Spreadbetting companies are highly profitable. IG Group’s website hails 2016 as “another record year for IG”, boasting record pre-tax profit of £208m on revenue of £456m. Their accumulated pre-tax profits since 2011 are £948 million. They take no positions themselves – that money all comes from the pockets of their customers. IG is a very well run company, with skilled staff and very sophisticated trading and risk-management systems. Their trading platform deploys the latest technology and offers a professional-standard trading and charting front-end. They make it slick and easy for you to spend your money with them.

The response of the FCA to this successful industry which forces nobody to trade with it, and is highly competitive, is to attack it and threaten to regulate it even further to no obvious purpose. They have nothing to say about the HBOS scandal, involving predatory bankers stealing people’s livelihoods. The financial markets are aware that the UK stock and bond markets display evidence of unusual trading activity before the release of major economic statistics. They are not looking into that, nor do they have any plans to – despite this clear threat to the integrity of markets. They have no interest in the fund management industry, which mostly fails to beats its benchmark index, but charges huge fees to its captive pensions clients. I recently saw a client’s pension statement from a large fund manager, proudly trumpeting an annual percentage growth rate which underperformed the FTSE100 by 15%. No apology or explanation. Fees pocketed. FCA approved.

But back to spread betting. As with most assaults by regulators, their attack on IG and others is misconceived and will help nobody – least of all the punter. For a start, a number of these companies are located abroad – many in Cyprus, where regulation is mild and the FCA has no jurisdiction. The answer to the problem is not regulation, but instead education. I would say that, as I offer support and mentoring to traders and spreadbetters. But it is true. Trading financial and other products through IG et al should be approached with the same knowledge, rigour and discipline that any professional trader would deploy in the market. If you do not, you will be run over. IG hold your money, dictate where your stops are, generate the prices from the underlying instrument, vary the bid/ask spread according to market conditions and, most importantly, know what your position is. They hold a powerful advantage over their customers. Trading very volatile products with too little capital is unlikely to end well. I am guessing that many of IG’s customers deposit £250, start trading £/$ (cable) and lose their stake within a couple of days. You cannot approach this sort of trading as if you were backing a horse in the Grand National; it is important to get good advice and trade with adequate capital and a trading plan. People like me can help you do that; the FCA should promote education, rather than banning certain of the companies’ products. Encourage the punter to understand what he is doing and he is far more likely to enjoy what he or she is doing, and less likely to have his capital wiped out. It is a big ask of the FCA, but it would be the intelligent course of action.

Mark Owen-Lloyd,
Owen-Lloyd Futures
17.03.17

mark@owen-lloydfutures.com