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BETWEEN THE TRADING
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TRADING 2.0: THE EVOLUTION OF MOBILE TRADING MARKET ANALYSIS: BULLS RUNNING THE SHOW COMMODITIES: THE PROFITABLE WAY TO TRADE OIL CITY GUIDE: BARCELONA
MICHELIN POSSIBLE
Heston Blumenthal swaps evening service for a shift on the CITY INDEX trading floor
issue 5 MAR 2011 £7
.................SPREAD BETTING...................FOREX...................CFDs...................SPORTS BETTING...........................
THE OPEN | WELCOME
EDITOR’S LETTER
DEPUTY EDITOR FRED PALLEY
Trading Places Well, what a month it’s been. Taking the reins this month and producing my first issue of The Exchange at the top has been immensely enjoyable but nothing short of a struggle. But of course the work that has gone into getting this copy to you has been anything but a solo effort, and I would like to take this opportunity to thank everyone who has worked extremely hard on what you now see before you. Without a dedicated team helping me with every step of its creation there simply wouldn’t be a magazine for you to enjoy right now, so thank you again guys. It’s been something of a turbulent month away from The Exchange’s offices as well, with the world’s focal point for the majority of February zoning in on North Africa and The Middle East. Whatever your political opinion on the various conflicts being waged across the region is I think we can all agree that some of the coverage, particularly the current state of emergency developing in Libya, has been pretty difficult to watch. So here’s to hoping that March offers some more of the global tranquillity that’s been desperately lacking in February. As you might have expected this issue contains coverage of how the markets have been affected by the crisis, but if you’re keen to get away from that don’t worry, we’re bringing you a lot more besides.
EDITOR Alex Hammond
ART DIRECTOR ALEJANDRO GUERRA-PALACIOS
For those who we met and possibly signed up for a subscription to the magazine at the London Investors Show last month welcome to your first issue of the magazine, I hope you enjoy it. It was great to meet so many people with spread betting accounts or looking to get involved in trading and hear your encouraging feedback on the magazine. We’re always keen to hear from our readers, and can always be reached at contact@ theexchangemagazine.com. For those who didn’t manage to get down to the London Olympia Conference Centre you certainly missed out on some fantastic seminars and workshops, but don’t worry because the next show, focusing on alternative investing and commodities, is only a couple of months away. We’ll certainly be at that show in May as well so it would be good to see some new faces as well as some old ones again. If you’re only just beginning to trade or are looking for new techniques that are sure to improve your spread betting profits then I really can’t recommend attending the show enough. For now though, just relax and enjoy your latest issue of The Exchange.
Web Editor Michael Gales WEB DEVELOPER CARLOS PEREZ CONTRIBUTORS SANDY JADEJA NICK BEECROFT DECLAN FALLON KEN FISHER MICHAEL DERKS ALASTAIR McCRAIG MARK SOUTHERN Michael GALES RUBY SIGURDARDOTTIR EVE HARTIDGE Public Relations Mark Southern Polygon PR Marketing Albert vellvÉ Business Development Alex Soro PUBLISHING DIRECTOR STEPHEN PRICE Subscription@ Theexchangemagazine.com PUBLISHED BY THE EXCHANGE 102-103 HARBOUR YARD CHELSEA HARBOUR LONDON SW10 0XD T: +44 (0) 20 7351 1818 F: +44 (0) 20 7352 7182 ADMIN@THEEXCHANGEMAGAZINE.COM cover: SIMON JESSOP
ALEX HAMMOND EDITOR
4 | THE EXCHANGE | March 2011
© 2010. The Magazine is published by The Exchange. All rights reserved. The publishers declare that any publication of any advertisement does not carry their endorsement or sponsorship of the advertiser or their products or services unless so indicated. Contributions are invited and, whether or not accepted, submissions will be returned only if accompanied by a stamped addressed envelope. No responsibility can be taken for drawings, photographs or literary contributions during transmission or while in the Managing Editor’s hands. Proof of receipt is no guarantee of appearance. In the absence of an agreement, the copyright of all contributions, literary, photographic or artistic belongs to the The Exchange. This publication (or any part thereof) may not be reproduced, transmitted or stored in print or electronic format (including, but not limited to, any online service, database or part of the internet), or in any other format in any media whatsoever, without the prior written permission of The Exchange. The Exchange accept no liability for the accuracy of the contents or any other opinions expressed herein.
