The Exchange | Issue 8

www.theexchangemagazine.com

BETWEEN THE TRADING

FLOOR

FINAL

SCORE...

Discipline

Self-doubt

Risk

AND THE

Focus

CONFIDENCE

Nerves Perseverance

Fear Unlocking trading’s psychological secrets

Can any currency challenge the US dollar’s status as top dog? issue 8 JUNE 2011 £3.95

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THE OPEN | WELCOME

EDITOR’S LETTER

ART DIRECTOR ALEJANDRO GUERRA-PALACIOS

School for Scandal It’s been an interesting period since our last issue in and away from the markets, and for a number of high profile public figures and companies in particular the end of May cannot have come quick enough.

Scandal has jumped from the lurid pages of the redtops to their more palatable neighbours left, right and centre, causing the Exchange office walls to reverberate with the deafening noise of raucous debate and the silent whisper of rumour and intrigue. It’s been far from pretty, I can tell you. Not that we’re gossips or anything.

Ok, maybe a little bit.

Top of the bill, of course, has been the catastrophic demise of DSK and the fractious state of the IMF. Just how the world’s premier banker has managed to arrive at the position he now finds himself in is almost impossible to fathom (no, we’re not falling for the Russian honeytrap conspiracy theories just yet), but what we do know is this; the fallout of DSK’s insalubrious actions is a mess that needs to be cleaned up quickly.

It appears though the role will remain occupied by a European, and Christine Lagarde is the clear cut first choice to step into Strauss-Khan’s shoes, if only for the fact that few national economies in Europe outside of Germany and France are able to salvage enough self-respect to even suggest a viable candidate.

There is one Brit blind enough to throw his name into the mix though, and it’s someone you might have heard of before. Good old Gordon Brown is lurking on the IMF horizon, and you’d be foolish to count him out of the running for president just yet. After all, it isn’t as though he’s not well practiced in side-dooring his way into positions he wasn’t voted into.

Only joking Gordon, we’re all behind you.

Although if the mighty Blue couldn’t crack Europe, I’m not sure how you’re going to manage any better. Sorry to be the bringer of bad news and all that.

And now, as we go to print, the world’s least well-kept secret is breaking. No, it doesn’t involve Ryan Giggs, Imogen Thomas and 75,000 Twitter users (and yes, I did just write that to be naughty), although it’s not exactly been a month to remember for the most decorated footballer in English football either.

It’s that FIFA, football’s governing body that permits just a handful of people to determine contracts worth billions and billions of pounds, is rife with corruption. It seems as though every country in the world knew this already, including our own 2018 World Cup bidding team, so it’s not as if we can pretend to be shocked about it now. Although David Cameron, Prince William and David Beckham probably do feel a little bit foolish about the whole process looking back, after all a couple of wedding invites and a signed Becks shirt were all that separated us from first and last in the eyes of the judging panel.

So Gordon, now you’ve seen how a vote is won properly, follow FIFA’s lead and I’m sure the world’s top banking job will be all yours.

One last piece of advice though: just make sure Nicole Scherzinger doesn’t suddenly want to be your best friend, because you might not keep your job for very long.

I hope you enjoy the issue.

ALEX HAMMOND EDITOR

4 | THE EXCHANGE | June 2011

EDITOR Alex Hammond

HEAD of DESIGN ISABEL FERRER Writers & CONTRIBUTORS SANDY JADEJA NICK BEECROFT DECLAN FALLON KEN FISHER ALASTAIR McCAIG MARK SOUTHERN Alessio Rastani Michael Hewson Peter Webb TOM ROTHERHAM CHRIS SMITH ZOE FIDDES SIMON SMITH GREG MICHALOWSKI ATIF LATIF SVETOSLAV GEORGIEV STEWART COLLINS EVE LAWRENCE SARAH MCARDLE DIGITAL CONTENT & MARKETING ANDREW CAPEL Public Relations Mark Southern Polygon PR SOCIAL MEDIA MANAGER Simon wiltshire Subscription@ Theexchangemagazine.com PUBLISHED BY The exchange ADMIN@THEEXCHANGEMAGAZINE.COM

© 2011. The Magazine is published by The Exchange.

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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.

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CONTENTS

contents 14

THE OPEN 12 14

UPS & DOWNS CELEBRITY TRADER: KATE GARROWAY & CLARE NASIR

FEATURE ARTICLE 16

IT’S ALL IN THE MIND

THE LONG 32 34 36

16

32

42 44 46 48 50 52 56 58

EUROZONE DEBT CRISIS THE EURO PARADOX ANALYSIS: ETF CONCERNS 40BUY LOW, SELL HIGH, BUY HIGHER AIM MARKETS & CFDS US DOLLAR TOP DOG? KEN FISHER CHART WONK THE SWING OF THINGS ANALYSIS: PRECIOUS METALS THE ART OF THE PURCHASE THE WINE MARKET UPDATE

THE SPREAD

56

68

62 SUMMER PARTIES 68 CIY GUIDE: MARRAKECH 72 WEEKENDS 74 TRAVEL DATING 78 RESTAURANTS

THE CLOSE 82 THE SPIRIT OF BURMUDA 84 WHO’S WHO 88 GLOSSARY

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THE OPEN | WHERE DO YOU TRADE?

OPEN THE

IN THE OPEN UPS AND DOWNS CELEBRITY TRADER

No merci for ex IMF chief It hasn’t been the best month to be the world’s premier banker.

For the last person who iissn’t aware of what occurred in a hotel bedroom in New York last month, Dominique Strauss-Khan, now ex-IMF chief, is currently under house-arrest awaiting trial on sexual assault charges brought by a female member of the hotel staff.

He had initially been denied bail after being tracked down by police trying to board a plane out of JFK airport but, after posting a cool $1m bail, is now being

10 | THE EXCHANGE | June 2011

kept under constant armed guard instead.

The story has reverberated around the financial world, with most unable to comprehend how DSK managed to find himself facing jail time, if indeed the allegations against him are proved to be accurate in the courts.

Christine Lagarde is the odds on favourite to take over the hot seat but don’t count out Gordon Brown, who has openly expressed an interest in the role. And with a CV like Flash Gordon’s…well we’ll let you finish that sentence yourself.

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To join JPJShare.com now, visit www.jpjshare.com Or for more information, call us on 01624 641301 Risk Warning - The value of investments can go down as well as up. The past is not necessarily a guide to future performance and investing in shares could lose you all or part of your capital. The difference between the buy share price and the sell share price for smaller company shares can be significant. Profits from dealing in shares may be liable to tax - the level of tax and bases of relief from tax are subject to change. JPJShare.com offers an execution-only stockbroking service and does not offer any advice on the suitability of investments. If you are in any doubt about the suitability of a particular investment with regards to your individual circumstances, you should consult an independent financial adviser.

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THE OPEN | UPS AND DOWNS

UPS&DOWNS

From news stories to trading issues, a round-up of the things that have caught our eye this month

Send us your news, views, and unprintable gossip at: editor@theexchangemagazine.

Two-speed Eurozone confirmed by growth statistics

TMX takeover battle heats up The London Stock Exchange’s quest to takeover TMX, the operators of the Canadian Stock Exchange, took a new and unexpected twist last month.

The Maple Group, a collection of Canadian banks and pension funds who had a C$3.6bn counter offer for TMX turned down in favour of LSE’s bid, have turned their bid hostile in an attempt to block the accelerating deal between the stock exchanges.

TMX and LSE had already determined the date on which shareholders will vote on the proposed deal, which they are labelling as a

“merger of equals”, as opposed to a standard takeover.

“By accelerating the timing of their meeting to consider the LSE takeover, they have given us no choice but to make our offer available directly to TMX Group shareholders,” said Luc Bertrand, lead spokesman for the Maple Group and vice chairman of National Bank of Canada.

