I have been actively using the FP Markets DMA Spreadbetting for nearly 9 months now so I thought (given I have been asked a couple of questions about it recently) that I would make the effort to write up my views/experiences on their offering to date.
I am normally more of a lurker than a contributor to these forums but decided as FP Markets DMA type of spread betting offering is notably different to the other SB companies products/platforms I have used in the past (except I belive to some extent Prospreads) that it was worth putting finger to keyboard.
Background: I have been spread betting for approx 13 years and have actively used in that time Cantor Index, Deal4free(CMC), MF Global Spreads (Ouch!!), IG Index, Spreadex, GFT Markets and most recently FP Markets. I spreadbet almost exclusively on LSE FTSE 100, 250 and Smallcap stocks, so my feedback is written from that LSE equity spread betting perspective.
THE MAJOR PRO
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Its DMA Spreadbetting so all orders you place on the platform are 100% hedged by FP Markets (in their name) in the underlying Market, if FP Market's hedge order gets filled in the LSE, they will fill your limit / market spreadbet order at the SAME price as they were filled at + their spread.
This means:
- In all bets the counterparty is FP Markets (acting as the bookmaker). It is only their hedged order in their name that enters the LSE order book hence this is still spread betting (and they are registered with HMRC as a spread betting Company and pay taxes as such)
- I am able to achieve the effect of participating in the LSE order book.
- I can obtain the same prices that they achieved in the pre and post auction periods (where a large amount of the daily volume can occur).
- I can simulate (and achieve the same prices as) buying at/near the LSE Bid price and selling at/near the LSE Ask price via limit orders, so I can be a Price maker and not just a price taker, and any limit orders can be iceburged (which is important with small caps in particular).
EXAMPLE (I assuming my maths is OK!!)
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To give an simplified example, simply to make the point of what this means I can achieved on the FP DMA spread betting platform that I could not on all my previous Spreadbetting Companies Platforms.
Take the siltation where:
- I want to Buy 3500 shares in the Smallcap company Mothercare PLC (MTC) - equates to £35 / point (Approx £11k worth)
- I want to buy some shares in the morning in the expectation of a Price rise and sell before the close as I want to be flat overnight.
- For the simplified purpose of this illustration we will assume that it is trading at 320 / 322 on the LSE for the whole Day (which is basically is today)
- There is a typical daily volume of shares for Mothercare traded throughout the day with similar number & size of trades equally split between those hitting Bid & the Offer (hence why the price has not moved today)
With IG :
- I would buy £35/point in the early morning at their quoted price of 322.8 (322 + 0.25% spread costs)
- I would sell £35/point in the late afternoon at their quoted price of 319.2 (320 - 0.25% spread costs)
- If I had used limit orders I could not improve on these prices as I would not have been filled on IGs platform.
- Profit / Loss on the day is (35 * 319.2) - (35 * 322.8) = LOSS OF £126
With FP Markets
- I would buy 3500 shares in the early morning using a limit order at 320.25 which is filled. Final price to me is 320.57 (320.25 + 0.1% Spread costs)
- I would sell 3500 shares in the late afternoon using a limit order at 321.75 which is filled. Final price to me is 321.43 (321.75 - 0.1% Spread costs)
- As I used limit orders I was able to significantly improve on the initial quoted prices of 320/322.
- Profit / Loss on the day is (3500/100 * 321.43) - (3500/100 * 320.57) = PROFIT OF £30
So by using FP Market & Limit orders I was able to make a Profit of £30, rather than a loss with IG of £126. A total difference of £146 on a single £11k Trade!!
Obviously this is a best case scenario to demonstrate the impact that DMA can have, but it would have been easily achievable today (23rd Jan).
OTHER PROS
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- They charge a very competitive 0.1% additional spread either side, even on Smallcap shares (IG are 0.25% and Spreadex are 0.35% each side on small caps), although they have a minimum charge per trade of approx £10 (waved for larger clients I believe) so you need to be buying / selling approx £5000+ of equities at a time to get the most benefit.
