Best Thread CMC Markets owner answers your questions

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Hi Lovejoy
it is not about size of the bet but as much as they way you bet.
with spread betting you have to bet pounds per point so you have to transact with your book maker. you have to bet not transact otherwise you lose the no cgt part of the deal.
we all have liquidity providers and there is nothing scientific about this but we have to deal with all levels of bets some fractions of a contract size some normal contract size and marketable amounts.
it is really all about making sure that when you bet you bet so you get the no cgt tax advantage. you as the punter can decide whether the quote is good or bad. that is always your choice. the spread betting companies are competing for your business so unless spreads are consistently good you will just go elsewhere.
what we do is publish a spread chart real time for each instrument. you can select it from our demo page. we are transparent about our spreads so you can see for yourself.
thanks for your blog. appreciate it.
ps remember you are betting not trading. if you want to trade and pay cgt open a cfd account with us.
peter
lovejoy21 said:
Good answer, well explained.

Presumably the only way round this would be to only offer 'bet' sizes that are 'available' on the underlying exchange e.g. for FX pairs starting bets of the equivalent of 1.0 lots etc. i.e. much ike Pro-spreads do - they use currenex liquidity on FX pairs and add there own spread to cover their costs (i.e. they are STP) but you can only bet in standard whole lot sizes i.e. 1.0 (which is the equivalent of $10 per pip for EUR/USD for example) and thus this approach would really only be aimed at the serious spreadbetter with a decent account size and not the mass market.
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Hi scose
It isnt Christmas yet and anyway we are not a registered charity
but nice try
peter

scose-no-doubt said:
PC, at the moment a lot of this is yesteryear experience and/or conjecture and opinion with little substance and if the point of this thread really was to prove you actually give a sh1t and believe in your product(which I believe to be the case) rather than just pasting your name over a forum for rankings, you have to admit it's not going your way at the moment :D
Why not give us (new/potential customers) a no nonsense, no small-print, no boll0cks, 30 day £XXX risk-free, deposit claw-back type offer to try out your system. If it your platform and services really are any good I'm sure people will let it be known.
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PC at CMC Markets said:
Hi Luc.Chase
Baffle no more let me try explain some of the reasons. Please accept this explanation as a general explanation as the subject is quite complex and full of regulations around spread betting but anyway let me explain first and come back to me if you need to.

Firstly, it is important to understand that if you want the tax benefits of spread betting then you have to open a bet not a financial trade. In other words you cannot deal on exchange and say you are betting.
You need to bet with a counter party (book makers licence holder) so they are the counter party to your trade. In effect when you bet you are betting with a book maker even though you are betting on a financial product.
Because there is no cgt on your winnings the government have to collect their tax some where along the line so they charge a levy or performance fee, which is passed onto the betting client and this has to be built into the spread bet price, in other words you pay the tax on the stake not on your winnings. Bit like on course and off course horse racing. we have to build this into the spread bet price for you to bet on.
In addition because you are betting with a counter party there are for example, clearing fees and market spreads that have to be built into the bet spread. We as spread betters have to quote you a price with all the costs, eg tax etc built into the spread and deliver to you a price to bet on. therefore we have to build our own internet betting platform for you to place your bets. remember you are not buying financial products, you are betting with a book maker.

Also because spread bet clients do not always transact in marketable amounts we have to deliver a price on a platform to you as opposed to a platform that will execute on an exchange.

I can assure you that if you see our platform as a toy it is a very expensive toy because we have to always remain competitive and transact real time. Competition is the best way to keep spread betters competitive and deliver really good technology. If you look at spread bet spreads now they are very competitive and we have to take all the above factors into account. when you trade on exchange the additional costs are take out, eg stamp duty, clearing fees, brokerage. when you trade on exchange you take the spread and the rest is added on. with us it is all built in because you are betting.
we transact thousands of transactions a day across 4000 real time products and the pricing has to be spot on otherwise we would lose business quickly. We need our own platform to deliver all of the above.

