Financial-Spread-Betting: Hello David, thank you for agreeing to be interviewed. I think to start the interview; I would like you to introduce yourself to our readers.
David: I am David Jones and my job at IG Index is Chief Market Strategist. A significant part of my role is client education. We run a whole range of seminars both in the office, regionally and online designed to: explain spread betting in more depth; demonstrate the functionality of our trading platform PureDeal; go through some simple and more advanced trading strategies; look at how other markets such as FX and options work.
Financial-Spread-Betting: We could say that IG is the grand-daddy of spread betting with the company having been founded in 1974. Could you give us a little background of the company and how it all started?
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David: I think Grand-daddy would be a fairly apt description! We are the world's oldest and largest spread betting firm. In 1974 it was illegal for British citizens to trade gold for speculative purposes - our founder Stuart Wheeler hit upon the idea of allowing people to trade the gold price as an index. 'Investors Gold Index' was born, however the Bank of England refused to let Stuart call it this, so it quickly became IG Index.
Financial-Spread-Betting: How big is IG Index today and how many people do you employ?
David: We are fully listed on the London stock exchange with a market cap of £1.2 billion, that makes us one of the UK top 200 firms. We employ more than 600 people around the world.
Financial-Spread-Betting: How successful is the spread betting concept in Britain? How many customers do you have and how many people have spread betting accounts in the UK?
David: I think spread betting has grown enormously over the past five years or so in the UK. Up until then I think many viewed it as something of a niche product used only by market professionals. But since then we have seen it gain mass market appeal. With plenty of traders and investors appreciating the benefits and costs savings this form of trading can have over other methods - whether you are trading shares; futures; options; FX etc...
It is very difficult to speculate on the number of spread bettors in the UK, a number of 150,000 is commonly cited but with IG opening over 3,000 new accounts per month, it is growing all the time. Our unique program TradeSense, which allows tiny bet sizes to dip your toe in the water, along with extensive education is bringing people to the product who wouldn't have touched it 2 years ago so I don't know where we will be in 2 years time.
Financial-Spread-Betting: Do you have clients from outside the UK? Is it possible for expatriates to use a British spread-betting company? In which base currencies can clients spread bet?
David: We do have many clients from outside the UK but most of these trade using our contracts for difference product which is offered through IG Markets. Most UK clients choose to spread bet in pounds, but on many markets you can choose other currencies such as US Dollar, Australian Dollar, Euro etc. An expat could trade spread bets but would need to be aware that spread betting is considered only 'absolutely' tax-free in the UK and Ireland. Other jurisdictions could differ.
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Financial-Spread-Betting: What is the procedure for opening an account? How much do I need? Is there a minimum/maximum deposit?
David: It is very easy to open an account using the online form on the web page at www.igindex.co.uk. This should only take a few minutes to complete. There is no minimum deposit required to open an account - you do not need to fund it until you start trading. We have clients with accounts ranging from a few pounds to several million pounds.
Financial-Spread-Betting: IG Index is renowned for its ever increasing selection of market instruments - in fact scarcely a month goes that we don't hear IG adding new markets. How many markets are available to trade currently and how do your dealers manage to keep up with this ever expanding selection, how are you able to monitor and price all these markets - surely automation must play a key role here?
David: I think it is fair to say we offer one of the widest range of markets of all the firms in this business. If we just look at individual equities for example, there are around 7,000 different shares available to spread bet on - with our UK coverage going down to those with market cap of just £10 million which represents a huge proportion of the UK stock market.
Technology plays a key part in our business and this too is an area that sees new functionality added whether it is trailing stop losses; trading off charts; iPhone functionality.
Financial-Spread-Betting: What sort of stakes are your clients trading for? Where is the bulk of the action? What is the biggest stake/per point that you have ever accepted?
David: There's no straightforward answer to this one. When clients first start trading with us, the TradeSense programme allows them to start spread betting from as low as 10 per point which I think gives people a great opportunity to try out this way of trading with real money, but without risking vast amounts of cash. Client confidentiality restricts me from giving specific details of trades, but exposures in excess of £100 million are not unheard off.
Financial-Spread-Betting: What are the order types that are available to be placed? We have heard that you have recently launched trailing stops - this in itself is great news and something which we have been waiting to happen for years. Please explain how they work with an example.