Shareholders are now faced with the decision of whether nationalistic opposition to the merger is the correct course of action, or whether the agreement between TMX and LSE is in Canadian national interests.

Galleon chief Rajaratnam found guilty of insider trading US hedge fund billionaire Raj Rajaratnam has been found guilty of making millions of dollars through insider dealing in the biggest legal case of its kind in history.

The eight week long trial ended with a unanimous guilty verdict, although Rajaratnam has already announced his intontion to appeal. He currently faces somewhere between fifteen and nineteen years jail time.

Rajaratnam has been released on a $100m bail, under the conditions that he wear an electronic tag at all times to prevent him from leaving the US to return to his native Sri Lanka, until 29th July when he will be sentenced.

12 | THE EXCHANGE | June 2011

He was found guilty on all fourteen charges brought against him including conspiracy and fraud, with recorded phone conversations between him and corporate insiders being the key evidence that secured the verdict.

Rajaratnam’s defence team are arguing that the fact that 23 of the original 37 charges brought against him have been dropped is evidence that the verdict is unsafe, and plan to appeal on those grounds.

In a clamp-down on illegal trading activity the attorney general has brought charges of insider dealing against 47 traders in the last 18 months. Rajaratnam is the 35th to be convicted.

The two-speed nature of the Eurozone economy was evident yet again on Friday as growth statistics of Eurozone countries for the first three months of 2011 were revealed.

Germany’s economy grew 1.5% in the first three months of 2011, and France and Austria both grew 1% over the same period. France’s growth rate was the highest over a three month period since the second quarter of 2006, and Germany’s economic situation is strong after posting the country’s highest export figures since records began being kept.

In contrast Italy and Spain’s growth was extremely disappointing, with published growth figures being 0.1% and 0.3% respectively.

Italy’s growth figures were the most substandard, with the 0.1% growth rate the same performance as the last three months of 2010. The Italian government recently cut its growth forecast for the whole of 2011 from 1.3% to 1.1%.

THE OPEN | UPS AND DOWNS

German exports reach all-time higH News Corp profits fall 21% after success of 2010

German exports rose drastically in March to their highest levels since 1950, when records of the statistics began.

Exports for the month totalled 98.3bn euros ($142bn; £87bn), 7.3% higher than the figures for February, on the back of increased demand in a glowing global economy. Imports also reached their highest since data began being collated, up 3.1% to 79.4bn euros.

Germany is the world’s second largest exporter, with only China exporting more products across the world.

Indications are that Germany could now be entering one of the strongest periods of growth in recent memory.

The figures, which are much higher than had been predicted, are further proof of a “two-speed” Eurozone. The German and French economies are continuing to prosper in a period of economic uncertainty whilst other countries, including Portugal and Greece, continue to struggle through a national debt crisis.

Toyota quarterly profits plummet, but recovery on the horizon Toyota Motor’s quarterly profits have fallen 77% in the first quarter of 2011 after the tsunami and earthquake that devastated Japan earlier in the year.

Net profits were 25.5bn yen (£192.7m, $315.5m) between January and March, Toyota executive’s revealed.

However, for the fiscal year from March 2010 to 2011 Toyota’s income doubled that of the year before, showing that the company was enjoying a period of strong profitability before the earthquake hit.

And the car manufacturer announced that production will accelerate from June, meaning that profits should return sooner than had initially been expected.

Previous estimations from Toyota had said production wouldn’t recommence until July.

President Akio Toyoda revealed on Wednesday that he expected Toyota’s manufacturing both in Japan and abroad to recover to 70% of its capacity before the earthquake by the end of June.

News Corporation has reported a 21% drop in profits for the first three months of the year, in the most part due to the success of the film Avatar in 2010.

News Corp’s net profit was $682m (£414m) for the January to March period of 2011.

Advertising revenues fell for the period at company’s newspapers in both the UK and Australia, but television advertising revenues improved.

Boss Rupert Murdoch explained that the company had not been able to match Avatar’s revenues from 2010, but expected profit rises to return in the remainder of the year.

“The great response to Rio (the movie) and our confidence in our upcoming releases indicate that the difficult comparisons in this segment over the past nine months are now behind us,” Murdoch said.

Income at its film division was halved to $248m, but the cable programming unit’s income grew 25% to $735m. Social media website MySpace’s revenue also fell with losses incurred as advertising and search again disappointed.

June 2011 | THE EXCHANGE | 13

the open | CELEBRITY TRADER

Day-breaking the markets The month’s celebrity traders are Kate GarrAway and Clare Nasir

14 | THE EXCHANGE | June 2011

THE OPEN| CELEBRITY TRADER

Simon Jessop

Kate Garraway and Clare Nasir have been staples of daytime television for years, wowing the nation at GMTV before Kate took up her current role at Daybreak and Clare continued her media career. They are two of the hardest working presenters on TV, so how did they find the time to be this month’s celebrity traders? Was it trading teamwork, or forex feuding?

We caught up with them to find out.

Clare arrives at our exclusive location in Poland Street before friend and colleague Kate. We are shooting at a private members club which Clare recalls drinking in regularly in years gone by, before hitting the headlines due to the triumph of a highly successful weight-loss regime. At a mere 5, 1” Clare dropped a dramatic 5 dress sizes, from a size 16 to a size 6, in as little as 4 months, enabling her to launch a second career in the health and fitness industry.

When it comes to talking about trading she’s enthusiastic, and even a little confident.

“Trading is something I have always been interested in” she admits enthusiastically, “it’s not rocket science for people like us”, she jokes.

As an Honours graduate in Mathematics who also holds a Masters in applied Marine Sciences, she might just be right. Throw in the fact that Clare’s an experienced weather forecaster who has dedicated her professional life to spotting patterns and trends analysis and we’re really starting to get excited. We might just have uncovered trading’s newest star.

Unfortunately when we mention this we’re sadly informed that plans to move to full time trading would have to be put on ice; Clare’s in high demand from twitter followers who are seeking her guidance as the latest Icelandic volcanic eruption threatens a second summer holiday season. The ash cloud claims another victim.

Soon Kate arrives all smiles and apologies as her prior meeting with David ‘The Hoff’ Hasselhoff over-ran. Looking radiant and “ready for business” in a striking blue trouser suit. Clare mulls over the wardrobe options she has brought, and the atmosphere of the shoot mellows to that of a breakfast catch-up rather than competitive trading.

“Clare has dedicated her professional life to spotting patterns and trend analysis...

We might just have uncovered trading’s newest star” They both appear comfortable and at ease, the manner in which we recognise them from television. We decide to stir it up a little bit and tease the fight out of them; it is all about the game after all, not the money.

Kate has been an enthusiastic trader, the start of the competition saw her dive straight off the deep end and short the FTSE after reading that the markets had begun the week with a bearish undertone that looked set to continue.

The Garraway Strategy – ‘selling in strength’.

Kate sold at £10 per point a rather brave and aggressive approach, resulting in her receiving a almost instantaneous margin call from our trusted City Index Trader Kishan Mandalia.

This didn’t shake her confidence however, and she did eventually enjoy something of a rally on this trade. Unfortunately, over optimism was her down-fall, as the UK 100 Index pushed up towards the 6000 mark, resulting in a disappointing loss as the trade crystallized £130 down.

On the other hand, this turn in fortune for the FTSE 100 was a welcome bonus for Clare, as she placed the opposite trade, taking a long position on the index and successfully crystallizing a £61 profit.

June 2011 | THE EXCHANGE | 15

the open | CELEBRITY TRADER

TRADER’S VIEW Kishan Mandalia,

Senior Sales Trader at City Index Kate Garraway: Kate decided to short the FTSE for her opening trade, as the market felt weak at the beginning of the week due to Greece’s debt concerns.

Despite this knowledge of the markets, the index fluctuated, which allowed Kate to enjoy a good rally on her trade. However, over optimism on taking a large profit stifled the real potential earner in this trade, and she crystallized a loss of £130.

