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Spread Betting Guide Finding the right spread betting broker Contents Finding the right spread betting company 2 A financial spread betting shopping list 3 Spread betting education and trading platforms 4 Mobile Trading 5 Minimum account opening level 6 Shopping around on price 7 Market range 8 How to do they make their money? 10 What about CFDs? 14 What about advisory spread betting services? 15 thearmchairtrader.com Finding the right spread betting company Choosing the right spread betting company can be a bewildering process. Many firms are active advertisers at the moment, and are buying spaces in prominent locations, including billboards of major railway stations, in the business sections of national newspapers and online. At a time when many financial services companies are struggling, spread betting firms are continuing to make money. There are now more companies offering spread betting services than ever before. The barriers to entry are lower, while the big, established firms are seeking ways to innovate, and to provide products and services that others cannot afford to deliver. In addition, the overall cost of trading is coming down as more firms seek to compete on price. For the new trader, this is a great time to be starting out, as many companies will bend over backwards to win your business. Finally, many other companies are partnering with the big spread betting firms to offer ‘white labelled’ spread betting. These are usually banks and brokerages who don’t want to go through the cost and effort of establishing their own spread betting operation, but are attracted by the idea of taking a slice of the profits. They can partner with a spread betting company that will offer them its pricing and execution facilities in exchange for access to their customer base. Many non-financial companies, like bookies and even newspapers, are jumping on this bandwagon. For the consumer, as ever, it is important to read the small print. If your stock broker suddenly announces it can now offer you a spread betting account, this probably means it has signed a partnership agreement. The money in your account may – or may not – be held by the spread betting company, but it will be important to understand who your ultimate commercial arrangement is with, who is executing your trades and whose prices you are trading on. In this chapter we look at how to make sense of the sometimes bewildering array of companies and products on offer. There are some independent websites that can help you with this, some of which I have listed at the back of this book, but in particular sites like The Armchair Trader (www.thearmchairtrader.com) can be helpful in sorting out who offers what. thearmchairtrader.com A financial spread betting shopping list Competition is hot out there right now, but not all spread betting companies offer the same suite of products and services. It is fair to say that some are better positioned to deal with the beginner than others. For starters, some of the bigger companies have had the resources to invest in substantial educational programmes, which include colourful trading guides, videos, seminars and access to trading coaches who can answer your questions. These are usually offered free, and I would encourage you to take advantage of them. Many spread betting companies use different trading ‘platforms’ – the system you use to place your trades, follow prices, even do some analysis on. These are getting more sophisticated all the time, so it is important that you familiarise yourself with a firm’s trading platform before you go risking money on it. Much is made of these platforms, and indeed they can cost a considerable amount of time and money to build from scratch, so their creators can feel justly proud of them. But trading platforms are not the be-all and end-all. A poorly designed trading interface, however, can really cripple your ability to trade financial markets online. Spread betting companies will be able to take you through the process of familiarising yourself properly with the way their trading platform works, and it is essential that you do get to grips with it, or costly mistakes can occur later. thearmchairtrader.com Spread betting education and trading platforms A company’s education programme will bring you up to speed not only on spread betting, but also on important aspects of it, like proper risk management. While it is great that the larger firms have taken this approach, it is also important to point out that they will never paint an entirely complete picture for you. The Financial Conduct Authority has, over the years, subtly prodded spread betting companies to highlight the risks involved in trading as an integral part of their marketing literature, and you should see risk warnings splattered all over their websites and advertisements. But, it is still worth getting an independent view and indeed, try spread betting without risking your money by using a demo account. Free education is still, however, free education, and should be taken advantage of. Some very experienced former traders now work as analysts with the spread betting companies and regularly host free seminars, so it is worth keeping up to speed with what’s on, both online and around the country. These events can also be a great opportunity to meet other traders and exchange notes. Most spread betting companies now offer a demo account. This is often a fully functioning account with live prices that you can use to practice on, with a fictional pot of money - typically around £10,000. It has the advantage of letting you trade live, up-to-date market prices rather than delayed ones. Sometimes demo accounts will be time limited, prompting you to ‘upgrade’ to a real account, and sometimes they will be open-ended, ceasing only when you ‘upgrade’ or cease to log-in for some time. These type of demo accounts are good news for the beginner, because it means you can access a fully featured trading platform without putting up any cash. It also lets you try out the trading interface and test its functionality to see if you like it. I would not choose a firm based purely on whether its platform looks aesthetically pleasing on your computer screen, however, or makes a nice noise when you hit your limit order! Some firms still require that an element of their trading software be downloaded onto your computer, even for a demo account. This can be a pain, particularly if you are on the move a lot, sometimes trade from the office, or use more than one computer. However, most spread betting platforms do now have some kind of browser-based functionality, giving you the ability to trade from almost any device with internet capability. They do, however, still need a decent broadband connection if you’re going to take full advantage of them. Mobile Devices With the continued development of mobile phone trading, it is now easier than ever to trade from a mobile device. Certainly, the major brands in this space have very capable Apple and Android trading apps which give you pricing data, charts and instant trade capability right from your handset. Obviously, there are limitations in terms of where you can do this (100 per cent 3G/4G mobile phone network coverage in the UK is still something we all dream of), but essentially, you can now get all the functionality of a desktop trading environment can on your mobile phone, giving you the ability to execute trades from anywhere and everywhere, subject to a suitable connection. Apps are often updated more frequently than desktop trading clients too, not only to improve security and bug fixed but also because a large percentage of trading actually takes place from mobile devices, and it seems that, for the UK at least, mobile trading is fast becoming one of the spread bettors essential tools. thearmchairtrader.com Minimum account opening level Next, look at how much firms are asking as a minimum account opening sum. This still varies quite widely. Some companies are not only set up to cater to novice traders, they are also equipped to service thousands of retail clients, even those only prepared to stake a maximum of a few hundred pounds. Others will only be interested in the big money traders. It is interesting to see the wide range of trades the dealing floor of a big firm will field in an average morning, with trades of a few pounds a point and others of hundreds of pounds a point being executed on the same market within seconds of each other. Minimum investment seems to be coming down all the time, however, as competition increases, and few firms will still insist on seeing £1,000 up front. Related to this is the amount of money required to finance trades – i.e. the margin percentage. How much of the overall trade will the firm finance? This is partly dictated by that company’s own capital situation. The richer they’re feeling, the lower their margin rates will be. In the next chapter we will look more closely at the implication of margin rates, but suffice to say a low rate of margin is not always a good thing, particularly if you are a beginner. thearmchairtrader.com Shopping around on price When spread betting firms compete on price – and they are increasingly having to do this – they compete on the size of their spreads. In Chapter 1, we looked at how the spread is the difference between the price you buy at and the price you sell at.
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