Best Thread CMC Markets owner answers your questions

[PC at CMC Markets]

Hi Benny Dorm (love your blog name)

Thanks for blogging. As a bookmaker for financial spread betting technically all profits and losses are against us. In reality because our clients are trading in liquid financial products we can and do hedge risk in the under line markets. We also have to do this because of capital adequacy requirements and we are limited on the amount of exposures we can carry. This can vary depending on client bets, fluctuations in exchange rates and overseas business. This applies to all spread bet companies not just us.
I can tell you that we cannot carry all clients positions even if we wanted to.

Risk to us is basically one book of business, so we can combine our spread bet risk with our cfd risk no matter what country that risk is generated. so if some body spread bets the euro/dollar in Uk and somebody trades cfd in Australia on euro/dollar we can net off the trades or combine them as part of our risk position. From the UK regulators point of view risk is risk no matter where it comes from. In some countries there are local capital requirements so we have to take that into account as well. So we combine our cfd risk with our spread bet risk and we try to net off as many trades as possible to keep as much of the spread as we can. we portfolio hedge our share book and try to use our clients index positions to off set this as much as possible. It is not rocket science but what I can tell you is that we are hedging between 80 to 90 percent of our business in the under line markets.

we do not stop hunt and through next generation technology all bets are executed electronically, with out dealer intervention and without dealer referral across precision pricing. stops and limits are executed electronically against the electronic price we are quoting. dealers do not execute stops and limits on next gen. any time any of you bloggers feels that you have been stopped out or missed a limit let me know and I will investigate it myself personally.

as for your golf that is bold statement but if you are playing on links course and we play west course of Wentworth then that by your own words makes my course easier so therefore I will expect you to give me at least three shots. after all your handicap is technically better than mine due to where you play. so happy to accept the challenge and looking forward to at least three shots.

cheers pc

Hello Peter,

I was a client of CMC's for some years but got fed up being re-quoted and, it appeared, stop-hunted to death.

As I am way past my CGT exemption and also that of my Mrs I was looking at SB's again. Could you please explain to me how CMC make their money? I am not bothered particularly about interest on deposits etc but more on how CMC make money from their clients. Obviously, when a client loses money it goes to you, the bookie. However, you said in one of your replies that CMC wanted clients to make money: so how does it work exactly?

Can we be clear that your company will not stop-hunt?

Thanks.

PS I play off 2 on a links course - not some cissy parkland course protected from the elements by trees! If you want a sound thrashing then I would be happy to play the West anytime! (Cough!) :cheesy:

 

[PC at CMC Markets]

Hi Uchiki

Thanks for your blog and I think it is good idea to consider spread betting for the tax breaks. I thoroughly recommend next gen technology and executing spread bets with us.

finance is important issue and rather than type a massive reply to your blog I prefer to get my head of CMT to call your or your can call her to discuss. Her name is Michelle on 0207 170 8200

sorry not trying to fob you off but I get headache just thinking about finance. you can blog the response from Michelle here.

thanks Peter

Hi Peter,

I'm just starting to look at sb (previously using interactivebrokers and a separate ISA provider for trading stocks).
I liked the sound of the daily finance charge being calculated on net borrowings. I've opened a demo account with CMC (along with a few other sb's - you're on my shortlist so far), and I thought I'd double check my understanding with your Live Help.

Starting out, I'd be happy if I could use your platform as if I was buying the stocks outright ie no margin, so seeing your comments was a plus in CMC's favour. The key advantage I'm looking for is tax free trading.

My question
(summarising from your blog....) overnight financing charges are only applied on net borrowings ie if you held a position with a notional value of 20k GBP with 2k margin, but also with a further 18k GBP cash in the account, then no overnight financing charge would be applied. Could you confirm I've understood this correctly?

Disappointingly, the answer was
For spread betting you would be charged overnight financing on the unfunded portion of the trade. So in your example above you would be charged interest on the 18k GBP of the trade that you have not provided margin for.
Depending on the type of instrument you are trading you will be charged different rates

If my understanding was correct, would this also apply to stocks denominated in non-GBP currency if my cash balance was in GBP?

Could you confirm.
Thanks,


My trades would be swing trades with stops and targets. I'm happy with your order entry and as long as the spreads are consistent, they'll likely be OK.
I've had trouble drawing on your charts, but I'd only use them to fill gaps in the data feeds I have for Ensign. eg Moving cursor when trying to draw a trendline seems to expand chart, rather than draw trendline on a chart that's staying still.
I like the fact that you provide spread charts.
Be nice if you provided a few other drawing tools like pitchforks.
I really need to see what additional stocks you provide when you release them.

 

[PC at CMC Markets]

dear pster

Thanks for your blog. I cannot comment on oanda because I do not know their terms however, I do know they do not offer spread betting they are forex shop. Because of the tax issues on spread betting there are all sorts of issues regarding finance eg. finance received on a bet could be construed as interest income and is taxable. so it is not right comparison to compare spread bet with normal forex service.
It is important to remember that spread betting, is betting, you are betting on the markets not investing in the markets so different terms have to apply (not our terms but product terms).
hope that helps. thanks Peter

So, I read the section of your pdf. And you seem to charge irrespective of whether someone is long or short. Is that correct?

