Influx of professional traders and car salesmen to spread betting could increase liquidity for everyone
By Lucy Warwick-Ching Published: March 12 2009 16:07 | Last updated: March 12 2009 16:07 As redundancies have risen and bonuses have fallen, the number of city traders, former estate agents and car salesmen opening personal spread betting accounts to supplement their income has increased. A high volume of applications to spread betting firms over the past six months can be put down partly to high volatility, which magnifies potential gains (and losses) but also to professional people trying to top up their pay with a little market speculation. “The world of banking and finance bears little resemblance to what it did two years ago,” says David Buik, market commentator at BGC Partners. “Thousands of trading positions have been vacated around the major financial centres.” He says there has been a wave of applications from former traders, who when employed would have been precluded from spread betting by a conflict of interest. “Most of them will concentrate on their own product,” he says. CMC Markets said it has also seen an increase in the number of applications from City traders, both those who have recently been made redundant and from those that are still employed. “Certainly there seems to be a desire to keep their hands in during the current turmoil,” says Gary Thomson, analyst at CMC Markets. “We are also aware of groups of ex-traders who are beginning to ‘meet up’ and form little groups to discuss both the current economic climate and job situation and to discuss trading opportunities and strategies.” He says there is anecdotal evidence of unofficial trading arcades springing up using people’s houses and coffee shops.
Richard Wiltshire, chief dealer foreign exchange at ETX Capital, says: “Although these people may have had big pay-offs from their employers they now have time on their hands and a desire to recreate the extra income they may have been used to from bonuses.” “They are using the betting as a nice little sideline. If they can actually make any money, that is.” But not everyone who signs up for an account can get one. Angus Campbell, head of sales at Capital Spreads, says: “The fact that they are not working might stop them getting an account. They will need to confirm they have enough money to cover their trades.” So will the addition of these fresh faces to spread betting change the culture of the business? Mr Buik says this is unlikely. “Markets remain hugely volatile and these traders will remain every bit as respectful as they were when trading the wholesale markets. Like the underlying and cash markets, volumes have dropped.” The situation has been exacerbated by the shortage of credit, he says. Putting up hard cash tends to concentrate the trader’s mind, he says. “But it will take at least two years before liquidity is back to previous levels.” Others such as Joshua Raymond, market strategist at City Index, predict that the trend towards professional traders will improve the image of spread betting. “The influx of wheeler-dealers and professional traders is great for the industry because it shows how highly it is now regarded as an alternative tax-efficient trading vehicle,” he says. “It is highly unlikely that a sudden influx of professional traders will cause spreads to change, however.” “If anything they can help to push the standards that providers offer even higher, to the levels that they are accustomed to.” The other important result from these new entrants will be more liquidity. David Jones, chief market strategist at IG Index, says: “If there continues to be an influx of business from all walks of life, it can only be good for all clients.” “What the financial crisis has done is made people in all walks of life more aware of the dayto-day volatility in markets and the opportunity to trade them.” Copyright The Financial Times Limited 2009 Make Money from Financial Spread Betting Discover the secrets of Making Money From Financial Spread Betting. Ex City Trader Vince Stanzione explains how to profit from trading markets less than 20 minutes a day. For free information go to www.fintrader.net