THE EXCHANGE | ISSUE 5
contents 14
THE OPEN 10 UPS & DOWNS 12 FILM CORNER 14 CELEBRITY TRADER
FEATURE ARTICLE 18
MOBILE TRADING
THE LONG 23 EQUITIES 28 BULLS OR BEARS? 30 ANALYSIS: OIL DIFFERENTIALS 32 FX: THE DOLLAR AHEAD 34 KEN FISHER 36 CHART WONK
THE SPREAD
46 30 18
40 TRAVEL FEATURE 44 RESTAURANTS 46 TOP GOLF RESORTS 50 CITY GUIDE: BARCELONA 54 WEEKENDS 56 EXPERIENCE 58 CITY LIFE 60 BLUE CHIP FILES
40
THE CLOSE 63 BOOK REVIEW 64 GREAT TRADES 68 WHO’S WHO 72 GLOSSARY 74 FUNNY MONEY
March 2011 | THE EXCHANGE | 7
London investor show Forex London oLympia Friday, 25th February 2011
Learn new skiLLs to heLp you become an expert Forex trader
Traders around the world make big profits, day and night, trading currency. The fx markets are open, 24/7, and billions of dollars are traded every single day. Attend the London Investor Show FOREX to find out how YOU could make money trading currency. Whether you are already an active fx trader, or just starting out, the London Investor Show FOREX will help you build confidence and trade with success. A busy and exciting day, the London Investor Show FOREX is the place to be – Join us on Friday, 25th February at London Olympia. For full details, please visit the website www.londoninvestorshow.com or call us on 0870 974 1995. Book your ticket today.
show Features incLude investment workshops • Trading Forex – An Introduction • Fundamental and Technical Analysis for Forex Traders • How to Create Your Own Forex Trading System • The Psychology of Forex Trading • Elliott Wave – The Theory Each workshop lasts for one hour and costs £25 which includes a full set of course material. investment exhibition Meet the companies and the people who have the products and services designed to help YOU become a successful and profitable Investor. Free seminars incLuding: • FX – The Ultimate Trading Indicator • The FastTrack to Forex Profits
the speakers
Alpesh Patel
Sandy Jadega
Rakesh Shah
Lee Sandford Kym Watson
upcoming events
Alternative Investing and Commodities Friday, 20th May 2011 Stock Market Investing, including CFD´s and Spreadbetting Friday, 21st October 2011 To register your interest in these events and to be offered priority registration, please email lisa@londoninvestorshow.com
Tickets to the London Investor Show FOREX cost £25 each and include your FREE Delegate Welcome Pack (worth over £100!), access to all free seminars, plus your copy of the London Investor Show FOREX Event Guide, and your accessall-areas VIP pass. As a client of The Exchange – you can claim a FREE ticket, and one FREE fx workshop, together worth £50! Simply use the special voucher code “EXCHANGE” when booking online at www.londoninvestorshow.com
registration hotLine: 0870 974 1995 or register online at www.londoninvestorshow.com
LET’S GET GOING
OPEN THE
IN THE OPEN UPS AND DOWNS FILM CORNER CELEBRITY TRADER
What’s my age again Silvio?
Fabrice Thuile/AP/Press Association Images
Italian Prime Minister Silvio Berlusconi found himself well and truly in hot water last month after he was indicted to stand trial for having sex with an underage prostitute and abuse of office relating to her release from detention. Berlusconi is accused of paying Moroccan nightclub dancer Ruby Heartbreaker for sex between February and May 2010 and for then busting her out of a Milan jail during that same period. The scandal broke when the seventeen year old was arrested on suspicion of stealing 3,000 euros carrying no documentation and was subsequently carted down to the local station for questioning. Enter Berlusconi, ever the knight in shining armour, to demand the release of the teenage babe into the custody of Nicole Minetti, another suspected former squeeze turned government official. If convicted Berlusconi could face up to fifteen years in prison, but we’re not expecting that to happen any time soon. After all, it’s not as if Berlusconi hasn’t felt the heat from public prosecutors in the past is it? The latest figures have the over/under estimate on Berlusconi’s brushes with the law at 2,500 court appearances in 106 trials to date relating to everything from tax fraud and embezzlement to attempting to bribe a judge. So whilst we can expect a lot of huffing and puffing from those opposed to the man’s “unique” style of politics, don’t be surprised when you see Berlusconi come away from his latest trial, scheduled to begin in April, unscathed. He’s made a career of it.
March 2011 | THE EXCHANGE | 9
THE OPEN | UPS AND DOWNS
UPS&DOWNS
From new operators to trading issues, a round-up of the things that have caught our eye this month
Historic Formula 1 franchise turns to stock
SeriOUS iSSUe OF THE MONTH
Nokia and Microsoft connect In an attempt to keep up with rivals Apple and Google, mobile phone manufacturer Nokia has announced a partnership deal with Microsoft. The higher-margin smartphone market has rapidly expanded in the past 12 months, however Nokia’s own operating system for smartphone has been unable to remain competitive with the more sophisticated iPhone and Android platforms, prompting a heavy fall in Nokia’s market share. The Finnish manufacturer’s smartphone market share fell from 38% to 28% in 2010
in figures published by global market intelligence firm IDC. Microsoft’s Windows Phone operating system is considered to be a market leading technology by industry experts, but has yet to find favour with consumers. An integration of the front line technology with the established Nokia brand could be the perfect partnership for both parties, which each side having what the other is lacking. At the least, the deal should reinvigorate Nokia smartphone sales, making the market a legitimate three product oligopoly.