Her next investment was Burberry, owning a Burberry bag herself and recalling how profitable the stock had been in recent months. She took a long position, however, with the company figures reporting lower results than expected, the stock fell by 4% and she took another unfortunate loss of £750.

Her last bid for success was with an old friend, ITV, which came through in her hour of need; on the day of trade ITV’s stock was up 2%, giving her some edge by claiming a small profit. Over all her net equity resulted in a loss of £849.04.

Clare Nasir: Clare wasn’t so experimental with her trades and stuck to what she knew. She took a long position on the FTSE, opposing Kate’s short punt, which earned her a small but significant profit of £70. Being a weather girl, Clare felt strongly in investing in an airline after mid weeks views that the Ash Cloud was clearing up, and chose to again take a long position, this time on ICAG (International Consolidated Airlines Group – former BA). Her knowledge of the industry gave her a good edge on how to invest and she took a £30 profit on the trade, leaving her Net Equity at the grand total of £2,596.25 from her £2,500 starting account.

Although these were not the highest profits we’ve seen on Celebrity Trader to date Kate and Clare certainly tried just as hard to come through with the goods. Clare’s £96.25 profit clearly made her the winner of this duo challenge, but Kate’s bravery to dabble in stocks she wasn’t all too familiar with and hold out on certain positions to see if they would come back more than makes up for her loss in profit.

16 | THE EXCHANGE | June 2011

“This turn in fortune was a welcome bonus for Clare as she placed the opposing trade, taking a long position, and crystallizing a £61 profit” Clare Nasir 1 - Kate Garraway 0.

Between comparing trades and smiling for the camera Kate tells us about her latest venture, goodypass.com a fantastic website offering exclusive deals on lifestyle and entertainment activities, inspired by her fans and followers on twitter. Joined by several of her celebrity friends, the ladies select the deals they think their followers would appreciate and get the

most value out of, and promote them via Twitter, Facebook and email.

“You can receive massive discounts up to 70% off on luxury celebrity lifestyle ventures such as spa weekends, restaurants, shopping vouchers, you name it,” they explain, eager to impress their obvious entrepreneurial prowess.

But as we know “the proof of the pudding is in the eating” and the proof of you trading skill is in the balance sheet. Kate’s “boom or bust approach” was bold, but ultimately fell short of the mark, as she incurred losses on both her FTSE punt and a long position on Burberry to the tune of £850. Her undeniable enthusiasm certainly deserves praise, and on another week her trades could have vaulted her to the summit of our celebrity trader leaderboard, but it just wasn’t to be.

Clare’s much more cautious approach did pay dividends as she made small profits on every one of her trades, making her this month’s top of the trading class. Now if only those Icelanders could keep their ash to themselves…

Kate and Clare’s discount website goodypass.com offers 50-70% off local salons, restaurants, days out and amazing national deals. Check it out today.…

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PSYCHOLOGY

18 | THE EXCHANGE | June 2011

FEATURE

To be A success in every walk of life, be it professionally or otherwise, you have to have certain skills that make you more proficient than most at doing what you do.

But having these physical or mental skills alone will never make for peak performance. That’s because every situation you face in life creates an emotional reaction, and often one that isn’t expected, helpful and certainly not desirable.

These factors are no more apparent than in trading, especially because of the fact that large sums of money are often involved. The human frailties of greed, fear, self-doubt anger

flow through traders of all ages, experience and knowledge, intent on disrupting performance and turning profits into the losses.

These factors exist as a fact of life and won’t be going away any time soon, which is where trading psychology comes in.

Traders who can appreciate the psychological factors that will affect their performance and adjust accordingly will ultimately prove the most successful in the long term.

So it’s time to face your mental demons, and conquer them once and for all.

June 2011 | THE EXCHANGE | 19

20 | THE EXCHANGE | June 2011

FEATURE

How to ride the emotional trading roller coaster

By Zoe Fiddes, Easy Forex If you haven’t traded with your own funds before then you are unlikely to have experienced what it is like to have the market grip you, and then send you on an emotional roller coaster. In addition to technical and market analysis factors to profitable trading psychological influences have a huge impact on successful results for this very reason. Without a strong appreciation of what the market is likely to throw at your mental state becoming a profitable trader is very difficult.

To assist with this transition let me explain just some of the many scenarios you may find yourself in when trading.

The emotional roller coaster

Let me begin by describing the roller coaster.

You are in a buy trade and the market is going up. Naturally you will feel elevated that your position is bringing you profit, and its growing and growing. But if you have not set out a plan before trading you are likely to become nervous, not knowing when to get out. Should you close now and take the profit? Wait for it to increase more? What if it turns the other way? You have missed your chance and now the market is down and your profits have turned into a loss. Should you take the hit? Wait for it to come back your way? These are questions that will go through the mind of a trader who has no predefined method. Psychologically the effect of the roller coaster can break novice traders, the only way to counteract this mental attack is to be prepared with a comprehensive strategy so that you know the answers to these questions before the scenarios arise.

How can you lose if most of your trades are profitable?

Many traders do choose good entrance points and have a high percentage of profitable trades but too often it is their risk management that lets them down. If I told you that more than 50% of trades on an account are profitable you would guess that there would be a profit made overall. Your guess would be correct if the risk to reward ratio (RRR) is being properly managed, but unfortunately if the trader makes the common mistake of running losses and closing winning positions too early, the account will be down.

“Psychologically the effect of the roller coaster can break novice traders” Let me give you a simple example I use with my clients to get this message across. Assuming I am profitable 60% of the time and I execute 100 trades, for each of which I am willing to risk 50 pips and target 30 pips profit. After 100 trades I have 60 winning trades which bring me a total of 1800 pips profit (60 trades multiplied by 30 pips) and the 40 losing trades produce a 2000 pip loss (40 trades multiplied by 50 pips).

Hence, despite winning most of the time, I am still down 200 pips. However, if I had balanced my risk and reward target at 40 pips each way then overall I would be up by 800 pips (neglecting the small spread between the buy and sell price) which translates into a healthy profit even on a mini account.

Psychologically this can be a difficult concept to deal with, but again through correct planning and strategy implementation we can ensure that this doesn’t become a factor.

Greed does not bring fortune

Greed is a natural human instinct, but just like we aim to have a healthy balance in life we should do the same in our trading. I have seen traders make over 500% profits in the first days or weeks of trading. New traders, in this situation, tend to get over confident and develop a sense of invincibility. Their emotions tell them they are so good at trading it is reasonable to begin risking large amounts, sizes they would not have considered just a week before. In a greedy mind this makes sense because a larger risk brings larger profits.

However, most of the time this ends up in self-destruction since it only takes one of those high risk trades to go awry to wipe out an

entire account. Greed creates a mental state that makes it impossible to sustain sensible choices and therefore successful trading. To prevent this from happening to you when you make profits, keep your feet on the ground and stick with a risk management plan that is always relative to your account size.

Fighting the Market

This happens when a trader reacts to a losing trade by immediately entering another trade, desperate to win back what has just been lost.

At this point common sense is abandoned since a trade’s profit target cannot be determined by a previous trade’s loss, and the only reason to enter the trade should be on a market signal not an emotional signal. This erratic trading will only end up in a larger loss. If you are enraged by a loss, take a break until you feel calm again.

Remember the market is much bigger than you and any vengeance you attempt is likely to end in failure. The market tells you how to trade, not vice-versa.

My intention with the above is to not to scare you but to deliver the facts so you are prepared for when you trade and you do make common emotional errors. You must be strict on yourself to stay disciplined. It is unlikely that you will execute at the precise point such that your trade is immediately in profit. If you have made the right decision it may need time to move in that direction. Hence, it is not healthy to monitor your open trade every second. Watching your profit and loss situation constantly will put you on the roller coaster and is likely to cause you to go against your trading plan. You should calculate the RRR before every trade and set a stop-loss and take profit order accordingly. To be successful you have to stick to a set of rules and contain any feelings of delight or anger, at least until the end of the trading session!