David: There is a wide variety of orders that are available to clients, designed to make your trading life easier. First of all there are stop orders, traditionally used as stop losses to control risk on open positions. With us these can be set at the same time you place the trade or added after you have opened the position. But stop orders can also be used to open positions - where you want to buy if the market reaches a certain level higher than where it is now, or sell if it drops lower than where it is trading currently. Stop losses can also be attached to these sort of pending orders as well.
The other type of stop order we offer is the guaranteed stop loss. These can be particularly useful in volatile times where markets are subject to sharp moves, often 'gapping' on surprise news. These sort of gaps would mean that normal stop orders would be filled at a worse price than expected - guaranteed stops eliminate this risk altogether. Let's say you had a guaranteed stop on a share at 100p and it closed the previous day at 105p. Before the market opens the next day it announces a profit warning - and when the market opens for business it starts trading at 80p. Your guaranteed stop means you have exited the position at 100p - the gap due to the bad news has not affected you adversely.
Then there are limit orders - designed to get you into or out of a position at a level better than where the market is trading at currently. Let's assume you had a trade on the FTSE 100, and you had bought £2 per point. You wanted to exit and take profits if the market traded 100 points higher than where it is currently - this could be done by setting up a limit order to sell at that level. You can also use a limit order to automatically open a trade at a certain level. If we stick with the FTSE 100 as our example, let's say you wanted to buy in if the market drops 100 points from its current level. You could sit there and watch the market to see if that happens - but placing a limit order to buy at that specific level handles all of this for you - and gain you can place a stop loss on this trade to be come active if the limit order is triggered.
We launched trailing stops in April 2008 and these are designed so you do not have to constantly monitor your open positions to move your stop loss. You set the conditions for how you want your stop to be moved should the market move in your favour.
When you open your position you have to specify two things:
Stop distance - how far away from the opening level your Stop is placed.
Step size - the size of the increments by which the Stop can move.
Say you 'buy' our Daily FTSE 100 at 5802, choosing a Stop distance of 30 points and a Step size of 10 points. The stop initially sits 30 points behind your opening price, at 5772. Immediately the FTSE starts to rise. Very soon our closing price has risen to 5812 (10 points above your opening price) and your stop 'steps' up by 10 points to 5782 to re-establish a 30-point distance from the new market level.
The rally continues and by lunchtime the blue-chip index is trading at 5865 to sell. Your stop has therefore moved automatically five more times, so you are now sitting on a potential profit with your stop waiting 33 points behind at 5832.
A surprise leap in US unemployment figures suddenly sends stocks plummeting and within minutes the index is trading back down at 5810. Your trailing stop has kicked in and your position is closed 33 points below the recent high - at 5832, still well above your opening price of 5802.
Financial-Spread-Betting: IG always seems to be rolling out some very innovative solutions - and you have recently launched a new trading platform dubbed as PureDeal. Why have you chosen this name and how different is this platform compared to the original platform? What stands out about it?
David: The name PureDeal encapsulates what we feel is the ultimate dealing platform, but regardless of the many additional tools it gives the trader - it never loses sight of the purpose of a dealing platform - to execute client orders in the most efficient manner possible.
Financial-Spread-Betting: You develop and maintain your own trading technology completely in-house. What benefits and advantages does that unusual capability give both you and your clients - and what sort of challenges are you encountering to cater for the scale of business and meet the demands of an ever-increasing base of traders, after all in the last trading update we have heard that you were registering over 1,900 spread betting account per month - is there a limit on to how much deals the system can support at any one time? [we have heard that other spread betting providers might be experiencing scaling problems]
David: Well we currently have a set up that comfortably allows a 1000 trades a minute, but I think this illustrates the importance of being in control of your own technology. Once we feel the need for more capability - we just build it! This comes at great expense. However, we do not have to rely on a third party or a software supplier - we just do it ourselves. You would be amazed, and perhaps disappointed to know how few other firms actual have devised and own their dealing platform. Most of the "big names" rely on white labels or software solutions that they have no control over.
Financial-Spread-Betting: Please explain how you handle re-quotes and order confirmation times. If I place an order will the price be re-quoted? And fast markets?