Here is what oanda says in their explanation of rollover:
When trading in a margin account, you receive interest on your long positions, while paying interest on short positions

I'm new to all of this, so bear with me. But it seems that you are charging more than oanda? Is that correct?

 

[PC at CMC Markets]

Dear International man of mystery

Well bright future I agree with because the spread bet community can now trade (with Next gen) without human intervention. So if you think that is brighter future so do I.

yes we have fixed spreads and market tracking. So what happens during volatile periods.
1. most of our products are liquid
2. we have multiple suppliers on forex and commodities
3. index business is very liquid and we market track during volatile periods.

in effect our job is to try and aggregate the various prices we have access to during volatile periods and smooth out the price for our clients. It is not difficult really and fractional pricing allows us to do this more accurately and to deliver more accurate pricing.

hope that helps tks pc

Yes I agree, we are looking at a bright future for SB. According to you, CMC next-gen offers complete MiFID compliance as I see it. Spreads, just have to come in line then we've got everything.
Sounds really good on paper. But how do you deal with fixed spread prior to news releases? I haven't noticed variable spreads yet. How do you deal with network latency? Could there be slippage without a gap in the market? Is fractions of a point such a good deal after all? Do you have complete transparency in how you derive your prices (included fractions)?

 

[Luc.Chase]

Hi Benny Dorm (love your blog name)

Thanks for blogging. As a bookmaker for financial spread betting technically all profits and losses are against us. In reality because our clients are trading in liquid financial products we can and do hedge risk in the under line markets. We also have to do this because of capital adequacy requirements and we are limited on the amount of exposures we can carry. This can vary depending on client bets, fluctuations in exchange rates and overseas business. This applies to all spread bet companies not just us.
I can tell you that we cannot carry all clients positions even if we wanted to.

Risk to us is basically one book of business, so we can combine our spread bet risk with our cfd risk no matter what country that risk is generated. so if some body spread bets the euro/dollar in Uk and somebody trades cfd in Australia on euro/dollar we can net off the trades or combine them as part of our risk position. From the UK regulators point of view risk is risk no matter where it comes from. In some countries there are local capital requirements so we have to take that into account as well. So we combine our cfd risk with our spread bet risk and we try to net off as many trades as possible to keep as much of the spread as we can. we portfolio hedge our share book and try to use our clients index positions to off set this as much as possible. It is not rocket science but what I can tell you is that we are hedging between 80 to 90 percent of our business in the under line markets.

we do not stop hunt and through next generation technology all bets are executed electronically, with out dealer intervention and without dealer referral across precision pricing. stops and limits are executed electronically against the electronic price we are quoting. dealers do not execute stops and limits on next gen. any time any of you bloggers feels that you have been stopped out or missed a limit let me know and I will investigate it myself personally.

as for your golf that is bold statement but if you are playing on links course and we play west course of Wentworth then that by your own words makes my course easier so therefore I will expect you to give me at least three shots. after all your handicap is technically better than mine due to where you play. so happy to accept the challenge and looking forward to at least three shots.

cheers pc

Peter,
when I used to bet with CMC I remember at least two odd gaps in the price of for example silver where in the wee hours of the morning the price made a very large movement ( for just a second and just enough to stop me out), and which did not happen in the underlying market. Luckily CMC refunded the loss on those bets, without much hassle. But what I would like to know is, when CMC hedge a bet on the underlying market, can that trigger a sudden correction in the price quoted by CMC?

 

[PC at CMC Markets]

Hi Luc

the markets are bigger than CMC and we are all swimming with the tide. When we execute a stop it is because the market has gone to that level. our prices are the market prices and we cannot trigger a sudden price move if the under line market is not there. the market is the market. not sure what happened in your case but glad to see that the team corrected it. some times things are outside of our control. we have to go with the markets.

tks pc

Peter,
when I used to bet with CMC I remember at least two odd gaps in the price of for example silver where in the wee hours of the morning the price made a very large movement ( for just a second and just enough to stop me out), and which did not happen in the underlying market. Luckily CMC refunded the loss on those bets, without much hassle. But what I would like to know is, when CMC hedge a bet on the underlying market, can that trigger a sudden correction in the price quoted by CMC?

 

[Benny Dorm]

Hi Benny Dorm (love your blog name)


as for your golf that is bold statement but if you are playing on links course and we play west course of Wentworth then that by your own words makes my course easier so therefore I will expect you to give me at least three shots. after all your handicap is technically better than mine due to where you play. so happy to accept the challenge and looking forward to at least three shots.

cheers pc

Thanks for your reply Peter. It makes it clear how you guys operate.

More importantly.....

Bandit! THREE shots? Tsk!

I was kidding about the golf course. I had the pleasure of playing the East a few years ago and it was a delight. We couldn't get on the West but it seems a bit of a monster! If your up north and want a game on a links course just email me and I'll be delighted to take you round.

