struggling to break even”.

 Earlier this month, for example, IG welcomed the outcome of Germany’s Federal Financial Supervisory Authority (BaFin) probe into the market – months after its shares were hit by news of the intervention.

The FCA is expected to publish the full details of its consultation into spread betting this summer whether its good or bad who knows. Traders and clients alike are waiting for what comes next.

Shares In Leading Spread Betting Firms Have Plummeted

Shares in most leading spread betting firms have plummeted following new proposals from the Financial Conduct Authority (FCA) designed to protect retail consumers.

The UK FCA on Tuesday proposed a number of measures designed to tighten up regulation of the CFDs market. The Financial Conduct Authority tabled a package of measures to ‘limit the risks’ of these products, which it hopes will ‘enhance consumer protection’.

These include:

– Introducing standardised risk warnings and mandatory disclosure of profit-loss ratios on client accounts to illustrate the risks and historical performance of these products.
– Setting lower leverage limits for inexperienced clients who do not have 12 months or more experience of active trading in CFDs, with a maximum of 25-to-1.
– Capping leverage at a maximum level of 50-to-1 for all retail clients and introducing lower leverage caps across different assets.
– Preventing firms from promoting CFD products by offering bonuses or benefits on new trading accounts.

Some levels of leverage presently offered to clients by some providers exceed 200:1, according to the review. The regulator said that contracts for differences, which include spreadbets and rolling spot foreign exchange products, are complex financial instruments and that, following an increase in the number of firms in the CFD market, it has concerns about the number of retail customers opening and trading spread betting style accounts, with 82% of customers losing money. The number of CFD providers has grown to 97 FCA-authorised providers compared to 2010 when there were approximately half this number yet the largest UK provider still controls 40% of the UK market with a further 6 firms taking another 30% while a number of smaller firms make up the remaining 30%. UK retail CFD providers currently hold around £3.5bn in client money.

As well as providers having an actual base in the United Kingdom, there are also about 130 providers registered to provide cross-border services into the UK under European Union passporting rules. Most of these firms are based in Cyprus. The UK providers also make use of the passporting rules with many having overseas branches in other EU countries. The Financial Conduct Authority estimated that UK providers serve about 400,000 individual active traders based outside the UK.

Traditionally, CFD products have been marketed to more sophisticated retail investors. However, with the emergence of recent entrants like Plus500, providers are increasingly targeting retail clients and the FCA has taken a stance that these products are unlikely to be suitable to ordinary investors and are being offered on terms that significantly increase the risks and probability of losses.

The FCA announcement prompted a major share selloff, with market leader IG Group falling more than 40% to 500p and rival CMC Markets dropping 35% to 115p.

CMC tried to downplay the impact of the proposed regularoty changes, stating that it already focused on higher-value experienced clients who understood the markets, rather than high-churn clients.

The providers stated in a note release: “CMC’s business model and ongoing strategy is focused on generating revenue from client trading costs and therefore believes in establishing long-term client relationships.” It added: “CMC recognises the FCA is endeavouring to ensure that any regulation is delivered in a balanced fashion and looks forward to working closely with the Financial Conduct Authority over the coming months.”

IG Group said in a statement: “The company believes in “robust and proportionate regulatory oversight” of the CFD sector in the UK and Europe and recognises that there are shortcomings in the approach to the marketing of [spread betting products] by certain firms, often operating from outside the UK. The Company has operated and will continue to operate to the highest standards in the industry, and its initial view is that certain of the FCA proposals could enhance client outcomes.

IG Group said it will now consider the implications of the FCA Consultation Paper and the courses of action open to it, with plans to respond in accordance with the deadline of March 7.

In response to the announcement, Plus500, said the topics covered by the FCA will have a “material operational and financial impact” on its UK subsidiary, which represents approximately 20% of group revenue.

Editor Note; Sooo… before we all completely lose our heads it’s worth saying that this FCA report is a consultation document and not a matter of fact and the regulatory body is unlikely to make a final decision until late 2017. This is not investing, it’s speculation and this is how it works. Successful traders won’t fail if they switch to spread betting, unsuccessful traders won’t succeed if they switch to direct access or buying the shares outright.

It is important to point out that risk is a factor of leverage AND volatility. 50:1 is quite high leverage on share CFDs but relatively low on a stable forex pair like AUD/USD. What really bugs me is that the FCA’s main argument is that most losers are from “Expected margin loss through automatic close out”. And then they are going to mince the leverage limits based on the lack of experienced retail clients. The only way these new morons are going to get any experience is to lose some more money. You can’t stop stupid. but a bit of education could go a long way.

Moreover, regulation may not entirely be a bad thing as more honerous rules are likely to encourage further industry consolidation, as new rules generally hit the smallest firms hardest. Without the high leverage, and the attraction of new money, the race to the bottom of spreads will also have to stop. Interestingly both IG and CMC point out that the majority of their profits come from ‘High Rollers’ (so called) who know exactly what they’re getting involved with when they play with leverage. The ‘know nothing’ Punter who is given 200 x leverage by Plus500 and their ilk and has his account closed before he can breathe is the target of the FCA’s regulation . This will be sorted out in the consultation process and I think we may find that this is a very small storm as far as the bigger players are concerned. It may well even strengthen their businesses as they pick up clients from the disreputable.

However, what really does seem interesting to me is that the shares of IG, CMC, Plus500 and Playtech were all trending sharply to the downside in the days preceding the FCA announcement (9% down between them in aggregate over 4 days before the announcement). It would appear that the FCA report was not so very secret after all.

Having said that I’m sure brokers in less regulated countries will be pleased with the news as in future international clients will probably prefer to trade in these jurisdictions.

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