Two Irish firms are carving a deep niche in the spread betting and CFD arena. Philip O’Sullivan examines their appeal.
The Irish investment community has seen a wave of successful new entrants in recent years. Business & Finance magazine has for some time been charting the emergence of these ‘new kids on the block’, profiling the likes of Glas Securities and GoldCore in recent editions. In this issue we take a look at two of the firms that are carving a niche in the spread betting and CFD arena, Sommerville Advisory Markets and IG Group.
The Iconoclast: Sommerville advisory markets
Paul Sommerville needs little introduction, given that his frequent appearances as an expert financial analyst on the likes of TV3’s Tonight with Vincent Browne and RTÉ’s Prime Time have helped catapult him into the public awareness. His profile has also been helped by a strong first-time showing in the 2011 general election, where he narrowly missed out on a seat in the Dublin South East constituency, having come within 30 votes of outgoing government minister, John Gormley, on the first count. Leveraging off his ‘brand name’ and more than two decades of experience working in the financial markets, he has recently launched Sommerville Advisory Markets (SAM).
SAM is designed to cater for all categories of investors. It offers a range of products – financial spread trading, CFDs, share trading, exchange traded funds (ETFs), exchange traded commodities (ETCs) and currency trading and commodity CFDs. In addition to the breadth of products, the depth within each product category is particularly notable. Clients have trading access to over 13,000 shares, 7,000 types of CFDs, 4,000 spread trading products, 160 currency crosses, and 1,600 ETFs and ETCs. As Sommerville himself notes: “We’re a one stop shop for every person who knows at least something about trading the markets”.
The company has generated a good deal of attention in recent weeks due to its highly competitive pricing strategies – commission rates on share trades start from only €15, and the company believes its execution charges are 60-80% lower than those charged by the traditional brokers. On top of that, SAM charges no annual management fees, believing clients “should not pay somebody for the privilege of managing their own money”. For managed accounts SAM charges a performance fee of 15% of new net profits (including Vat where applicable), or 10% for accounts over €500,000. However, SAM does not only compete on price. The company sees its advisory services as a key differentiator. On this front, Sommerville and his team (he has 20 analysts based in the UK complementing his Dublin staff) provide a “top-down, macro-based view on the markets”, offering “proper long/short trading recommendations, not the old school buy/sell/hold mantra”. Sommerville, who has considerable international experience, having worked in both London and Tokyo with Tullett, one of the world’s biggest inter-dealer brokers, is well placed to dispense this advice. He sees education as key to successful trading, and has tailored a number of solutions to best meet clients’ needs. These range from the free investment seminars SAM organises throughout the country, to an intensive one-day trading course and advisory services. In terms of advisory services, SAM offers a free service to accounts over €50,000 with a free premium service to accounts with over €100,000. The former entails trading recommendations by email or text, pre-market briefings and previews of scheduled corporate and economic events, while the latter involves all of that along with face-to-face meetings, bespoke investment solutions and more comprehensive trading analysis and recommendations. People who are not account holders with SAM can subscribe to the basic service for an annual fee of €999.
In terms of executing its strategy, SAM has just opened an office on Fitzwilliam Square in Dublin 2, but meeting with Sommerville, one gets the clear sense that he will be hitting the ground running. In addition to being fully authorised and regulated by the UK Financial Services Authority, and overseen by the Central Bank of Ireland for conduct of business rules, SAM has also put together a comprehensive portfolio of services that it will be offering to clients. To help facilitate this offering, SAM has partnered with one of the leading names in spread betting and CFDs, IG (profiled below), while its share and currency execution is handled by Denmark’s Saxo Bank. All it needs now are clients, but being fronted by a household name and offering a suite of products to suit all financial tastes, few would spread-bet against SAM making inroads among the Irish investor community.
The Innovator: IG Group
Headquartered in London, IG is a leading provider of financial spread betting and CFDs. The group has two main business areas, IG Index, its UK-only spread betting operation, and IG Markets, its global CFD business. IG has established a dominant position in its home market, with specialist research agency Investment Trends’ UK Financial Spread Betting & CFD Trading Report having ranked IG Markets as the largest single provider of CFD accounts in the UK in the past two years. In addition to this, with a 41% market share, IG Index is the gorilla in the UK spread betting arena.
We caught up with chief market strategist David Jones and market analyst Chris Beauchamp recently to find out what the reasons behind IG’s success were. Beauchamp explained: “In what is a very competitive market, the brand recognition is a major help when recruiting new clients – the size of the company and its long-established presence gives clients a greater degree of confidence that their funds are safe with IG and that the firm has a proven record of client satisfaction.”
These certainly are significant pull factors. In terms of the brand, IG’s history dates back to 1974, when ‘Investors Gold’ was established to allow clients trade the price of gold as an index rather than having to buy the underlying commodity. Over time, the company’s name was shortened to IG, which reflected the firm’s diversification into other product areas.
Another significant differentiator for IG is its technology platform. Jones says that IG’s “Pure Deal platform is one of the key strengths of our offering”. Recognising that, for clients, reliability and promptness are absolutely critical, the group has invested heavily in its IT infrastructure. An indication of the return IG has gotten from this investment is that 99.65% of client trades in December of last year were processed in 0.1 seconds or less. This is no small achievement, given that the system is currently handling around five million trades each month. In these volatile times, having a platform that allows clients exploit trading opportunities in such a timely and efficient manner is a key strength. The platform is also designed to handle client orders across a number of different channels, from PCs to laptops through to mobile devices.
A third factor behind IG’s success is its customer-focused model. Education is central to this – as Beauchamp outlines, “Client education is increasingly important to IG, and it’s something that we’ve been able to push to a new level with the launch of our ‘Insight’ platform in January this year. This provides a one-stop portal for all our own market analysis, covering indices, shares, forex and commodities, while also providing all-round market news via Reuters”. In addition, Jones regularly hosts seminars covering the basics of trading along with “more advanced elements such as charting and options & binaries”. The firm also hosts interactive online ‘webinars’, which allow clients to ask IG personnel about all aspects of CFD trading. When asked about what advice he would give to a new client, Beauchamp says: “The best advice is common sense. Clients need to get used to using the platform and the leverage involved, so that they don’t risk too much on a single position or use up too much of the margin in their account. In addition, small trade sizes to begin with are key, allowing clients to ride out the swings and volatility that are inherent in financial markets.“
A fourth factor behind IG’s growth is its embrace of social media to connect with traders. Jones, who has a sizeable Twitter following, says he would classify the firm’s approach to social media as “enthusiastic”. In terms of more proprietary moves, Beauchamp says that IG’s “Insight platform also includes a ‘sentiment index’, where clients can see how other IG clients view a particular market, and also see what other markets are being regularly traded”.
In terms of what the future holds for IG, the group has identified four key objectives: (i) To maintain its leading position in its home market; (ii) To continue to expand into new markets – IG has offices across 15 countries; (iii) Ensure continued innovation and technological advancement; and (iv) To maintain excellent customer service.
With a track record going back four decades, IG looks odds-on to achieve these goals.