That in a nutshell is why we have to build our own platform and why we basically cannot use ninjatrader etc. hope that helps. best wishes peter.

ps please dont tell my team of 250 developers and technicals that they have been working on a toy for the last two years. it will depress them this side of christmas.
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PC,
I very much appreciate your taking the time to give such a detailed response. I did not really mean to be insulting towards your developers; I'm sure they have done a very good job delivering what was asked of them. I'm sorry if it came across as an insult to them. I used to be a CMC customer and one of the great things about your service is the range of bet size a client can place. From tiny to really quite large ( i happily did the former and wish I had not been so greedy to do the later) :-( . And another good thing was how easy it is to get started with user friendly software; which is a definite plus point in having the platform you've developed. But after a fairly short while we want more sophisticated functionality.
I do understand that a spread-better is different from a broker; my simplistic understanding of this legal point is that you have 'your own book' to match deals; in effect a market maker. Having said that, I don't understand how a Direct Market Access aka DMA spread-better (which CMC is not) is able to comply with that requirement.
However, even though you explain the legal issues, I'm very surprised that you see the difficulty in meeting those legal requirements as a technical issue. I think there are a few points you made that imply certain assumptions about other platforms. eg. you imply that the platform would not be sourcing its data from YOUR price-feed, would not be sending orders for execution by you, and that the leverage used is not in your control.
I don't see that in order for you to include those other elements into the price you must use a proprietary front-end; just adjust the price before sending it on to the client software. And you have full control over the leverage used per instrument/product in a bet via your own 'broker' connection settings. Basically, this isn't be a technical issue. I do hope it was not ruled out on technical grounds and that you would give it some consideration as an additional option.
 
PC at CMC Markets said:
Hi Lovejoy
it is not about size of the bet but as much as they way you bet.
with spread betting you have to bet pounds per point so you have to transact with your book maker. you have to bet not transact otherwise you lose the no cgt part of the deal.
we all have liquidity providers and there is nothing scientific about this but we have to deal with all levels of bets some fractions of a contract size some normal contract size and marketable amounts.
it is really all about making sure that when you bet you bet so you get the no cgt tax advantage. you as the punter can decide whether the quote is good or bad. that is always your choice. the spread betting companies are competing for your business so unless spreads are consistently good you will just go elsewhere.
what we do is publish a spread chart real time for each instrument. you can select it from our demo page. we are transparent about our spreads so you can see for yourself.
thanks for your blog. appreciate it.
ps remember you are betting not trading. if you want to trade and pay cgt open a cfd account with us.
peter
Click to expand...

Thanks, I'll check out your spreads...if they are competitive then I'll defintely try out your platform and if execution is good then I'll add CMC to my list of SB brokers :)

I think the point I was trying to make was as follows:

You offer no-requotes i.e. you have no dealing desk (but you are still a market maker I presume from your comments?).

From what I understand an SB firm which offers DMA is not a market maker they are just offering the means to be able to make bets based on the underlying liquidity providers prices (with, some fixed spreads added on top to cover costs). Thus the only way a true DMA SB firm makes money is through the spread.

In order to do this the SB will not be able to offer 10p per pip prices etc. though as you can't 'bet' these low amounts with liquiditiy providers...hence why someone like Prospreads only offers 1.0 lot (i.e. $10per pip) increments on the spreadbetting as they offer DMA and you are essentially having access to the Currenex liquidity with small fixed spread added by PS.

Thus for me there is no difference between betting with an DMA broker and calling it betting and trading with a traditional STP broker apart from the mechanics on what you are technically doing i.e. betting on price movements on DMA and buying and selling currency on traditional Fx STP broker?

But as you mentioned and as I said above, this is quite niche as you won't appeal to the mass market with $10 or equavilent minimum bet sizes and bet increments of $10 etc too.

I presume the lack of true DMA SB firms is due to the fact that a large proportion of SB clients have very small accounts (relative to a professional trader) and there are few spreadbetters who have large enough accounts / spreadbet full time to make it worthwhile.

But NDD is certainly the next logical step forward IMO for the SB industry for it to attract seriuos 'spreadbetters' ... for most professional traders / spreadbetters the two big importants things they want in their broker is great spreads (as this is a direct cost of each trade) and great execution and great execution only comes with an NDD brokers or DMA where you never get requotes (and obviously the great spreads come with these type of brokers too).

Peronally I think the tax advantage of spreadbetting is over hyped. For the traditional spread better betting on short term moves (form what i've read most spreadbetters open and close bets ni the same day on average) across a range of the major FX pairs for example they'd be financially better of trading with an ECN broker and not spreadbetting as the more competitive spreads (and obvious execution advantage) overcomes any tax advantage.
 
Hello Peter,

Good to have you on here and answer questions directly.

Only ever had one issue with CMC , Why on earth did u change your old Marketmaker platform to the new one you have now. Did you take any notice of customer views and complaints there?
Didn't you feel you were taking two steps backwards ?