CRUDE REALITY We’re not sure if you’ve noticed or not, but there’s something of crisis or half dozen occurring in the Middle East at the moment. And just like any uncertainty surrounding a country’s political or economic future, the riots and unrest across a number of the major states in the region have wreaked havoc on market prices of commodities associated with the region.
10 | THE EXCHANGE | March 2011
Send us your news, views, and unprintable gossip at: editor@theexchangemagazine.com
But this region isn’t just any region, and the commodities we’re talking about are more than just any other commodity. Oil futures are more volatile than they have been for years, and where there’s volatility there’s money to be made. So how have the top traders been using this situation to their advantage? we’ll let you explore the magazine for answers to that question yourself.
Formula 1 team Williams has confirmed that it will float 27.39% of its existing shares on the Frankfurt Stock Exchange in the coming month. The first day of official trading is expected to be some time in early March, with Swiss Bank Bellevue AG having been given the responsibility of co-ordinating the IPO across the globe. It is hoped by all at Williams that the added capital the IPO will create will help the team become more competitive in the coming seasons. The move follows one of the most disappointing eras in the team’s illustrious history; after dominating the racing world in the 1980s and 1990s, Williams have all but fallen off the radar as F1 title contenders in recent times. With Ferrari, McLaren and new F1champions Red Bull all using their huge spending power to routine improve the performance of their machines, teams like Williams will no longer be able to compete on the track if they are unable to compete off it.
THE OPEN | UPS AND DOWNS
Man Utd still not for sale through to the end of 2010 dropped slightly from £33.1 million to £32.8 million, commercial turnover including overseas merchandising climbed from £19.2 million to £25.5 million. So if you are in the market for a Premiership football team in 2011, it looks like you’ll have to set your sights away from Manchester.
Preferring my own company, thank you We were very interested this month when we heard that Ben Affleck, Tommy Lee Jones, Kevin Costner and Chris Cooper were releasing a film about a year in the lives of a number of successful businessmen adversely affected by the financial crisis of 2008 so we thought we’d check out The Company Men.
Affleck takes the lead role as an executive who loses his job after his company is forced to downsize, and the story focuses on how he adjusts to life away from the dizzy heights of his previous employment. Sure, that’s affected a lot of us we thought. Gritty realism and emotional angst at its best. Sure, Affleck does gritty as well as your average block of wood does, but in terms of being relevant to current world affairs, there aren’t many more relevant film topics out there. This has to be a hit. Well, how wrong could we have been? We’ve only got one thing to say about The Company men, and it’s this. If you’re one of the (very) few people who think that corporate management, the mundane nature of the office grind and the perils of unemployment are something you just don’t get enough of from your nine to five and in fact need a bit more of it in your home life, then this is the movie for you. If, on the other hand, more hard hitting reminders of the economic crisis and Affleck’s acting career post Good Will Hunting (see page 12) are things you wish never to have existed, there really is nothing in this for you. You’ve been warned.
FAT FINGER OF THE MONTH Technical blunder costs ASX $1.5bn The Australian Stock Exchange was left with egg on its face last month when a technical error caused trading to be completely shut down for some time in all markets, including CFDs. The ASX said it was experiencing “technical difficulties” regarding trade dissemination on “partition three” securities. The problem was that confirmation messages, which are sent to confirm trades as they are booked, were not received for a number of trades. The result was uncertainty as to whether booked trades had been recorded or not. Roughly one fifth of the stocks listed on the ASX were affected by the problems but, because trading couldn’t be allowed to continue where uncertainty existed about many of the trades, the ASX decided the only course of action to take was to shut trading entirely. The shutdown will have resulted in a significant loss of turnover, with estimates ranging from $1.5bn to $2bn. All trades, including those that may have been affected by the lack of confirmation, would stand.
March 2011 | THE EXCHANGE | 11
Evan Agostini/AP/Press Association Images
Manchester United’s owners released the club’s quarterly financial results last month, and used the positive news to reaffirm that no talks have taken place over a possible takeover of the club. The Glazer family, who have owned the Premier League leaders since 2005 but have been unpopular with a large section of the club’s followers for a large period of their reign despite bagging three Premiership titles and a Champions League victory for the United faithful, reiterated that the club is “not for sale” as United revealed increased earnings in the first half of the financial year through to the end of December. Qatar Holdings has repeatedly been linked with a possible takeover of the club in recent months, and consortium group the Red Knights were also keen to take control of the club before that. However, in an accompanying statement to the figures, the club dismissed the continued speculation by saying: “The owners remain fully committed to their long-term ownership of the club. No discussions have taken place, Manchester United is not for sale and the owners will not entertain any offers.” United’s EBITDA (earnings before interest, tax, depreciation and amortisation) increased by 3.2% to £60.6 million in the six months to the end of December. Although domestic match day income for the three months
THE OPEN | FILM CORNER
This issue, the story of a mathematical genius who can’t find his way out of the grimy streets of downtown Boston or a criminal past. His saviours, a Fields Medal winning professor at MIT, a romantic Harvard student, and a therapist working through some serious ISSUES of his own.