 

[PC at CMC Markets]

Hi Benny Dorm
Happy to get you on West Course if you want to play it. can arrange that for you no problem.
My dad's family are from Newcastle so know the North very well. love going up there. glad you like the way we operate, does that mean you will open account

cheers pc

Thanks for your reply Peter. It makes it clear how you guys operate.

More importantly.....

Bandit! THREE shots? Tsk!

I was kidding about the golf course. I had the pleasure of playing the East a few years ago and it was a delight. We couldn't get on the West but it seems a bit of a monster! If your up north and want a game on a links course just email me and I'll be delighted to take you round.

 

[Benny Dorm]

Used to live near Newcastle now 100 miles north. Loads of links from which to choose!

I have opened a demo account!

 

[PC at CMC Markets]

Hi Benny and the links..

Didn't think you could get much farther North than Newcastle. You must be in Sweden. ha ha Sure there are loads of links but bit cold for me. Although the country side up there is simply stunning and I am sure there are some very pretty golf courses.

Thanks for opening demo let me know what you think.
cheers pc

Used to live near Newcastle now 100 miles north. Loads of links from which to choose!

I have opened a demo account!

 

[gle101]

Dear International man of mystery

Well bright future I agree with because the spread bet community can now trade (with Next gen) without human intervention. So if you think that is brighter future so do I.

yes we have fixed spreads and market tracking. So what happens during volatile periods.
1. most of our products are liquid
2. we have multiple suppliers on forex and commodities
3. index business is very liquid and we market track during volatile periods.

in effect our job is to try and aggregate the various prices we have access to during volatile periods and smooth out the price for our clients. It is not difficult really and fractional pricing allows us to do this more accurately and to deliver more accurate pricing.

hope that helps tks pc

That was a mysterious answer to specific questions.

 

[Ross Spur]

Could you please explain to me how CMC make their money? I am not bothered particularly about interest on deposits etc but more on how CMC make money from their clients. Obviously, when a client loses money it goes to you, the bookie. However, you said in one of your replies that CMC wanted clients to make money: so how does it work exactly?

Surley that's simple? Client loss = SB gain. Client win = SB loss, if not hedged. About 80% of bets result in punters losing, and most losses are bigger than the wins, so bottom line is vast profits for SB companies. Wish I'd thought of it first.

 

[Benny Dorm]

Yes, it is. It's always good to hear it from the chief, though. It is also good to hear that there will be no stop-hunting don't you think?

 

[Ross Spur]

Yes, it is. It's always good to hear it from the chief, though. It is also good to hear that there will be no stop-hunting don't you think?

I don't think stop-hunting happens much in SB, anyway. They just don't need to resort to underhand tactics. Punters lose without any assistance.

 

[pster]

Peter, on your system, for candlestick charts, can you sometimes have two dashes in a row when the market is dead? Like this: _ _

 

[PC at CMC Markets]

hi Gle101
I think everybody has the same type of spreads fixed or variable.
if you have fixed spreads and the under line market widens then fixed spreads widen. variable spreads do the same reflecting the under line markets.
our fixed spreads will reflect the markets. if market goes from one pip to three pips because it is volatile then doesnt matter if you have fixed or variable the spreads will go to three pips.

pc

That was a mysterious answer to specific questions.

 

[PC at CMC Markets]

Hi Ross
Stop hunting in this company definitely doesnt happen not for the reason you state but because
1. we dont do it
2. there is too much market transparency, especially since the internet.
3. we have constant two way business and too much internal liquidity to worry about stop hunting
4. not all punters lose. just look at share prices over last eighteen months they have just gone up. stock markets are near to record highs. lots of spread bet share traders making money.
thanks pc

I don't think stop-hunting happens much in SB, anyway. They just don't need to resort to underhand tactics. Punters lose without any assistance.

 

[PC at CMC Markets]

hi pster
good point and it is on its way. the fix is in production now and I think we are weeks away not months.

thanks for blogging
peter

Peter, on your system, for candlestick charts, can you sometimes have two dashes in a row when the market is dead? Like this: _ _

 

[PC at CMC Markets]

Morning Benny and the links
definitely no stop hunting around here. see my response to Ross above.
Big match tonight. My team Arsenal take on the mighty Ipswich away from home. don't think my finger nails will stand it. ha ha

cheers pc

Yes, it is. It's always good to hear it from the chief, though. It is also good to hear that there will be no stop-hunting don't you think?

 

[PC at CMC Markets]

Hi Ross
I wish life was that simple. You forgot to mention capital adequacy requirements, narrow spreads, snipers, precision pricing, pricing transparency, regulations, treating customers fairly, cost of developing real time trading systems, customer 24 hour support, 24 hour dealing but apart from that it is all plain sailing.

pc

Surley that's simple? Client loss = SB gain. Client win = SB loss, if not hedged. About 80% of bets result in punters losing, and most losses are bigger than the wins, so bottom line is vast profits for SB companies. Wish I'd thought of it first.