- They automatically hedge 100% of all bets so do not profit from client losses. (so there is no conflict of interest)
- There has never been any dealer intervention, nor no requotes or order rejection. (as its DMA)
- The Execution speed is instantaneous (again as its DMA).
- They are UK Based & FSA regulated (as you would expect)
- When I have needed it the customer service has always been very helpful
- They have a mobile/Iphone & MT4 trading platfoms alongside their Web interface (although I have yet to use them)
- They have over 1000 LSE equities available (so cover all the small caps and AIM stocks I have ever wanted to bet on), which is more than IG, CMC, or Spreadex when I used them.
- For shares you can trade in any size, so it is possible (but not cost effective) to trade in 1 share or £0.01/point
- As FP are not act as counterparty but hedge 100% of ALL the bets made with them, they appear to have no problem whatsoever with scalpers.(not someting I do however as I cannot be bothered spending that much time at my screen !!). In fact the DMA type spread betting from what I can see, was made for the scalping type spread better.
CONS
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- DMA Spreadbetting is a relatively sophisticated product so it won’t suit those new to spread betting.
- You get charged for the Level 2 data the platform uses (although if you trade over 5 times a month this is waved)
- The platform is not for beginners. It looks & is a more complex than most SB offerings (as it is simply a modified version of their CFD platform), so the - learning curve is a bit steeper and you have to understand how Level 2 LSE data works to make the most of it.
- They don’t offer “synthetic” Rolling Cash type products (e.g. on Indices or Commodities) as they are not available in the underlying Market for them to hedge, so they only offer futures type contacts in these.
- For Futures etc you can only trade in whole contracts (so they can 100% Hedge), so this means that for the FTSE100 March 2103 contract for example the minimum bet size is approx £60000 (equated to approx £10 / point), so again not for beginners.
- You no longer think in the how many £/point you wish to bet on, instead you have to think in how many shares you wish to buy / sell, as this is how their platform takes orders/works. (A hangover from the CFD platform it SB offering is based on)
- As their Back office / accounts processes are run out of Australia all transactions are stamped with Australian time (not their UK time) – This is just an irritation
- Their platform gives you the live / true market price of the underlying instrument (a benefit?), however it if not until your overnight statement that the 0.1% "bet fee" is charged so you can see the full costs of any purchase or sale.
- As FP Markets are a bookmaker they have to pay to HMRC 3% of their client losses over the period. To help cover the cost of this if you as a client have made a loss in the quarter, you are charged 1.8% of your losses at the end of that quarter which goes towards their HMRC tax charge. (as you have helped generate it). So for example if your losses on say £100,000 of total bets across the whole quarter is £1000 your quarterly charge will be £18. In this case its only 0.018% of your total bets. This is the same for all SB companies, but most hide this charge within their spreads. On the plus side winning spread bettors with FP (unlike other SB cos) do not have to contribute to any of this charge.
CONCLUSION
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For me, now I have become more comfortable with Level II type access and the FP Markets platform, the benefit of just the DMA Spreadbetting type access to the LSE equities, significantly outweigh any/all of the CONS I mentioned above. It has allowed me to try out new (otherwise marginal) equity strategies that would not be practical on my previous SB companies platforms.
If your mainly betting on non-Equity products (e.g. Futures, Indices, Options, Currencies etc) then the cost benefits (from what I can see) over other SB companies who offer both Rolling Cash versions and the ability to trade in much smaller units may be much more marginal (unless you transact in high volumes).
However if you have a couple of years spread betting experience or more, and regularly spreadbet UK Equities in any size (>£5k per trade) or volume then I would recommend you seriously take a look at FP Markets offering, as I cannot see how it would fail to be cheaper than your existing SB Company in this area
(and no before anyone asks I am not in any way connected to FP Markets, I am just impressed with the capabilities that DMA spread betting can bring - and would be equally so if IG, CMC or any other SB companies starting offering it also. I that way this feedback is as much about DMA spread betting as it is FP Markets)
then the above is my best understanding & I suggest you raise these questions with FP if you speak to them.