FILM CORNER The Film Released in 1997, Good Will Hunting was the film that launched the careers of Matt Damon and Ben Affleck from lowly actors to global superstardom. Will Hunting (Damon) has a gift for mathematics that could take him far beyond the blue-collar roots of his upbringing, but struggles as he’s forced to address his past before he change his future. Will: Why shouldn’t I work for the N.S.A.? That’s a tough one, but I’ll take a shot. Say I’m working at N.S.A. Somebody puts a code on my desk, something nobody else can break. Maybe I take a shot at it and maybe I break it. And I’m real happy with myself, ‘cause I did my job well. But maybe that code was the location of some rebel army in North Africa or the Middle East. Once they have that location, they bomb the village where the rebels were hiding and fifteen hundred people I never met, never had no problem with, get killed. Now the politicians are sayin’, “Oh, send in the Marines to secure the area” ‘cause they don’t give a shit. It won’t be their kid over there, gettin’ shot. Just like it wasn’t them when their number got called, ‘cause they were pullin’ a tour in the National Guard. It’ll be some kid from Southie takin’ shrapnel in the ass. And he comes back to find that the plant he used to work at got exported to the country
The Scene Professor Lambeau has spread the word of Will’s genius to his contacts in the world of business and the Government. The job offers come in thick and fast, but it looks as though Will is going to need a lot of persuading if he’s to accept a position where his talents can be fully recognised
he just got back from. And the guy who put the shrapnel in his ass got his old job, ‘cause he’ll work for fifteen cents a day and no bathroom breaks. Meanwhile, he realizes the only reason he was over there in the first place was so we could install a government that would sell us oil at a good price. And, of course, the oil companies used the skirmish over there to scare up domestic oil prices. A cute little ancillary benefit for them, but it ain’t helping my buddy at two-fifty a gallon. And they’re takin’ their sweet time bringin’ the oil back, of course, and maybe even took the liberty of hiring an alcoholic skipper who likes to drink martinis and fuckin’ play slalom with the icebergs, and it ain’t too long ‘til he hits one, spills the oil and kills all the sea life in the North
Atlantic. So now my buddy’s out of work and he can’t afford to drive, so he’s got to walk to the fuckin’ job interviews, which sucks ‘cause the shrapnel in his ass is givin’ him chronic hemorrhoids. And meanwhile he’s starvin’, ‘cause every time he tries to get a bite to eat, the only blue plate special they’re servin’ is North Atlantic scrod with Quaker State. So what did I think? I’m holdin’ out for somethin’ better. I figure fuck it, while I’m at it why not just shoot my buddy, take his job, give it to his sworn enemy, hike up gas prices, bomb a village, club a baby seal, hit the hash pipe and join the National Guard? I could be elected president. MORAL OF THE STORY: Don’t underestimate how small decisions can have big consequences
What would Gekko Do? Silver Fox Still Has It
Heartbreaker, I wondered whether you had ever let a good looking woman get in the way of you and a great trade?
Daniel from Hemel Hempstead asks: Gordon, having seen another smooth operator, Silvio Berlusconi, in all sorts of trouble in Italy following his not so discreet encounters with Ruby
12 | THE EXCHANGE | March 2011
Gecko replies: Let me give you some advice Daniel. Women are like bad trades, they entice you in with promises of huge returns only to skip town when the going gets tough and take you for everything you’ve got. But here’s the dilemma; make a bad trade and there’ll be no bad women to worry about, make a great one and there’ll
be plenty. So keep your trades close and your women closer. Big Bucks from Knightsbridge writes: I was surprised not to have seen you on the television last month Gordon. I assumed with all the trouble in the Middle East you’d be on the first plane over there, tying up deals with Gaddafi and co to ensure your share of the spoils before the mob could get their hands on it? Are you getting scared in your old age?
Gecko replies: With a name like Big Bucks I assume you think you have Big Balls? Well allow me to let you in on a little secret. While small fry like you are watching the news on your brand new Sony widescreen you’ve just bought from Harrods, big fish like me are already out there making that news happen. Did I mention I have more Sony shares than you can shake a stick at, so every time you look at that shiny screen of yours you’ll see my smiling face staring back at you.