Forex trading involves substantial risk of loss. Do not invest money you cannot afford to lose! The information provided in this article does not constitute a recommendation on the part of easy-forex® under any applicable legislation, nor an offer or solicitation on the part of easy-forex®, to enter into a business relationship with the reader of this article. Easy Forex Trading Ltd is licensed by CySEC – License Number 079/07.

June 2011 | THE EXCHANGE | 21

PSYCHOLOGY

The Confidence Conundrum As Sandy Jadeja, Chief Technical Analyst at City Index, explains, the key to confident trading is being well prepared for losing money

22 | THE EXCHANGE | June 2011

FEATURE

Many traders enter this business with the view that finding a winning strategy will be the key to long term success. But like many who enter the world of trading with the aim of making large sums of money instantaneously, the reality often leaves an everlasting imprint on their minds of how difficult trading can be.

Quite often a trader will leave the trading arena with disappointing results.

Of course there is the other side of the coin, where you’ll find traders who have a winning streak that just never seems to end. They make trading appear so easy that one can be forgiven for thinking that the illusion of riches is well within anybody’s reach.

When you sit down and think about it, the function of how to trade markets is actually quite simple. It really comes down to making a choice. The market will only ever go Up, Down or Sideways. If a trader thinks the market is bullish and likely to go higher then this opinion will work in his favour in two of these three scenarios. So why is it then that the casualties in the spread betting markets are so high?

Having spoken to traders who have experienced losing trades, the interesting factor that comes out is that the fear of losing is also associated with the anxiety of winning. Nobody in their right mind wants to lose money. But at the same time when you have a winning trade that creates the fear of giving back profits. This is especially apparent when a trader has had a series of losses and then suddenly a winning trade, with the sense that markets are running against you it is quite easy to feel as though the market is going to “take back” what it has just given you. This anxiety can and does get in the way of rational thinking.

To overcome this problem a profitable trader will create a system or method designed to eliminate or reduce the decision making process during a live trade. This is because it’s clearly better to make these decisions outside of market hours and focus on trade adjustment and execution only at the time of the actual trade.

Professional traders realise and embrace the fact that losing is part of the spread betting

“it is quite easy to feel as though the market is going to “take back” what it has just given you. This anxiety can and does get in the way of rational thinking” industry, and that not every trade will be a winner. Too often traders will aim for more winning traders than is realistic, or even a perfect system, not realising that the actual key is in controlling risk to ensure that losses are minimal. This is why it is essential to incorporate Money Management and Risk Management as part of the strategy. You can have a series of small loses and just one or two large winners and still yield a net profitable outcome.

Some traders believe that by eliminating emotions they can become a better trader. But this is not necessarily true. In the sports arena icons such as Lance Armstrong, Muhammad Ali and other professionals often displayed intense emotion. The key for them would be to allow their emotions to come to the fore, but become conscious of their emotional state and then deal with each individual factor e.g. fear, greed and uncertainty.

It is imperative to understand that in the financial markets uncertainty is a factor that needs to be dealt with. As humans we generally do not like uncertainty, and have a tendency to revert to a herd mentality and therefore avoid uncertainty. We naturally gravitate towards situation where we believe we can know the outcome before the event. This is why many

traders will try to predict the markets, because it feels more comfortable to think you recognise what is going to happen rather than not knowing the outcome.

Instead of seeing uncertainty as a threat it would be better to view it as a state or a condition. And then by detaching yourself from the state of uncertainty you can then embrace the outcome as natural rather than forcing your opinion on the event. By forcing an opinion we prevent ourselves from being flexible. Because markets can and do change direction, a key skill to have is the ability to move with the market rather than become stuck with one strategy because of a conviction in a market prediction.

Once flexibility has been developed into your skill set, confidence can be nurtured to a degree where the market just becomes a playing field rather than an emotional rollercoaster.

Becoming more focused on developing each individual skill then becomes vital to long-term success. A tennis player can spend months practicing a forehand swing or perfecting their backhand. Similarly traders need to develop skills in executing trades and managing the trade as well as their mental state.

Trading psychology is a huge subject which is now becoming recognised as a key component of winning formulas. It’s been realised that it’s not just strategy that needs to be applied well to be successful, but also a balanced mental state that needs to be achieved in line with that strategy. Zen trading is not something of the past, but rather a complimentary skill for the future.

Sandy Jadeja, Chief Technical Analyst, hosts weekly and weekend classroom-based seminars at City Index’s state of the art training facility in Moorgate. This allows anyone who wants to learn about the markets to experience first-hand, from an experienced trader, how to deal with all aspects of trading, ranging from trading strategies to trading psychology.

City Index utilises both class room training seminars and online webinars, meaning anyone with internet access can get involved. More information can be found at www.cityindex.co.uk

June 2011 | THE EXCHANGE | 23

PSYCHOLOGY

24 | THE EXCHANGE | June 2011

FEATURE

Making your psychology work for you in the long run, by Michael Hewson, Market Analyst, CMC Markets

The most important concepts when it comes to trading any type of market are mindset and discipline.

Anyone who has been trading for any length of time will tell you that trading can be a taxing emotional experience, as a trader will go through a wide range of emotions over the course of a single day.

I remember when I was a junior trader all those years ago, experiencing the elation of a day when pretty much everything I did went according to plan. At the same time I remember that knot in the pit of my stomach and the feeling of anxiety that comes when everything you touch goes wrong and you are deep in the red, knowing that you need to somehow make your losses back. The right mindset and being disciplined can help you regain control and relieve some of the stress associated with the swings between these two scenarios.

One of the most common mistakes people make is to start over-trading when they have lost money, in an attempt to make good on any losses.

This is an emotional reaction where traders start looking for opportunities that may not be there in an attempt to somehow recover from losses on any given day. It is the most common mistake made by novice traders and one that needs to be resisted.

Think of trades as being like London buses, sometimes an opportunity may not present itself for some time, and then two or three will come along at once.

Remember, there will always be another trading opportunity, so don’t chase after opportunities that are no longer profitable.

Another important thing to remember is that being square is also a position.

This is why I have always said it is not the good days that tell how adept someone is as a trader, but it is how one recovers from a particularly bad day that shows what one is made of.

“One of the most common mistakes people make is to start over-trading when they have lost money, in an attempt to make good on any losses” How do you react to a bad trading day? Do you become tentative and allow your emotions and anxieties to cloud your trading decisions, while second guessing yourself at every turn?

Remember that prices are driven by the human emotions of hope, greed and fear.

And in the words of the philosopher Schiller, “anyone taken as an individual is tolerably sensible and reasonable, but taken as a member of a crowd - he at once becomes a blockhead.”

Traders and investors are no different. As a trader, you need to be able to trust your own skills and instincts, so you don’t get swept away by the crowd.

This is why the use of technical analysis in to your trading is so valuable – it allows you to set fixed rules to your trades. In this way your trading decisions are based on fact, not emotion.

It is a variation of the theory of the madness of crowds and technical analysis allows the trader to take a step back, in order to tame the madness.

At the end of the day it’s all about the choices you make. What is most important to you as a trader is not what the crowd thinks, but what you think!

What’s more important, going with the crowd and being collectively wrong, and finding commiseration in your losses, or making your own decision and being right

when everyone else is wrong?

It’s a difficult decision to make and can be traced back, in most cases, to our school days when all we wanted to do was fit in. At the end of the day, we all want to be liked, and we know that anyone who was different was singled out, which makes it difficult to go against popular opinion, unless you are extremely self-confident.

This is why technical analysis is so useful.

It attempts to take the emotional aspect out of trading decisions by applying some form of order to the chaos.

What I have learnt over the years, through reading books and attending numerous seminars on the subject of technical analysis, is that newbies to Technical Analysis need to develop their own style and not copy somebody else’s.

