Outlook These are the salad days for the spread betting industry, one of those rare sub-sectors of business in which Britain is a world leader. It thrives on volatility because it is volatility that excites the punters and there’s plenty of that about right now.
The world’s major currencies are bouncing around as speculators bet on interest rates moving up. Closer to home, there is the uncertainty created by the UK’s EU referendum together with the impact on the eurozone of the continuing agonies of the Greek economy.
Then there are the host of simmering geo-political crises that regularly worry the world’s markets when they flare up.
No wonder CMC Markets is preparing a flotation. It’s the perfect time for it, as Peter Cruddas’ baby proved by toasting a 61 per cent rise in profits.
On the same day market leader IG issued a rather terse trading statement, saying its earnings will be as expected. Move along, nothing to see here.
Perhaps there are good reasons for IG wanting to steer clear of the spotlight for a while. Unlike CMC, with a business more weighted towards stock market indices, it suffered a big blow from the shock decision of the Swiss Central Bank to abandon the Swiss franc’s euro peg in January.
The Swissie immediately lurched upwards by 30 per cent and the scale of the move shattered punters’ stop loss policies, designed to limit their downside. Many were left with debts they were unable to pay. Amidst apparently savvy speculators were the sort of people you really wouldn’t expect to find punting on European currency markets. People on relatively modest incomes such as primary school teachers, even concert pianists.
Some months down the line, and with the industry apparently none the worse for wear, it would be all too easy to sweep the event under the carpet as a “one-off”. The problem is that such one-offs do rather have a habit of occurring in financial markets.
The industry’s leaders need to learn lessons from what went on. It’s easy enough to point the finger at punters and say they should have known what they were getting themselves into. It is true, after all.
All the same, it isn’t in the industry’s interest to have people who can’t meet their margin calls on its books. Regulators have plenty of fish to fry at the moment, but if the industry doesn’t see the danger, they’ll be knocking at its door before too long.Reuse content