the open | CELEBRITY TRADER
Simon Jessop
Winner, winner, Trading at Dinner
14 | THE EXCHANGE | March 2011
THE OPEN| CELEBRITY TRADER
Cooking up a trading storm: Heston Blumenthal heads to City Index to try his hand at being our celebrity trader this month. We know what he can do in the kitchen, but does he have the palate for a good trade? Wearing his iconic chef ’s whites and sporting a smile, there are few more recognisable people in Britain right now than Heston Blumenthal. As we step inside the glass lift of the City Index offices and proceed to ascend through the building to the trading floor I begin to see heads turning and can even feel eyes staring. More and more people clock us making our way through to where we would be meeting our trading experts for the day but that must mean nothing to Heston, who’s seen this this all before. As he sits at a forex station on the City Index trading floor we begin the photo shoot, and immediately clear that Heston’s a natural in front of the camera. As we break to look at the first shots he nonchalantly picks up a carrot laid out as a prop and takes a casual bite, then turns to the traders at the adjacent stations and jests “just another day in the office?” They share a joke, but in truth that is what the average media days are for Heston; just another day in the office. Yet once the initial snaps are out of the way it becomes clear that we’re a long way from going through the motions here. Lively and energetic, once given the opportunity Heston bounces around the trading floor and is immediately engaged by what’s going on around him. He wants to know from
Kishan, our expert trader, everything there is to know about trading. His pursuit of culinary perfection and love of Arsenal football club had led me to think Heston would be a competitive celebrity trader before we’d met and I certainly wasn’t disappointed. He wants to do well. In fact, he wants to be the best. As we continue on the tour of the trading floor it’s clear from the animation around us that something a little out of the ordinary is going on this morning. A glance at the news screens provides the answer, Brent crude has jumped again overnight and is now sitting at $107 a barrel. Clearly this is big news, a fact that’s confirmed by the energy and noise reverberating across trading desks. Heston seems enthralled by the activity taking place around him, and from his barrage of questions it’s as if he’s anxious to get involved in some of the action. But I suppose that’s not surprising, after all it’s not as though he hasn’t proved that he strives in high pressure environments before. I ask him if his kitchen ever gets this frantic, and he turns to me and laughs as if to say “this is nothing, mate”. I take it as a yes. Having to constantly juggle the dual careers of being the most celebrated chef in the UK and a media personality simultaneously means that Heston is always a busy man. However, he’s probably never been as busy as he is right
Dinner at The Mandarin Oriental
March 2011 | THE EXCHANGE | 15
the open | CELEBRITY TRADER
Simon Jessop
“it’s a surprise the man has time to breathe, let alone trade. Yet here he is, keen as his own mustard ice cream.”
now, and might never be again. After spending fifteen years perfecting the three Michelin star restaurant The Fat Duck, consistently voted the best in the UK, he is branching into London for the first time with his new eatery, Dinner at the Mandarin Oriental Hotel. Expectations couldn’t possibly be higher, and with Heston’s reputation for meticulous attention to detail on the line it’s not surprising that he’s spent hundreds, if not thousands of hours making sure everything is perfect for the launch. And with the restaurant fully booked until the end of May, the hard work isn’t over yet. Throw in the fact that his new television offering Mission Impossible, in which he takes on the challenge of altering the cooking habits of some of the country’s biggest institutions, begins airing tonight and it’s a surprise the man has time to breathe, let alone trade. Yet here he is, keen as his own mustard ice cream. When we finally manage to drag him away from the trading floor for five minutes we begin to discuss some of the commodities and stocks he’s thought about trading. Like almost all of us, he’s got his own story of a dabble into trading that’s not gone well, but that doesn’t appear to have put him off at all. We talk about wine and wine trading, a subject that Heston is understandably knowledgeable about. With the opportunity
16 | THE EXCHANGE | March 2011
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TRADER’S VIEW
Sam Steele, Head Trader, City Index It’s important to trade what you know. If you start to trade markets that you don’t understand how or why prices move, then you could already be fighting a losing battle. This is something that I mentioned to Heston in our first call and since then it seems he has taken the comments on board well, a fact emphasised by Heston’s knowledge of increasing pressures on margins for certain firms as a result of rising commodity prices, particularly that of foods. Of course, leaving trading decisions purely down to one’s own knowledge or experiences is not fool proof at all and a degree of research is recommended. One should look at what events are on the horizon that may impact market prices such as company earnings or macroeconomic data.