To be able to do that though, they must understand the basics of Technical Analysis and how all the different aspects of the subject tie together. All too often I get asked how to use a MACD or RSI when the user has absolutely no idea of the concept of trend, trend lines and support and resistance.

Trading markets is a discipline like anything else; there is no short-cut, no quick fix. If you want to learn to interpret charts then you need to understand the thought process, or psychology behind the markets.

To be successful it is important to learn the basics and build upon those basics in a stage by stage process.

It’s a slightly more structured approach than some people might like, but it is necessary.

Learning about MACDs and RSIs is like trying to build the first floor of a house before you’ve laid the foundations on the ground floor.

Building on the basics and expanding your knowledge through experience and on-going research will give you a solid grounding in Technical Analysis that will ensure you approach each trade with the right mind set and a disciplined, constant approach.

June 2011 | THE EXCHANGE | 25

PSYCHOLOGY

Rock Steady Spreading

By ALESSIO RASTANI, THE Wealth Training Company

26 | THE EXCHANGE | June 2011

FEATURE

If you have ever placed a trade and felt yourself sweating harder, and your heartbeat pounding faster, it is very possible that there is a fault with your trading psychology. A lot has been said about the very important issue of trading psychology, but the three key points to having a great trader’s mindset that I wish to talk about are these:

1) Have a confident state of mind; 2) Being emotionally stable, and 3) Only carry out your trading “system”.

These three points can be surmised in one word: stability. If a trader can temper his psychology to allow him to react in a similar, correct manner in every situation then he will be far more profitable than if he allows mental factors to have a negative effect on his trading. Very few people have the complete package of the above three qualities to give them the “zone” to trade successfully, but a little training and appreciation of these factors can make a huge difference to trading performance.

Being emotionally stable

The act of trading, especially live online trading, triggers often defensive and unwanted behaviours in most traders. These kinds of emotions often cause the trader’s brain to ignore the trading signals in front of him/her. In this situation, traders will find that they are unable to execute their trading system and instead the fear of loss and missing out takes over.

You’ll need to understand that mastering this kind of behaviour pattern is the first step towards trading success.

“an amateur trader who has just experienced a trading loss may experience hesitation about taking the next trade” recently – recent drawdowns or losses are the primary example. Amateur traders often focus on their most recent trades and allow those results to cloud their judgement. For example, an amateur trader who has just experienced a trading loss may experience hesitation about taking the next trade.

Carrying out your trading “system”

The only defence mechanism a trader has against the randomness of the markets is to religiously carry out his trading system. This is the main point of what separates the pros from the amateurs. Whereas the pros stick to their strategy of trading a recognised pattern or signal, the naïve newbie traders trade according to their “instincts” or “opinions”.

One important behaviour pattern that differentiates pros from amateurs is that the former know when to cut their losses short and admit they have made a mistake. The latter have no concept of taking a loss – they are determined to “win” on a trade so they move their stops or fail to even use one.

Having a stable state of mind

Professional traders maintain a mindset geared towards carrying out their trading system irrespective of what has happened

Trading Risks and Expectations

Traders who lack the discipline and a solid strategy to trade will eventually become

one of the 80% of people who lose in this business. This is not because they are not intelligent but because they allow their personal emotions, beliefs and expectations to get in the way of their ability to follow their trading system.

Mark Douglas, author of Trading in the Zone, talks about how most traders have deep entrenched “expectations” about what they think the market will do. Once they place a trade, they often emotionally will the market to move in their desired direction. When these expectations are not met, these traders will feel pain. Douglas therefore recommends that we give up our expectations and instead follow our trading system.

Becoming successful

Before you consider taking on the lucrative business of trading, perhaps you should consider researching yourself first. What kind of person are you? What are your strengths and what are your weaknesses? It is altogether possible that by fixing one component of your personality you may become a better trader.

Once you fully understand your own mentality and how it can have an effect on the manner of your decision making that you will improve your trading psychology.

It is not a question of ignoring emotions and desires but instead appreciating them without allowing mental factors to compromise your trading system.

At t he Wealth Training Company, we offer seminars about how you can become a better trader and have the disciple to carry out a proven trading system. See our website for more details about how you can attend our next seminar: www.wealthtrainingcompany.co.uk.

June 2011 | THE EXCHANGE | 27

PSYchology

A winning

psychology 28 | THE EXCHANGE | June 2011

FEATURE

Centaur Academy’s Tony Hargraves tells us why the most important mental lesson in being profitable is to keep your profits and your losses separate.

One of the most important aspects of sports betting is very often the first overlooked. In fact for many spread bettors it never even enters their thought process as to when they should or shouldn’t be wagering.

The factor in question is that of mental state, that is whether the bettor is psychologically in the best place to be making financial decisions based on a pre-devised strategy.

Although it is often ignored, being in the right frame of mind is the most vital of the five mandatory requirements for success in this harsh environment (the other mandatory requirements for success are Analysis, Strategy, Discipline, and Money Management).

How can something considered to be so pleasurable be considered tough you may ask?

The answer is that sports betting is a solitary profession, as every other person on the exchange is trying to win your money. In all trading and spread betting it really is a case of you against the world, and consequently you need to be in the best possible mental shape to succeed.

In the world of poker, to take a comparable example, those not in the right mental state to compete are often quickly eliminated from a competition, leaving the strongest minds to fight for the spoils at the business end of the tournament.

Sports betting is no different, and the approach you take can often determine which side of the fine line of profitability and loss you finish on. The manner in which you adapt to winning and losing trades is the secret to ending up a winner.

So let me ask you a question: If you went on Who Wants to be a Millionaire? and got the first eleven questions correct and had won £64,000, you would then have a choice, as you do after each question, to either take the money or answer another for a greater prize. Then assume once you see the next question you decide to go for

“The manner in which you adapt to winning and losing trades is the secret to ending up a winner” it, but get it wrong. You’re handed a cheque for £32,000 (as that was the next safe level) and the game is over. The question is, did you just win or lose £32,000?

Over 98% of people will say they’ve just won £32,000, with a vast majority citing the old adage, “I came with nothing so anything is a bonus”.

At this point I won’t disagree, but would like to ask a further question instead. If you had not answered the question but instead taken the £64,000, banked the cheque and left it there for a year, and I then asked you a year later to bet me £32,000 on the question you would have been asked I assume you would take the bet, as you came with nothing, right? That £64,000 was what you got from nothing so the chance to win more has to be tempting. So you do it, and again you lose.

Did you just lose £32,000 or do you feel you are still winning £32,000? The only difference is the timeframe. In the first instance you had £64,000 for about three minutes and then gave £32,000 back. But you felt like a winner at the end of it.

In the second situation, you had the £64,000 for a year and then gave £32,000 back, but now you feel as though you lost £32,000. And so you should. And you should have felt that way the first time too. You had

£64,000; it was yours to walk away with. But you lost half of it.

Too many sports bettors risk money they have just won because of this very premise, their flawed psychology has them believing that what are now betting with is “free money”, which is ultimately going to be fatal in any quest to make it as a professional spread bettor. If I win £300 on horse racing in the afternoon and then lose £150 on football in the evening, I do not see myself as winning £150 on the day, like many people with suspect gambling psychology do. It is no different to taking £150 out of my bank and placing the same football bet. Losing that wager will never make me feel like a winner, I treat that £300 I’ve just won as cautiously as I would do if I hadn’t just acquired it from a successful speculation.

What if I won £300 on horse racing and then lost half the next day? Am I still in front or is that then counted as a loss? The point of this is to say that anytime you win money, psychologically it MUST be considered as if you own it and have banked it. If you lose the next bet that is a LOSS, not just a factor in a now smaller win that you’ve just had. It is this reckless approach to money won, and it is caused in part by not dealing in cash but in an “account balance”, that causes people to overstretch or take risks they would not take had they actually been asked to hand over pound notes.