David: Right - good question. However one that I hope IG can answer far more satisfactorily than any other competitor. We push out prices on 20,000 different products and time periods, and at the instant you press buy or sell we check two things. 1) By the time your order reaches us (measured in milliseconds) is that price still valid, i.e. is it within a certain distance from the price now. And 2) is the market good in the size you have requested. With regard to the first issue, if the market moves in your favour, we will pass this better price on to you, using our unique "price improvement" facility. If the price move is against you we will reject you. We will not manually re-quote - as we know which way you are looking to trade. With regards to point 2 - it all depends on the market. For example this will not happen in £500 on the FTSE in hours , but could happen out of hours.
Financial-Spread-Betting: What level of leverage do you offer as standard?
David: It varies from one market to another and it usually a factor of volatility. For example, on a major UK stock like Vodafone the initial deposit required is 5%, giving leverage of 20 to 1. If we looked at Wall Street Daily cash spread bet as an example of an index the leverage is 80 to 1.
Financial-Spread-Betting: What are your trading hours? Do you offer after-hours trading? Does this mean that one can trade the FTSE or Dow when the underlying markets are closed?
David: We are a 24-hour operation throughout the trading week. In addition there are markets that we make a price in even when the underlying exchange is closed - enabling clients to trade outside of market hours - indices like the FTSE 100 and the US indices would be example markets that can be traded with IG index around the clock, regardless of whether the underlying market is open or not.
Financial-Spread-Betting: 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? Also, please comment on your roll-over fee policy - will one pay the difference between selling a bet at the close of trading and buying it back the following morning?
David: Some products which have significant market spread, we do expire with spread. Were there is not a huge market spread , or some agreed settlement mechanism such as the EDSP in the case of the FTSE, we will expire without spread.
Equally some products have roll-over fees but it all depends on the product. As a general rule, rolling over a daily share will become less cost effective than the future after 20 days, a currency after 16 days, and a FTSE after a couple of days.
Financial-Spread-Betting: Do you offer bets on AIM stocks and smaller cap companies (up to which valuation)? What about securities not listed in your dealing platform - would it be possible for a client to call and get a quote for such an instrument for instance?
David: On UK stocks we quote prices down to a market capitalisation of £10 million so this will cover a wide range of AIM-listed and smaller cap shares. If you don't see the share and your keen to trade it - just give us a buzz!
Financial-Spread-Betting: Who is predominantly making up your customer base at this time? Also, what kind of people are your customers - i.e. do they tend to have City experience?
David: I don't think there is a typical spread betting client. Because of the popularity of this form of trading over the past few years we have a wide range of clients- for example those who have just traded using shares have switched to spread betting because of the savings such as no stamp duty or commission; then there are clients who want to try new markets such as currencies and see spread betting as a lower risk, lower cost way of getting involved in these markets.
Financial-Spread-Betting: Do you actually have clients who make a living at IG Index by index spread betting?
David: Absolutely. Obviously clients who lose money stop spread betting pretty quickly, but we have clients who have stayed with us all the way since 1974!
Financial-Spread-Betting: What are the minimum/maximum trade sizes? Do you notice any client tendencies when the trade sizes are raised in terms of client confidence/strategies?
David: As a new client you can enrol in our TradeSense programme which lets you start trading from as low as 10 per point. Once you complete this programme the minimum trade sizes are still low e.g. £1 per point on Wall Street; 50p per point on GBP/USD. The maximum trade size is really a function of how liquid the underlying market is - for example it is perfectly possible to trade the US indices at several thousand pounds per point.
Financial-Spread-Betting: Please describe some interesting strategies which your clients are using to spread bet the markets.
David: As there are many different types of clients, there are various strategies. Some use spread betting for day trading - just looking to trade quickly in and out of the more volatile markets such as indices and currencies for a few points. Others use spread betting for more position trading type strategies - maybe looking to identify and trade with a trend over days and weeks. Other clients focus exclusively on just one product type e.g. options.
Financial-Spread-Betting: 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?
David: Volatile markets are always popular so with the moves we have seen over the past few months in banking stocks; oil; gold have ensures these have remained active with clients - alongside the consitently popular markets such as stock indices and currencies.
Financial-Spread-Betting: What is growing faster at the retail level - Spread Betting or CFDs? And why?
David: For the UK, spread betting has historically had the edge because of its tax free status. As long as this remains then it will probably be the most popular product for retail clients - although for those who want functionality such as Direct Market Access there is always a strong argument for CFDs.
Financial-Spread-Betting: Who uses which - as far as Spread Betting and CFDs are concerned?
