Best Thread CMC Markets owner answers your questions

[Ross Spur]

Hi Ross,

This is just the kind of thing I'm talking about. On the face of it, what you say might make sense. Particularly the very low / zero spreads guys - how do they hedge in the underlying market?

It's not necessary (feasible?) to hedge everyone - they could be taking a global view and trying to be flat overall. They might not bother - most punters lose after all. They might do something in between.

The key thing is, how do they view winners, and what do they do about them? Are they a cost of doing business, simply to be endured? Are they taken care of (hedged, not whacked ) individually? Are they put off using nefarious and dubious practices?

The point is, we have the boss, founder and still pretty much complete owner of an SB company here. It will be fascinating to see his response to these well-worn concerns.

Hopefully, his answers will be encouraging and reassuring ones, and he will see this as an excellent marketing opportunity.

As you say, they really only need to hedge once they reach a certain level of risk. I'd guess that hardly anyone makes consistent and large profits with SB. If they're doing it with very short-term trades, this could pose a problem for risk management and therefore be a thorn in the side of any SB. Those who prove successful at long-term trades would actually be an asset, though, because they can be hedged or even shadowed.

 

[PC at CMC Markets]

Hi Jimmy,

Have a feeling this will be a long answer so here goes.

Firstly, if you look at the flows of a spread bet company the major flows of trades are in non marketable amounts, if somebody does a £1 pp on the UK 100 then we cannot hedge that even if we wanted to so we have no choice. we have to aggregate. If we aggregate then there is no guarantee we will make on that aggregated position. However, against that aggregated position we have resting orders that can off set our losses and cap our profits so we can build our risk profile around the aggregated position, against our resting stops and limits and our real time trading clients.

As the markets move the aggregated position will just keep getting bigger and smaller and eventually once it gets to size we can and do hedge it. It is impossible for us to hedge every individual trade primarily because of the size.

If we have a big winning client and lets say he is seller of UK 100 and our aggregated position is made up of buyers then we use the big winning client to hedge our aggregated position. if the big winning client is going the same way as our aggregated position we simply dma the trade or cover it in the markets.

I do not know how some of the smaller companies operate and I have no interest. What we do is operate a flow model. The bigger the flows the less the risk, the more our positions get netted off naturally and the more resting orders we get to offset any upside or down side.

amongst our aggregated positions we have winning clients and we have losing clients. we do not care, we really only care about our aggregated positions, our risk reward against the markets and against our resting orders.

I can tell you that two days ago we handled around 200,000 orders in one day resulting in around 160,000 trades. Most of those trades were non marketable amounts. but we love the flows and being an ex forex trader to me all I want are flows, flows and more flows.
I am one of the few ex bank traders that is running a spread bet company and that is how I have set this company up.

If you ask me do I want winning clients or losing clients, I will answer you honestly.
Every time i would want WINNING clients. Why? because I can manage their flows to make money, I could buy positions ahead of the flows, I can manage the resting orders and if clients make money then they trade more and more and more.

That is the truth of it all. If you look at it we are offering our clients an outstanding service. We supply,
1. 0.7 spreads on non-marketable amounts
2. low margins
3. real time trading software,
4. real time back office,
5. real time charts, news, 24 hour access.

By managing flows we need automated execution, non dealer intervention and aggregation software to measure var and resting orders. A lot of our risk management is automatic.

At the end of the day this company is run by an ex trader from a banking back ground.
The more flow we get the more money we make and at the end of the day so long as that aggregated position keeps moving up and down we can make our money. Do I care whether our clients win or lose. Yes I prefer them to win. see above.

At the end of the day, does it really matter to you as a client what the sb company does with your flows. you are taking on the markets, we are delivering tight real time spreads, automated execution. so long as you are happy with that, then concentrate on the markets and make money.

remember spread betting is a leveraged product, you should understand the risk before trading.
thanks pc

Good morning Mr Cruddas.

This is an old one (and might possibly have been done already on this thread, my apologies if so). However, we're fortunate to have a very actively-engaged Big Cheese of an SB company here at the moment and this seems like an excellent opportunity to get something cleared up (or at least get you to go on the record).

Winners! What do you say, and what do you do?

If someone is winning in a serious way (for example, trading professionally through CMC, averaging £10 or £20K or more a month profit), do you like them? Do you hate and fear them? Are you indifferent?

And what would you do about it? Do you just hedge out your overall risk, or would someone like that be hedged individually / shadowed / put in a Chicago overcoat?

In other words, would this person be hurting your profitability? And if so, what would you do about it?

Your reply might hopefully help to clear up one of the major suspicions about spread betting companies, which is that they don't want you to win.

 

[PC at CMC Markets]

hi jimmy

I do not agree, I suppose it also depends on what products you are trading.

pc

One final thing, then I'll shut up.

I would love to go back to spread betting - the simplicity, the tax free status, the granularity etc etc. The higher costs in terms of wider spreads would be well worth it in my opinion.