This philosophy, or more accurately psychology, of keeping your winnings and losses separate is just as applicable to other forms of trading and spread betting as it is to sports betting, and really is the mental key to remaining profitable over the long term.

So next time you have a loss, take note of how much caution you apply to your next bet, because THAT is the approach you need to take after each and every winner.

I wish you much success.

June 2011 | THE EXCHANGE | 29

THE LONG

LONG THE

IN THE LONG NICK BEECROFT SIMON SMITH TOM ROTHERHAM GREG MICHALOWSKI ATIF LATIF ALASTAIR MCCAIG

KEN FISHER DECLAN FALLON PETER WEBB SVETOSLAV GEORGIEV STUART COLLINS CHRIS SMITH

LinkedIn and Glencore IPOs dominate May trading news A busy month for the markets saw two of the most historic initial public offerings in recent memory, as commodity trading giant Glencore and professional social networking site LinkedIn entered the stock market.

The Glencore float is the largest in the history of the London Stock Exchange (shares are also being held in Hong Kong), but to date has been unable to meet company expectations.

Share prices remained well below the offer price of 530p on first full day’s official trading, falling as low as 506p per share at one point, in the large part due to commodity price volatility.

30 | THE EXCHANGE | June 2011

LinkedIn is the first social networking site to enter the stock market and has been seen by many as market tester for an expected Facebook float later in 2011 or 2012.

Even after opening at the top of its price range LinkedIn shares more than doubled their value on hitting the market, at one point valuing the company at $9 billion, despite profits being only $15.4m in 2010. Fears that the introduction to social networking websites to the market will create a second “dot.com bubble” currently seem to be accurate, and when Facebook eventually floats the effect will surely magnify in line with the company’s enormous size and investment attraction.

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THE LONG | Analysis

The Eurozone debt crisis enters a new and frightening phase

by Nick Beecroft, Saxo Bank In last month’s article I wrote about the slowly unfolding Eurozone debt crisis, and I make no apology for also returning to the subject this month, as it is surely one of the defining economic and social stories of a generation.

Events began to unfold in a new and disturbing fashion during the week beginning 15th May as, for the first time, the crisis threatened to spread to the Southern European heavyweights-Spain and Italy. Before we come to that, let us take stock of the situation with regard to the now familiar tragedy taking place in Greece.

Call me an incurable sceptic, but one wonders whether the dynamic at EU debt crisis meetings may have subtly changed. Maybe Greece is almost threatening to default in an attempt to create a bargaining stance to elicit more funds from Europe’s paymasters. Greece - make that everyone - knows they would be terrified of the consequences of such a default, because of its probable cataclysmic effect on the Eurozone’s banking system.

I found it interesting the way that it was mentioned at the EU meeting how important it was for Greece to ‘do its bit’, i.e. embrace more austerity and sell the family silver, and that the measures chosen of implementing this had to enjoy cross-party support in Greece. It is surely not so much a flight of fancy to imagine Greece saying, ‘guys, we’d love to do this or that, but we already have blood on the streets, the opposition won’t support this, so we’re afraid default and exit may be easier for us, sorry’.

One hastens to add this is not our central house view, but great brinkmanship if true...

32 | THE EXCHANGE | June 2011

“Maybe Greece is almost threatening to default in an attempt to create a bargaining stance to elicit more funds from Europe’s paymasters” At the time of writing a dangerous stand-off seems to have developed between politicians and the European Central Bank (ECB).

French and German politicians have started to commonly use the delightfully sanitized ‘reprofiling’ term to describe their increasingly preferred option, involving a ‘voluntary’ agreement by Greece’s creditors to allow an extension of maturities on the country’s debt, a high proportion-55%- of Greece’s outstanding debts mature by 2015 at the same yields-a reduction in Net Present Value of cashlows and therefore actually a technical default, as Fitch observed when recently downgrading Greece yet again. Meanwhile the ECB refuses to countenance such a ‘solution’, continuing to insist the only way out is the extension of yet more bail-out funds, in return for yet more austerity and privatization. The central bank has bared in teeth by also saying that it would refuse to accept such ‘reprofiled’ debt as collateral against the vital loans which

it extends on a daily basis to keep Greece’s hobbled banks afloat-a threat which, if carried out, would surely lead to the country’s total economic collapse and immediate exit from the Euro.

The EU/IMF/ECB troika are due to report soon on Greece’s progress towards deficit reduction goals, but the presentation of the government’s latest plan has been delayed, Norway and Finland seem reluctant to make scheduled payments, and uncertainty over whether CDS contracts would pay out in the event of a ‘reprofiling’ are hardly likely to inspire lenders, who have used them to hedge sovereign exposures, to act like ‘turkeys voting for Christmas’ in ‘reprofiling’ negotiations.

The bottom line is that Northern European politicians will eventually have to bite the bullet, kick the can down the road again, and present wearisome voters with a further bill for yet more Greek loans.

So what’s new?

All of the above is sadly very familiar-the same story we’ve heard again and again since Spring of last year, when news of the true state of Greek finances first spooked the markets.

What is very new now and very significant is that for the first time Spain and Italy appear likely to be drawn into the maelstrom.

Spain

Regional and municipal elections on Sunday 22nd May resulted in the worst defeats for 30 years for the governing Socialists Party of Prime Minister Jose Luis Zapatero-hardly surprising when one considers the parlous state of an economy due to stagnate this year, with 21%

THE LONG | Analysis

unemployment and still faced with ever more stringent austerity measures.

The frightening prospect arises of newly elected opposition politicians moving into their offices in regional government and taking zealous delight in exposing deficits that may be much worse than so far reported-Greece revisited?

Young protesters have spent days camped in Madrid’s Puerta del Sol square, fighting budget cuts and demanding jobs; they seem eerily reminiscent of the youth-lead uprisings that have rocked North Africa and the Middle-East.

Next month’s publication of the results of the supposedly tougher bank stress tests might have represented something of a challenge for Spain’s banking sector were it not for the fact that, amazingly, once again the tests will not consider a scenario involving wholesale restructuring of Europe’s sovereign debts.

No surprise that bond vigilantes have started to drive Spanish Bond spreads towards highs at 250bp over German Bund yields.

Italy

Perhaps even more ominously, Italy seems to be about to ‘enter stage left’.

On Friday 20th May, S.&P. uttered one of their dreaded ‘stable to negative’ judgements on Italy, suggesting that a downgrade in rating was now a one in three possibility over the next two years. This is the last thing the EU needs, as Italy’s enormous stock of debt, at 120% of GDP, represents a quantum that would surely be beyond even the combined financial resources of the Northern Europe countries to support-it would certainly be beyond the patience of their electorates.

Once again the economy is close to stagnation, having grown 0.1% in the first quarter and, given controversial Prime Minister Berlusconi’s increasingly fragile grip on power, it seems unlikely that anyone will have much appetite for austerity.

Sowing the seeds for a smaller, stronger Euro

The mood in Southern Europe will hardly be helped by reports of ever-increasing prosperity in the North and the ECB’s apparent determination to ‘normalize’ interest rates, in a fashion wholly designed to address the inflation concerns of the Northern block, and damn the consequences for the South.

The day when voters in Northern Europe say , ‘no more loans’, and voters in Southern Europe say, ‘no more austerity’ draws ever

“The day when voters in Northern Europe say , ‘no more loans’, and voters in Southern Europe say, ‘no more austerity’ draws ever closer” closer but, by the nature of European Union affairs, politics will also dictate a slowly evolving tragedy, with governments forever balancing the need to act, with the short-term political convenience afforded by inactivity.

The almost inevitable denouement-the

construction of a smaller. stronger Euro, comprising Germany, France, Netherlands, Luxembourg, Belgium and Finland, will eventually hove into view, but the journey will be long and tortuous.