David: Again I don't think it is easy to fit clients into particular boxes. If you are going to hedge physical stock positions for example, CFDs make more sense because any losses made on the hedge can be offset against possible capital gains from a taxation point of view. But it is important to understand that these are not mutually exclusive ways of trading - we have plenty of clients who trade using CFDs and spread betting - they have both types of account.
Financial-Spread-Betting: Any other perks or account benefits which our readers should be aware of?
David: There are lots of benefits to having an account with IG Index. I think we have the most comprehensive offering in terms of education for clients - from our TradeSense introductory programme to a wide variety of seminars that clients can attend at our offices or view at their leisure over the internet.
Financial-Spread-Betting: How has the Markets in Financial Instruments Directive (MiFID) impacted your business? It has surely given you access to new markets in Europe but does it make it harder for clients to open an account?
David: Harder to open accounts for spread betting in the UK, but easier for CFDs In Europe but given that we already had a responsible account opening policy before MIFID, it hasn't made too great an impact.
Financial-Spread-Betting: Do you ever see the tax free advantage of spread betting disappearing? The chancellor has just rounded the tax figure to 18% on the 1st April - does this make spread betting as a tax-efficient trading tool less attractive?
David: Possibly, in comparison to CFDS, but spread betting has so many advantages over conventional trading, such as leverage and shorting, 24 hour markets and small bet sizes I don't think it's a huge issue.
Financial-Spread-Betting: Global Trader UK, another spread betting firm has recently gone bust - apparently one punter was enough to take them down! Obviously, we cannot compare Global Trader to IG in terms of market capitalisation but what measures do you have in place to prevent a few clients from having a material effect on your business. In other words how safe are client funds?
David: We closely monitor client's positions and put a strict limit on the % of any one firm we can own through hedging, and any one client can get exposure to. The Global trader situation is very specific to the risk management at Global Trader.
Financial-Spread-Betting: Recently most spread betting providers including IG have increased the trading margins for certain securities considerably due to the market volatility. In fact, for instance, MF Global raised margins on FTSE small-cap stocks to 90 per cent and margins for FTSE 250 stocks to 75 per cent. Most other spread betting providers including IG have increased the margins but to a much lesser extent. But doesn't requiring a 75% margin remove one of the key advantages of spread betting (i.e. trading on margin)? Is there a possibility that margins will again be increased in future and if so how much advance notice will clients get to cover the short-fall or wind down their positions.
David: It is not surprising that in volatile times margins have been increased, although the size of some of those increases have been surprising to those both inside and outside of the business and as you say some have been pushed to levels that almost negate the benefit of trading on margin. There is always the possibility that margin rates will be increased in the future whoever you trade with, but this is a reflection of what is going on in the underlying market and is done to protect both clients and the spread betting company. IG Index increased margins on banking stocks in early 2008 to reflect the increased volatility in that sector but most of these were only increased by a small amount and the overwhelming majority of margin rates on most markets stayed unchanged.
Financial-Spread-Betting: Do you operate any other sites besides IG Index?
David: In the UK we have IG Markets which is the CFD side of the business. We also have several international sites such as www.igmarkets.com relating to our global offices. We also run www.igsport.com, www.binarybet.com and www.extrabet.com
Financial-Spread-Betting: Do you organize any training seminars or meetings which our readers could attend? Do you have any special sign-up trade offers for our readers who decide to go ahead and open an account at IG Index
David: We regularly run an 'Introduction to Spread Betting and PureDeal' seminar that is open to non-clients. This is held at our office in London, usually in the evening, and also as an online seminar that you can access live from your PC or watch at your leisure by going to our website and visiting the Education section. Once you become a client there are then a wide range of seminars available to attend free of charge that explain more about spread betting, the PureDeal trading platform, trading strategies and technical analysis, and other markets such as foreign exchange.
Financial-Spread-Betting: Have you any parting words for our readers?
David: Trading financial markets is not easy at the best of times, so it makes sense to put as many things in your favour as you possibly can. Whether you are new to financial markets, or a veteran the worlds largest spread betting firm IG Index offers the Market leading dealing platform with thousands of products, tight spreads, helpful account managers, unique training programs and services that guarantee that you make the best possible start when you click to trade.
Financial-Spread-Betting: Thank you for your insight and time, Mr Jones
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