to purchase and sample wines that most of us can only dream about, he tells us of a case of wine he purchased as an investment a number of years ago that increased in value by six times in twelve months. The only problem is that as man with such a sumptuous palate, the desire to savour his purchases has often prevented him from realising his profits. “You really have to taste the evolution of the wine to appreciate it properly”, Heston says. “So you drink one bottle after two, four, six and eight years. But after that you’ve only got two bottles left, which is a bit of a problem if you want to be a wine trader!” When we discuss what he’ll be trading with City Index once again Heston begins to talk about his hobbies. It’s clear that he wants to maintain an emotional attachment in his interests, in the same way that he allows his own love for food and in particular that of his childhood to dictate the direction of his restaurants. BMW, Apple and of course his beloved Arsenal all crop up as things he’s thought about trading in, but with the Gunners currently trading at over £13,000 a share he might just have to look elsewhere this week. In any case, it sure looks as though we may be in for our most unoriginal, yet potentially brilliant celebrity trader to date. But what else would you expect from Heston Blumenthal. Did Heston follow his instinct and trade with his heart instead of his head? Did he make a profit? Did he manage to overtake Caprice at the top of the City Index Celebrity Trader leader board? Which charity did he choose to give the money to? Find out now at www.theexchangemagazine.com
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BETWEEN THE TRADING FLOOR AND THE FINAL SCORE...™ SCAN TO GO TO THE SITE
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FEATURE | FRONTIER MARKETS
18 | THE EXCHANGE | March 2011
FEATURE
A mobile trading revolution As 2011 begins to gather momentum and we head towards a new financial year, it’s time to ask the question of whether this is the year mobile trading finally takes centre stage Like every facet of life, all things must pass. And in no sector is this more apparent than technology, where today’s electronic wizardry of choice will be tomorrow’s has-been in a blink of an eye. Well now it is the time for trading to be put under the microscope, as it’s evident that we’ve reached a crossroads. The old order is fast coming under threat from a new breed, and the young pretender ready to step into its aging shoes. Specifically it is the world of desktop trading that’s being challenged by its technological offspring: mobile trading. The internet generation has seen desktop trading rule supreme over spread betting and trading account holders, but those days have come to an end. The internet is available too readily from mobile applications for desktops to compete now with convenience and accessibility. It’s time for the new generation to begin. There’s no doubt that mobile trading exploded onto the spread betting scene in 2010, and that this trend will continue in 2011. There are two significant reasons that explain why the last 16 months have seen the emergence of mobile trading as a viable alternative to desktop trading, and why a
“The old order is fast coming under threat from a new breed”
continual increase in mobile trading volume on the horizon is not only a certainty but may even occur earlier than is currently expected. The first is simply the sheer volume of consumers with smart phones in 2011. It goes without saying that the growth of smartphone trading is restricted by those who have smartphones to trade with, but in the present day this is all but a non-factor. The percentage of UK residents with a smartphone is now so high that any arguments that the market isn’t big enough for mobile trading to truly take off won’t hold water. When you consider that any smartphone statistics will be accentuated in a spread betting demographic because traders are generally people with more disposable income than the average person living in Britain, it’s easy to see why companies have been keen to develop mobile trading technology as quickly as possible. A rapidly increasing volume of smartphones on the market does meant that volumes of mobile trading will inevitably rise, but the predominant reason traders are becoming more and more drawn into the idea of trading whilst on the move is that the concept of trading off a mobile phone being as technologically advanced as a computer, which was once
March 2011 | THE EXCHANGE | 19
FEATURE
nothing more than a fantasy, is now a very definite reality. The development of smartphone technology in recent years, particularly the emergence of Google Android technology in challenging the ever improving market leaders iPhone and Blackberry, has meant that the ability to maintain a realistic trading platform is far more viable in 2011 than it was just a few years ago. Consumer confidence in mobile trading applications will always be paramount because of the sums of money that can be made or lost in trades; a platform that isn’t up to doing the job of processing trades correctly will never survive in the marketplace because any gap in technology will inevitably have a negative effect on trading performance. Desktop trading online has advanced to the point where even the most amateur of traders can operate them efficiently without any trepidation that the platform will let them down as key moments. If any platform can’t meet that standard of excellence it won’t survive in the competitive world of spread betting regardless of whether it’s desktop or mobile. And when you’re a relatively new product trying to challenge the established order that point becomes even more significant. If the clientele aren’t convinced that a mobile trading platform can do the job of its desktop counterpart, the idea’s a non-starter. As soon as smartphone technology had the capability of running a powerful enough internet for a platform to be viable, development began on producing a mobile trading device comparable to desktop trading. The first company with a product ready for the rapidly expanding iPhone market was City Index, who launched the first spread betting and contracts for difference app in October 2009. The app, called City Trading, proved an instant success with spread bettors. Mobile trading, which accounted for just 2% of total trade volume before the release of the app, jumped instantly and now currently stands at over 20%. The astronomic increase in the number of trades taking place is even more noticeable in new account holders trading after the introduction of the app. The app allows the traders to deposit and run every facet of their account through their mobile phone, meaning that a proportion of traders who have been spread betting clients for less than 17 months have never traded on a desktop computer. The easily predictable success of City Trader confirmed what many had believed for some time, that industry evolution through technological advance would funnel traders away from their desktops towards mobile
20 | THE EXCHANGE | March 2011
“some traders who have been clients for less than 17 months have never traded on a desktop.”