In the short to medium term-probably meaning the next year or so-the Euro’s value will continue to be undermined by uncertainty and existential fears, but one can easily envisage a world in which the penny finally drops and the market begins to anticipate with some relish the departure of Spain, Portugal, Italy, Greece and Ireland from the Euro, which will then become a Deutsche Mark in disguise, once again run with prudence as the watch-word.

Now, that will be one strong currency, as the contrast with the fiscal and monetary profligacy which will continue to characterize U.S. economic policy will indeed be stark.

June 2011 | THE EXCHANGE | 33

THE LONG | ANALYSIS

The euro paradox

By Simon Smith, Chief Economist, FxPro

34 | THE EXCHANGE | June 2011

THE LONG | ANALYSIS

As the sovereign crisis in the eurozone has deepened in 2011, the single currency has continued to go from strength to strength, seemingly oblivious to the bailouts and political fault lines that are clearly emerging. In the first four months of the year, the euro was over 5% higher against a basket of other major currencies, with just the Swedish krone managing a better performance against the dollar.

This does not mean that the single currency is blind to events; there are strong reasons why this has proven to be the case.

However, if current underlying trends continue, there will come a point where the euro could well be undermined as investors start to question the underlying fabric that is meant to hold it together.

There are two principle reasons why the euro performed so well whilst the underlying sovereign situation worsened during the first four months of 2011. The first is interest rates, and the ECB’s well-flagged increase in its benchmark lending rate in April. Interest rate differentials are one of the primary drivers of currency direction, normally dominating much of the other underlying noise that may be occurring. The differential between 2-yr interest rates in the eurozone and US widened over the period by nearly 1%, which proved to have a powerful effect in a world with near zero rates on the top four most traded currencies.

The second factor was the preference for Asian sovereigns to diversify their reserves away from dollars and into euros (together with Canadian and Aussie dollars, amongst others).

For Asian FX reserves the first quarter of 2011 was the second largest on record, and central

“Beyond the dollar, the euro is the natural choice for liquidity, with daily trading twice that of the yen” banks proved keen to invest reserves into euros. Putting numbers to this diversification is not always easy, many central banks (China’s included) don’t reveal the breakdown of their reserve holdings, which is why the IMF is only able to allocate half of global FX reserve holdings by currency. Nevertheless, the anecdotal evidence suggests that this was a strong force in FX during the first quarter.

With nearly two-thirds of international trade settled in dollars, its dominance of international reserves is not going to end anytime soon.

However, pulling against this is the natural desire not to put the majority of one’s eggs in one particular basket. Beyond the dollar, the euro is the natural choice for liquidity, with daily trading twice that of the yen according to the latest BIS survey.

Although the euro may be the most liquid currency after the dollar, this surely cannot make up for the deteriorating conditions that lie beneath? The pattern of trade from May to December of last year was quite different.

During this time, it was pretty clear that the euro value was reflective far more of the sovereign risk story. The correlation between EUR/USD and the MarkIt sovereign CDS index for the eurozone was notably strong. In other words, when interest rates and sovereign buying have been less dominant the euro has indeed been heavily affected by the sovereign debt crisis.

Furthermore, it remains the case that if one takes an ECB view of the world, in other words looking at the eurozone as a whole, the

fundamentals are fairly solid. Gross government debt is now lower than for the US (as of 2008), with the ECB not having undertaken quantitative easing, and also having increased rates ahead of the Fed. Investors are at least comforted by the fact that the ECB is keeping ahead of the game on inflation risks.

However, treating the eurozone as a single economic entity is becoming more and more of an academic affair, given the wide underlying divergences that currently exist. It was the fact that EMU was long of monetary union and short of economic union that was one of underlying causes of the current crisis, but the sovereign crisis itself is fixing that to a certain extent. For example, as painful as it is, Irish unit labour costs have fallen 9% over two years, going some way to close the competitiveness gap that had widened during the boom years.

The downside of this process is the heavy economic price in the form of recessionary conditions in the country, which may last for several years to come.

Leaders of eurozone countries have spent much of the last year sticking metaphorical plasters and kicking imaginary cans down the road. Whilst the desire for greater economic coordination was enunciated when the Greek bail-out was announced, the appetite for this has waned. The consequence of this is that the lack of economic policy coordination, effective surveillance and remedial action means that we are no closer to implementing lasting solutions.

What will cause the euro to suffer greater long term damage is if investors start to doubt the strength of the underlying fabric that binds together the single currency. Defaults would play a part in this (be it Greece or, less so, Irish bank senior bond holders), but so would continued economic divergence, something which is likely to continue under the severe fiscal austerity demanded by the various bailout programs. Whilst the single currency has managed to ‘muddle through’ the past year, it’s far more doubtful that it can do so going forward, and if current trends continue the paradox may be resolved within the next twelve months.

June 2011 | THE EXCHANGE | 35

the LONG | ANALYSIS

FSB Outline Concerns with

Exchange Traded Funds

By Tom Rotherham

36 | THE EXCHANGE | June 2011

THE LONG | ANALYSIS

Exchange Traded Funds (ETFs) were created in the early nineties to provide investors with the flexibility and cost efficiency of exchange traded securities, together with the diversification benefits of mutual funds. Like traditional tracker funds, ETFs aim to mimic the performance of a particular market or index, such as the FTSE 100; the value of the fund is thus derived from whether or not the underlying index rises or falls. However, unlike traditional tracker funds, ETFs are formed as Open Ended Investment Companies, the shares in which are then floated and openly traded.

This gives the ETF an advantage of being traded and valued continuously, providing greater liquidity than mutual funds which are valued only once a day.

ETFs are a passive investment, as they are not actively managed by a fund manager who chooses what to buy and sell. Instead, the ETF has holdings in every company on a given index, and only buys and sells holdings to reflect movements in the market. Without the need for active management ETFs are able to charge much lower fees than mutual funds, typically around 0.5%.

The ETF market has seen staggering growth in the last decade. Total assets invested in 2001 amounted to around £64 million, whereas assets held in ETFs and similar products totalled $1.4 billion (£860 million) in the first quarter of this year alone. A net total of £10.5bn was invested in the products in March alone; this included £5.5bn in equity funds, £2.8bn in fixed-income and £1.6bn in commodity-linked products. Private Equity house Blackrock said it expected assets held in exchange-traded products to increase by 20 to 30 percent in each of the next three years, taking their value to approximately $2 trillion by early 2012. Europe would account for about a quarter of that total.

The sudden and meteoric surge in popularity of ETFs recently prompted the Financial Services Board (FSB) to release a paper highlighting potential risks and stability issues arising from such products. The FSB’s concerns centre around the use of ‘synthetic’ ETFs. Unlike the ‘plain vanilla’ physical ETFs described above, a synthetic ETF uses a swap agreement to generate a return for the investor.

“problems at banks most involved in swap-based ETFs have the potential to become a large source of financial contagion and systemic risk” ETF providers enter into an agreement with a swap counterparty to provide a return that matches the index the ETF is attempting to track, without physically investing in any of the securities listed on the index. Since the swap counterparty is typically the same bank acting as ETF provider, investors may be exposed if the bank defaults. On a wider scale, problems at banks most involved in swap-based ETFs have the potential to become a large source of financial contagion and systemic risk.

The FSB also states its concern for conflicts of interest to arise. The incentives behind the creation of synthetic ETFs are not necessarily aligned along the investor chain, especially where one bank is acting as both provider and swap counterparty. Further conflicts arise (in relation to all types of ETF) where the ETF provider is engaged in the design or calculation of the reference index, or also acts as the liquidity provider on the secondary market of the ETF. In principle, ETFs offer on demand liquidity to investors, while the fund in some cases is based on much less liquid underlying assets. As there is no legal requirement for the collateral composition of the fund to match the assets of the tacked index, the synthetic ETF creation process may be driven by the opportunity for the bank to raise funding against illiquid assets that cannot otherwise be financed. In the case of an unexpected liquidity demand from ETF investors, the provider bank might face difficulties liquidating the collateral and would have to suspend redemptions from the fund, or

maintain them and face a liquidity shortfall at the bank level.