But I simply do not have the confidence in them to allow me to do this. I'm not talking about CMC here, but rather this lack of confidence comes from the fact that there is potentially a huge conflict of interest between provider (any SB provider) and punter.

That conflict is not there with a futures broker.

 

[Jimmy Lulz]

hi jimmy

I do not agree, I suppose it also depends on what products you are trading.

pc

Fair enough. I was careful to say "potential" conflict of interest.

Or did you mean there could be a conflict with a futures broker as well?

Thank you for the very in depth post above. The input to this thread is extraordinary, frankly.

 

[scose-no-doubt]

So do you make money by locking in profit after the aggregation or from the spread?

 

[PC at CMC Markets]

hi Jimmy,

I meant that for this firm, don't know about others, there is no conflict whether you buy or sell whether you are winner or loser.
Our execution engine is configured to quote blindly the market price every time and we automate execution. Like I said in my thread, we want your flows.

I think it is also important to mention that as a client, you should pay a spread when you trade, because if you are paying a spread, we will always quote you off the market price. if you give us a trade that does not offset our position we can hedge it instantly in the markets. If you are not paying a spread then the price quoted may be based off the sb firm position. This might suit you but at the end of the day as a trading client you should be trading the markets not the sb firm's position.

I think if you are happy with the spreads and the execution policy of a sb firm then the tax savings should out weight the advantages of trading futures. dont forget you get fast markets with futures execution and inconsistent fills as well.

The above is personal view, you should understand the risks of spread betting before you trade.

tks for your posting. good luck with your trading.

remember trade the markets not the spreads

pc

Fair enough. I was careful to say "potential" conflict of interest.

Or did you mean there could be a conflict with a futures broker as well?

Thank you for the very in depth post above. The input to this thread is extraordinary, frankly.

 

[PC at CMC Markets]

hi scose,

we make money from aggregated positions, by collecting net client spreads (where possible), matching client flows and from positional flows, resting orders and by locking in profits and minimising losses.
It aint rocket science, well not to me anyway, being ex forex trader. It is a flow model and you need to feed the monster to keep it moving. That is why we reduced spreads to attract flows.
spread betting is leveraged product you should understand the risks of trading before you trade.
tks pc

So do you make money by locking in profit after the aggregation or from the spread?

 

[scose-no-doubt]

Sounds like money for old rope

 

[PC at CMC Markets]

hi scose,

I wished it was that easy but it is not.
You need massive investment in systems and technology and real time execution and hedging and pricing. Don't forget at the end of the day it is about offering clients a great service with institutional spreads on non institutional amounts. To do that you need massive investment inwards so you can deliver a great service outwards, to clients.
It is like the engine of a car. The car can look pretty but it is the engine that gets you to where you want to go.

I think some times SB clients forget where we are in this industry. The spreads you can get now and the quality of execution is way above what you saw two three years ago.

I believe we are taking it to another level.

tks pc

Sounds like money for old rope

 

[scose-no-doubt]

hi scose,

You need massive investment in systems and technology and real time execution and hedging and pricing

Yeh but that tech is already out there. You just need to tweak it I imagine. Don't try kid a kidder, me old china.

I've always assumed you lot did something like that anyway

I'll stop now anyway as I have my answers.

 

[Mr Soros]

Hello PC,

I have a CMC CFD account and I tried to open another two accounts and deposit more funds to trade different markets. I was told that I cannot open more than one account but I could open a spreadbet account.

Why have you stopped the subaccount facility and will you be reintroducing it again in the future?

Thank you

 

[PC at CMC Markets]

hi Mr Soros,

Don't know to be honest. I will find out and get back to you
tks pc

Hello PC,

I have a CMC CFD account and I tried to open another two accounts and deposit more funds to trade different markets. I was told that I cannot open more than one account but I could open a spreadbet account.

Why have you stopped the subaccount facility and will you be reintroducing it again in the future?

Thank you

 

[PC at CMC Markets]

hi scose,

You are joking I presume. It has cost me $100million to develop our platform. sure there are some off the shelf packages but they don't do spread betting, cfds and forex all combined and they don't have the functionality we need.
we also own all the source code and have done on every piece of software we have written. I think this gives us an edge. I have seen some of the other off the shelf platforms and they are just not good enough taking every thing into account.

tks pc

Yeh but that tech is already out there. You just need to tweak it I imagine. Don't try kid a kidder, me old china.

I've always assumed you lot did something like that anyway

I'll stop now anyway as I have my answers.

 

[scose-no-doubt]

I'd rather have keptthe 100m personally but fair play. And yes I was yanking your chain a bit. You're a good egg PC but can you tell your sales staff to stop calling me asking if everything is fine and stuff like that. I got less attention from babysitters as a child. They're very keen to get me going.

 

[PC at CMC Markets]

hi scose,

well I dont know who you are so if you ping me a private email I will pass on your details not to contact you.