It was at one time the best platform on the market, what do u think your competitive edge is now?

PS: I stopped using cmc when the new platform came in.
 
lovejoy21 said:
Care to elaborate as to why it's not DMA?
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Because I don't think it would qualify as spread betting if you were accessing the markets directly, as PC was expounding about earlier. The claim is 'DMA functionality'. Check out previous threads on Prospreads and FuturesBetting.
 
Ross Spur said:
Because I don't think it would qualify as spread betting if you were accessing the markets directly, as PC was expounding about earlier. The claim is 'DMA functionality'. Check out previous threads on Prospreads and FuturesBetting.
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Yeah I understood that, should have clarified it's 'DMA functionality' in that it has the same affect as if you were accessing the underlying market (i.e. you get the liquidity providers prices + the fixed spread added by PS) in terms of the tight spreads, instant execution , level 2 order book etc. Obviously you can only bet in contract sizes normally available on the underlying exchange i.e. the sizes that PA can hedge at.

Even with true DMA you are not accessing the underlying market yourself...the broker is doing it for you on your behalf, it's just you would pay commission instead of paying the spread...so I guess this is how PS can call it SB as they are taking your trade orders and just instantly hedging them and gaining from the spread rather than placing your trade directly through to the exchange and charging you a commission for it.

On a side note I checked out the demo platform...platform looks good, lots of bells and whistles if you utilise stuff like that. Operates fine in terms of speed of access.Being NND would suggest exeuction is consistently better (though being NDD doesn't really tell the whole story) than a traditional market maker with a dealing desk so I'll take CMC's word on that...so far all demo trades have executed fine. The spreads over a period of time are pretty average IMO compared to other SB market makers, nothing that stands out as being better than their competitors but Peter did say they would be decreasing spreads soon (I think I read that somewhere on this thread). So for me they would need to decrease the spreads to get me on board as I can get better spreads elsehwere...slightly better spreads combined with the execution advantage of being NDD and they would be added onto my SB list (I utilise 3 SB brokers at any one time).
 
lovejoy21 said:
Yeah I understood that, should have clarified it's 'DMA functionality' in that it has the same affect as if you were accessing the underlying market (i.e. you get the liquidity providers prices + the fixed spread added by PS) in terms of the tight spreads, instant execution , level 2 order book etc. Obviously you can only bet in contract sizes normally available on the underlying exchange i.e. the sizes that PA can hedge at.

Even with true DMA you are not accessing the underlying market yourself...the broker is doing it for you on your behalf, it's just you would pay commission instead of paying the spread...so I guess this is how PS can call it SB as they are taking your trade orders and just instantly hedging them and gaining from the spread rather than placing your trade directly through to the exchange and charging you a commission for it.

On a side note I checked out the demo platform...platform looks good, lots of bells and whistles if you utilise stuff like that. Operates fine in terms of speed of access.Being NND would suggest exeuction is consistently better (though being NDD doesn't really tell the whole story) than a traditional market maker with a dealing desk so I'll take CMC's word on that...so far all demo trades have executed fine. The spreads over a period of time are pretty average IMO compared to other SB market makers, nothing that stands out as being better than their competitors but Peter did say they would be decreasing spreads soon (I think I read that somewhere on this thread). So for me they would need to decrease the spreads to get me on board as I can get better spreads elsehwere...slightly better spreads combined with the execution advantage of being NDD and they would be added onto my SB list (I utilise 3 SB brokers at any one time).
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Prospreads are very expensive, I rather trade the futures with someone like IB. I only see a reason to trade with Prospread if the tax advantage makes a different at the end of the year.
 
gle101 said:
Prospreads are very expensive, I rather trade the futures with someone like IB. I only see a reason to trade with Prospread if the tax advantage makes a different at the end of the year.
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For the instruments I trade / bet (about 10 FX pairs) they have on average the best available spreads I've seen amongst the SB industry (ignoring WS zero spread pairs). Of course whether this is cheaper than trading futures (in terms of the tax advantage) will depend on various factors specific to the individual. For me spreabetting with spreads like those availabe with PS means that with the tax advantage the overal cost saving is significantly greater than the costs associated with trading with the likes of IB.:)
 
Hi Peter.

Not sure if this has been answered allready. Will you guys be adding new stocks? I have heard that you will be adding 3000 new stocks in 2011. Having more stocks to choose from will sway me towards you as a broker
 
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