technology in much the same way as the development of the internet moved trading away from the telephones and onto computers. A host of other spread betting applications emerged from other companies for iPhones over the course of 2010, with each looking to replicate the standard of service of their desktop equivalent. The concept grew further, the technology improved, and the trade volumes across the board continued to rise. “Over a third of CMC Market’s active clients
FEATURE
use the iPhone app every day”, a spokesperson for CMC said when asked about current mobile trading volumes; a clear indication that the trend is much more than a temporary phase. City Index continues to lead the pack in terms of product development, and again has made the first jump into a new market area by launching a mobile trading platform for the Google Android phone in December 2010. The application, which is unique to the market, has live streaming charts with multiple technical indicators allowing clients to undertake market research and make trades directly from a phone, much like the more common iPhone application. And there is no reason or argument to suggest that the evolution of trading further towards mobile based products will slow down any time soon. Whilst it is true that a proportion of established traders may not be convinced that mobile trading is a trustworthy, secure and ultimately profitable method of trading moving forward, for those with an open mind to the possibilities created by technological advance the transition to more mobile trading will be a smoother one. For those new to spread betting there will be no transition at all. When comparing the two trading platforms (mobile and desktop) it’s clear where the future lies. Desktop’s strength is in the capability and speed of its technology, the amount of information it can provide the user with instant access to and the security of its established status as a platform of trust for the user. Mobile
trading can, and is, closing all of those gaps at an increasing speed. Where mobile trading holds its advantages are in convenience, adaptability to lifestyle and ease of access to a spread betting account wherever you are in the world and at whatever time of day. So long as a phone can connect to the mobile internet network (be it 3G or wireless internet) a mobile trading platform is active in your pocket. No amount of product development on desktop spread betting platforms can close this gap. It is only a matter of time before desktop trading platforms have no technological advantage over mobile trading whatsoever. Of course desktop computer technology will continue to advance, but whether this will translate into continually improving trading platforms that will offer more to traders than they will be able to get from the one on their phone is less clear. So where does that leave us moving forward? Well, whether you’ve decided that mobile trading is already the way to go and only access your account via your mobile, occasionally trade via your mobile when circumstances dictate that you have to or are yet to be convinced that “trading on the run” is something you want to get involved in, the truth is that everyone holding a spread betting account with a company that has a mobile trading platform will have considered at one point or another whether to trade from a platform, meaning that growth in the area will continue until the market is satisfied. Spread betting companies have large mobile technology teams whose chief task is to deliver cutting edge and innovative mobile solutions
for clients who want them. “The last 18 months have very much been about giving clients access to trade on their mobiles”, is the view of City Index. And not only are the mobile trading platforms continuing to improve in terms of providing the tools and range of functions that are accessible from a desktop trading platform, the hardware from which they run also continues to develop. In many ways the mobile trading market is reactionary to the technology market, as nothing can be developed by spread betting companies that would ever be comparable to desktop trading if there were no devices on which to use them, but this is currently not an issue. The iPad allows those averse to concentrating on such a small screen for periods of time to mobile trade on something bigger, and the improvement in Java and Windows phone technology will open the smartphone market up even further to mobile trading platform development. A limited number of Blackberry trading applications are already on the market, but this is expected to rise significantly in 2011 meaning that an even greater percentage of spread bettors will have access to mobile trading. And there’s plenty more to come after that, but unfortunately such is the importance of mobile trading to spread betting companies that shrouds of secrecy prevent us from revealing them just yet. Let’s just say that there’s a long way to go before mobile trading development is exhausted. So what does this mean for desktop trading? Well, perhaps our predictions of its downfall at the beginning of this article were a little far-fetched, and certainly more than a little premature. However, even the briefest exploration into how much time, effort and resources are going into mobile trading application development is a clear indication that mobile trading is a significant part of spread betting future, even if it isn’t all of it. With new young traders preferring the on the move style of trading and having the technological know-how to use mobile trading applications quickly and efficiently, it wouldn’t surprise many in the industry if trading volumes on mobile trading platforms exceeded 50% in the near future. The barriers to access to on the move trading are falling at an incredible rate whilst the percentage of the population with smartphones continues to rise, so our conclusion is this: don’t sleep on mobile trading, give it a chance. The future’s smart, and the future of trading is smartphones.
March 2011 | THE EXCHANGE | 21
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THE THINKING PAGES
LONG THE
IN THE LONG NICK BEECROFT SANDY JADEJA ALASTAIR MCCRAIG MICHAEL DERKS KEN FISHER DECLAN FALLON
TMX chief warning over collapse of merger The head of TMX group, the controllers of the Toronto Stock Exchange, has fired a warning to Canadian officials after it was announced that a review will be conducted to determine whether the proposed merger between the Toronto Stock Exchange and the London Stock Exchange will be allowed to take place. TMX chief Thomas Kloet addressed the issue directly, stating that any intervention from Canadian local government would be damaging to the country’s free-trade credentials. It is currently unclear as to how Canadian authorities will respond to Kloet’s words. Opposition to the merger has grown steadily since the announcement in February, and now Ontario will conduct a review to determine whether the deal will benefit the province and Canada as a whole. Chief critic of the merger is Ontario Finance Minister Dwight Duncan, who fears the move will see Canada lose control over its main capital markets. “If it’s an investment, great. If it’s a takeover, and operations move to London, that’s not what we’re interested in,” Duncan said. “They should quit calling it a merger.” If the merger were to go ahead, the deal would create a single trans-Atlantic operator valued at $7 billion (4.3 billion pounds), making the venture the world’s fifth largest exchange ranked by trading volume.