I am pleased they are pushing a bit though, shows they are working hard.

cheers pc

I'd rather have keptthe 100m personally but fair play. And yes I was yanking your chain a bit. You're a good egg PC but can you tell your sales staff to stop calling me asking if everything is fine and stuff like that. I got less attention from babysitters as a child. They're very keen to get me going.

 

[Jimmy Lulz]

Mr Cruddas,

Thank you very much for your detailed and informative replies. What you are doing and the way you are doing it is really an excellent resource for this forum. If only the other major companies were prepared to do the same.

Your answers have settled the question in my mind.

Thank you again.

 

[PC at CMC Markets]

Hi Jimmy,

The forum is there for you to try and get out of it what you can. Unfortunately some posters just want to use it to have a pop at me and the industry and CMC Markets. But if used properly then you can learn a lot about the industry. The forum can be what you make it.

I appreciate your question and glad I was able to answer it to your satisfaction.

regards Peter.

Mr Cruddas,

Thank you very much for your detailed and informative replies. What you are doing and the way you are doing it is really an excellent resource for this forum. If only the other major companies were prepared to do the same.

Your answers have settled the question in my mind.

Thank you again.

 

[uk dave]

Mr Cruddas,

Thank you very much for your detailed and informative replies. What you are doing and the way you are doing it is really an excellent resource for this forum. If only the other major companies were prepared to do the same.

Your answers have settled the question in my mind.

Thank you again.

Wow what a turnaround from calling pc's enterprice a 3rd rate bucket shop!!! :0

 

[PC at CMC Markets]

Hi Mr Soros ,

I spoke to the support team. Apparently, technically we have built the software (so far) for you not to be able to have sub accounts. It is on the list but it wont be this calendar year.
However, there is a way around the situation. You can open another account but you will need another email address. The account name can be the same but when you log on it is your email address plus your password.

If you speak to Jamie Cole in our support area he can help you but that is the short term way around the problem.

hope that helps tks pc

Hello PC,

I have a CMC CFD account and I tried to open another two accounts and deposit more funds to trade different markets. I was told that I cannot open more than one account but I could open a spreadbet account.

Why have you stopped the subaccount facility and will you be reintroducing it again in the future?

Thank you

 

[Ross Spur]

Hi Jimmy,

Have a feeling this will be a long answer so here goes.

Firstly, if you look at the flows of a spread bet company the major flows of trades are in non marketable amounts, if somebody does a £1 pp on the UK 100 then we cannot hedge that even if we wanted to so we have no choice. we have to aggregate. If we aggregate then there is no guarantee we will make on that aggregated position. However, against that aggregated position we have resting orders that can off set our losses and cap our profits so we can build our risk profile around the aggregated position, against our resting stops and limits and our real time trading clients.

As the markets move the aggregated position will just keep getting bigger and smaller and eventually once it gets to size we can and do hedge it. It is impossible for us to hedge every individual trade primarily because of the size.

If we have a big winning client and lets say he is seller of UK 100 and our aggregated position is made up of buyers then we use the big winning client to hedge our aggregated position. if the big winning client is going the same way as our aggregated position we simply dma the trade or cover it in the markets.

I do not know how some of the smaller companies operate and I have no interest. What we do is operate a flow model. The bigger the flows the less the risk, the more our positions get netted off naturally and the more resting orders we get to offset any upside or down side.

amongst our aggregated positions we have winning clients and we have losing clients. we do not care, we really only care about our aggregated positions, our risk reward against the markets and against our resting orders.

I can tell you that two days ago we handled around 200,000 orders in one day resulting in around 160,000 trades. Most of those trades were non marketable amounts. but we love the flows and being an ex forex trader to me all I want are flows, flows and more flows.
I am one of the few ex bank traders that is running a spread bet company and that is how I have set this company up.

If you ask me do I want winning clients or losing clients, I will answer you honestly.
Every time i would want WINNING clients. Why? because I can manage their flows to make money, I could buy positions ahead of the flows, I can manage the resting orders and if clients make money then they trade more and more and more.

That is the truth of it all. If you look at it we are offering our clients an outstanding service. We supply,
1. 0.7 spreads on non-marketable amounts
2. low margins
3. real time trading software,
4. real time back office,
5. real time charts, news, 24 hour access.

By managing flows we need automated execution, non dealer intervention and aggregation software to measure var and resting orders. A lot of our risk management is automatic.

At the end of the day this company is run by an ex trader from a banking back ground.
The more flow we get the more money we make and at the end of the day so long as that aggregated position keeps moving up and down we can make our money. Do I care whether our clients win or lose. Yes I prefer them to win. see above.

At the end of the day, does it really matter to you as a client what the sb company does with your flows. you are taking on the markets, we are delivering tight real time spreads, automated execution. so long as you are happy with that, then concentrate on the markets and make money.

remember spread betting is a leveraged product, you should understand the risk before trading.
thanks pc

Excellent post, PC. If only SB cos had operated that way when I first started almost ten years back. Not mentioning any names, those that still use the old dealer controlled tactics will have to buck up their ideas.