Paresh Kiri_A4 Temp 16/05/2011 15:18 Page 11
Spread Betting Evolves Ultimately there are two main types of investor: Institutions – who think of wonderful ways to create further products that they can sell to other institutions and private clients and of course Private clients – Now these are the most impressionable. They look and listen and read about how much money the institutions have made and then think they must know what they are doing. Really?? Things are changing – as the internet educates, informs and also confuses people more on who really does know how to make money in the financial markets. Who ever invented the CDO’s – the product developed probably by some PHD student who told his boss that a really cool way to off load our mortgage risk is to package it into a bond and call it a CDO - A collateralized debt obligation, or a bunch of debts that pay an average interest rate per month to us. But this is a debt instrument (a bond) that is backed by a pool of other bonds… a house built from cards you may say, as the ratings agencies like Moody’s had little idea on how really to rate them… and the market in them were controlled only by the institutions. What has all this got to do with Spread Betting: Well, what is implied from the title – Betting implies gambling… Surely that means that you can lose money. Well Lehman Brothers and Northern Rock paid the high price for seeing the world through rose tinted glasses and assuming the world will always pay its mortgage debt, and on time and forever. I will not go into the detail but there must come a point where all the products’ that can be invented must have been invented in financial services. The skill then for the firm is not to create new products that help financial organisations to crumble like we saw in 2008, but require skills in how well do we really know the markets, that help us all! Spread Betting – probably better termed Spread Trading is a product that has helped many private clients learn how to manage their own portfolios better. A bit of education is all that was needed. Motivations normally lead to errors! What do we mean by this? Basically Institutions have to find new products to continually fan an ever increasing pool of funds that pour in from pension funds and insurance companies. Sometimes those products create a level of risk that needs to be quantified. With betting – the risk is always quantified by how much you have staked at the table… You can always walk away from the table.
Paresh Kiri, Investment Manager at Sterling Markets
The motivation for staff is they cannot just walk away they are beholden. They are paid to perform a function… they have no more advantages anymore … With tight regulations and increasing presence of a watchdog is limiting their performance. This is fantastic news for us private clients… We have no such restrictions and so ours is a purer motivation, just to add that little extra to the pay packet that we may enjoy a day out with the family. Of course a lot more can be made, but unlike a casino our losses are not limited to the stake in spread trading, they can be much greater.
So simply put – Private Clients have now the upper hand and all thanks to complete transparency. The reasons to choose spread trading and the common misconceptions can be summarised as: l Simple access to on line platform l In UK at present the tax rules allow us to make profits that are tax free l If we know how to make money on spread trading then maybe some of that capital can be used to increase my actual portfolio. l Private clients have an advantage that institutions do not – Flexibility and no-one looking over their shoulder l Access to global markets all on one platform It can be argued that if you want to trade short term then you are in effect a market maker, a LIFFE or CBOT trader, as there is no difference to the real motivation – PROFIT. The time for the little man has come and we should embrace all the tools to maximise our knowledge and expertise Spread Trading has evolved, as means that brings the global markets that much closer to you… the internet now allows you to pit your skills against the professional where only 10% are really good. Do not be fooled by titles – trust your judgement it’s probably better placed!
Asian Voice & Gujarat Samachar - 2011
Finance Banking Insurance (FBI)