Special Feature
There are a lot of misconceptions, myths and rumours surrounding the spread betting industry and here at Spreadbet Magazine we get asked numerous interesting questions from spreadbetters — both new and old alike — and so we thought it appropriate to put some of these questions to a true ‘insider’ within the world of spreadbetting. In this special feature we ask Capital Spreads CEO, Simon Denham, the most popular questions and receive answers in a refreshingly candid and honest manner. At the very least, we hope the answers below will shed some light on how the industry operates, and hopefully give readers something to think about in terms of their own trading approach and chances of success. Thank you for your time in granting this interview Simon, here are our questions for you: Q. What do the winning spread bettors do that the losing ones don’t? A. The one major thing that winning clients do not do is over-extend themselves with margin. If a company offers you 200:1 leverage, that does not mean that you should use it. Most professional hedge fund managers do not actually gear up more than a maximum 10 times on their equity. If you look at the major blow ups over time — Lehmans, the banking system, LTCM back in 1998 — the one thing they all had in common was an over extension of leverage Q. What advice would you give the novice spread bettor? A. The best bit of advice is to stick to just a few markets. Do not leap from product to product watching for anything and everything that moves. If you find yourself thinking “wow, pork bellies are volatile today, I must get involved” it is probably time to stop.
8 | www.financial-spread-betting.com | June 2012
Q. Which do you think is best for generating profits Fundamental or Technical analysis? A. An almost impossible question as fundamental analysis is, almost by definition, a long term game plan whereas technical analysis is generally confined to the shorter/medium term player. With technical trading, dealers must exert very precise controls (if the trade is going wrong then get out quick) a point to which, unfortunately, many traders fail to adhere. On the other hand, Fundamental trading can often be confused with ’my personal opinion‘ type of investing, which can lead to traders ‘falling in love’ with positions and often leads to the worst possible act of ‘doubling up a losing trade’. Q. Is it true that spread betting firms want clients to lose? A. In general, the revenue made by spread betting companies does come from client losses. In reality we are no different to any ‘market maker’ so our overall income can hardly come from anywhere else. But it is not true that we ‘want’ clients to lose. The fact is that, here at Capital Spreads, when the final trade analyses are made our revenue is largely made from the ‘spread’. This is the effective outcome of millions of trades over long periods of time, and so we have a vested interest in clients remaining clients and continuing to trade without any trading we make no revenue. Whilst we do hedge quite a bit, this will always be the ‘excess risk’ on our books… which means that our overall risk is still in the direction against our hedge book. So clients should stop obsessing with the fact that their counterparty wins when they lose. The same happens no matter what orum you trade on. Q. What is the typical life of a spreadbetting account? A. If the client lasts longer than 2 months, then the average with Capital Spreads is around 14 - 15 months. The first few months tend to separate out the ‘gung-ho merchants’ — those who risk everything every time they trade. Like tossing a coin... you may call it right three, four, even five times in a row, but eventually you will call it wrong. If you risk everything on each call, you will eventually get carried out. That is an immutable fact of trading — nobody ever gets it right all the time.