March 2011 | THE EXCHANGE | 23
THE LONG | Analysis
Equities-bulls continue to get their way? Nick Beecroft – Saxo Bank
24 | THE EXCHANGE | March 2011
THE LONG | Analysis
We look for healthy returns from equity markets in 2011 as we enter the mature phase of the earnings cycle. We have a year-end target for MSCI World of 1,400, roughly a 10% gain on the 2010 year-end, around 1,275. We expect economic growth in 2011, especially in the U.S. and emerging markets, and increased confidence in the sustainability of the economic recovery is the foundation for our positive outlook. As corporates gain confidence in the recovery they will start to re-leverage their balance sheets, spend more on hiring, and increase capex, supporting earnings growth and increasing risk appetite for equities.
Higher valuations will drive returns in equity markets in 2011. We do not expect an aggressive cyclical pick-up in sales, as final demand will grow only slowly in developed economies. We expect slower margin improvement compared to recent years and therefore doubt that earnings growth consensus of 15% globally will be achieved; we target only 7%. One of the main drivers of return in equity markets next year will be corporate re-leveraging. Return on Equity (RoE) will remain under pressure as cash balances are currently very high, while profit margins are peaking. To protect profitability companies will start to increase their leverage through hiring, share buybacks, dividend payouts and M&A to improve RoE. This will lead to P/E multiple expansions, which will in our view be the main driver of returns in 2011. The MSCI World 1-year forward P/E is currently 30% below the long-term historical average and, even with modest earnings growth assumptions of 7%, the implied global P/E would be 12.8; leaving headroom for further P/E multiple expansion to offset slower growth in earnings.
USA: more to come from equities Valuation metrics for the S&P500 indicate that U.S. equities are attractive, as earnings have recovered faster than prices. For 2011-12 we forecast earnings per share of USD 92 and 99 respectively, which imply earnings growth of 9.5% and 7.6%. This is below consensus of USD 96 for 2011 and USD 108 for 2012. Our year-end forecast for S&P500 is 1,420, a 13.6% return for the year. The macroeconomic background for earnings development in the U.S. is supportive. The cost of borrowing money is very low – we expect the Fed Funds rate to remain unchanged at virtually zero in 2011. Our inflation expectations are also low, at an average 1.4%, which is clearly below the Fed’s target of 2 percent . Finally, GDP growth is expected to grow by 2.7% year-over-year. Sales growth, profit margins, and earnings The main driver behind sales growth over the long term is GDP growth, which we forecast to average 2.7% this year. We forecast sales growth of 6.5%, against consensus of 6.8% What surprised us in 2010 was the strength of the comeback in profit margins. We have seen accelerating margin improvements in this
“The MSCI World 1-year forward P/E is currently 30% below the longterm historical average”
recovery and standing on the verge of 2011 the question is: can it continue? The short answer is no; although low interest rates and higher GDP growth will be supportive, we look for lower margin growth in 2011. Commodity prices are expected to increase, especially industrial metals, and further increases in productivity will translate into demands for higher salaries. Bottom-up consensus for S&P500 ex. financials is for margin growth of 9%, but we look for 8.6%. The cash/asset balance for S&P500 ex. financials is now at a record high of10.8%; we look for the ratio to come down this year, driving earnings growth through share repurchases, M&A, and spending on capex. P/E expansion is key in 2011 Unchanged P/E during 2011 would leave us with a year-end target of S&P500 at1,370. However the S&P500 is currently trading at a P/E multiple of 13.6 times our 2011 estimated EPS, whereas we feel the current low interest rate environment implies a P/E multiple in the range of 14 to 16. The macro risks that were present in 2010, especially the fear of contagion of the sovereign debt crisis from Europe to the rest of the world increased the cost of equity and this put downward pressure on valuations as investors were reluctant to hold risky assets. These are still present, but we expect the economic recovery to overshadow them and give investors increased confidence. Sector preferences In H1 2011, we prefer to ride the pro-cyclical wave and get exposure to energy, technology and basic materials companies. Besides these
Regional preferences We favour emerging markets, as this is where we will experience the highest earnings growth, led by GDP growth. The U.S. is coming in as a strong second in our regional hierarchy, with the Eurozone last, as we expect sovereign debt concerns to re-emerge, putting equity markets under pressure. Japan is unpredictable, but we cannot help thinking that we will see a rebound there. Index
S&P500 DJSTOXX600 Nikkei225 MSCI EM
Year-end forecast
1,420 315
11,400 1,350
Implied price return
13.6% 12.5%
10.2% 19.4%
March 2011 | THE EXCHANGE | 25