Liquidity and redemption concerns are especially relevant to synthetic ETFs, as physical funds are covered by UCTIS III regulations which come under the FSCS. UCTIS III allows ETFs to buy baskets of securities to track the relevant index. The assets of each fund are held with a custodian in a ring-fenced fashion, so if the provider of the fund went bust, the administrator could appoint another manager to continue running the portfolio, or liquidate the securities and return funds to the investors. With a synthetic ETF, the investor takes full counterparty risk.

Along the same lines, the FSB point out that some ETF providers are said to generate more fee income from securities lending than from their traditional management fees. Whilst lending out the securities contained in the ETF’s basket creates similar conflicts problems and collateral risks as synthetic ETFs, it can also make the liquidity position of an ETF fragile by challenging the ability of providers to meet unexpected redemption demands from investors. A prevalence of securities lending could create a market squeeze in the underlying securities if providers recalled on-loan securities on a large scale to meet investors’ liquidity demands.

The use of ETFs as collateral in a long chain of secured lending and rehypothecation (where a bank reuses the collateral pledged by its clients as collateral for its own borrowing) has the potential to create operational risks and contribute to a buildup of leverage; a particular concern in the wake of the recent credit crisis.

This concern will be of particular relevance to the UK market, as there are no statutory limits governing banks reuse of their clients’ collateral.

This is exacerbated in the case of synthetic ETFs; whilst the shares in these funds should be close to the theoretical NAV of the fund as possible (synthetic ETFs don’t actually invest in the underlying securities), the market will still price liquidity risks into the value of the share. Thus, a synthetic ETF tracking the FTSE 100 which has used investors’ money to fund alternative illiquid assets on its books will trade at a discount to the FTSE as investors price in the risk of the provider being unable to meet

June 2011 | THE EXCHANGE | 37

the LONG | ANALYSIS

“While the FSB are concerned primarily with containing macroeconomic risk, an area of concern for the domestic regulator will be the increased exposure of retail investors to ETFs” redemption requests. This can have the effect of causing the EFT to trade at below NAV. Liquidity concerns raise further problems for investors. A lack of liquidity (caused by illiquid collateral in the case of synthetic ETFs, or illiquidity in underlying securities in physical ETFs) can lead to wide ‘bid-ask’ spreads. A lack of liquidity may also cause a fund to trade at a premium or discount to NAV. When underlying holdings in the fund are traded less frequently, or not at all, an ETF’s returns have the potential to diverge from the index it is designed to track; the investor buying the fund may overpay for the portfolio, or an investor selling may get less than the underlying securities are worth.

While the FSB are concerned primarily with containing macroeconomic risk, an area of concern for the domestic regulator will be the increased exposure of retail investors to ETFs, in particular the availability of leveraged and inverse funds. Leverage funds are sold to investors on the basis that they provide greater exposure to the movement of the fund, without the need for more collateral. Despite the risks of leveraged exposure to a falling fund being well understood, there is fear that unsophisticated investors fail to understand the effects of daily compounding on the price of their shares. Leveraged ETFs aim to deliver their stated multiple of the index return (2x leverage, 3x leverage etc...) on a daily basis; the fund rebalances its assets every day so that it will deliver the right multiple of the indexes returns on that day. If the index goes up in value, the fund will have to increase its exposure to the index for the next day in order to get the right multiple, and if the index goes down the fund will have to decrease its exposure. If the underlying index continues to move in the same direction, the result will be better than expected returns over the long term. However, any reversals in the direction of the underlying index will leave leveraged ETF investors worse off based on its multiple.

38 | THE EXCHANGE | June 2011

Inverse ETFs, which aim to deliver returns that are the opposite of the index’s returns (for the purposes of ‘shorting’ a given index) suffer from similar daily compounding problems.

Consider an ETF that tracks the FTSE 100 at 2x leverage: C You buy a share for £100 while the index is at 6,000 C The next day the index goes up 10% to 6,600, your ETF should go up 20% to £120 C The day after the index goes back to 6,000, a decline of 9.09%, which means your ETF will decline by twice as much, 18.18% C A decline of 18.18% from £120 will leave the ETF at £98.18. So, even though the index has gone back to where it started, the ETF is down 1.82% The above hypothetical example translated into very real losses for investors in a leveraged natural gas ETF, which lost 90% of its value in 18 months. The ETF Securities leveraged natural gas traded at $4.09 on May 11 2009, and closed at $0.41 on 2 December 2010, yet in the same period gas spot prices remained at around $4.

Thus far, unlike the US, the UK market for ETFs has been restricted to institutional investors, reflected by a much higher percentage of synthetic ETFs than physical

funds (as opposed to the roughly 50/50 split in the US). However, retail investment in ETFs is increasing and is expected to increase further once IFA’s are banned from receiving commission in 2012, as IFA’s will no longer have any incentive to push managed funds onto their clients. Given the larger percentage of retail ETF customers in the US, it is interesting to note that the Financial Industry Regulatory Authority (FINRA) was issuing warnings about the dangers of ETF back in 2009. A notice issued in June 2009 stated “inverse and leveraged ETFs that a reset daily typically are unsuitable for retail investors who plan to hold them for longer than one trading session, particularly in volatile markets.” In relation to Synthetic ETFs, the SEC announced a review last year to evaluate the use of derivatives by funds, saying, “It’s appropriate to engage in a more thorough review of the use of derivatives by ETFs and mutual funds given the questions surrounding the risks associated with the derivative instruments underlying many funds.”

With the projected increase in sales of ETFs to retail investors in the UK, the FSA may well follow in the footsteps of its US counterparts and issue warnings to IFAs about the potential dangers of mis-selling such a product.

THE LONG | STRATEGY

Making Sense of Forex Trading

Buy Low, Sell High,

Buy Higher

40 | THE EXCHANGE | June 2011

THE LONG | STRATEGY

As Greg Michalowski explains, being on the wrong side of the trend is one of the easiest ways of clearing your trading account

Although every trader knows that trends are your friend, you’d be surprised by how often traders trade against them. As a prime example, most traders know the overriding trend for the first four months of 2011 has been a lower US dollar.

The EURUSD bottomed on January 10th at 1.2873, and the subsequent move higher has seen the price peak at 1.4901 – a 16% increase in the value of the EURO (and decrease in the value of the US dollar).

Despite the clear trend, statistics from the National Futures Association (NFA) show that the percentage of unprofitable traders at the major US based retail forex brokers was 70% in the 1st quarter. Why? Well, when we combine the dollar’s trend with the NFA’s statistics, we can only come to one conclusion: that retail traders do not trade trends very well.

Make the Most Money or Lose the Most Money with Trends

Trends are fast. Trends are directional. Trends tend to have low to high trading ranges that are greater than a non-trending range. These are the three main characteristics of a trending market.

As a result, traders can simply get on the trend and let the fast, directional momentum - with the extended range - take care of the profits. In short, traders have the wherewithal to make the most money trading with the trend.

What a lot of retail forex traders fail to realise is that the same fast, directional, extended trading range can be lethal to their trading account. That’s because if you want to lose the most money, in the shortest amount of time, the way to do it is to trade on the opposite side of the trend. Yet traders are still constantly looking for ways to sell the tops or buy the bottoms in the middle of a trend move, and the result is that they invariably “get caught” by the market. This ultimately is the reason for the disproportionate amount of retail forex traders being unprofitable.

The forex market is different. In this market, going long (or short) on a currency pair (like the EURUSD) always involves buying one of the currencies in the pair low. The reasoning behind this is that when you trade forex, you are buying one currency and selling another at the same time.

As a result, if a trader buys the EURUSD, the trader is saying the Euro (or EUR) is low and the US dollar (or USD) is high.

Conversely, if the trader sells the EURUSD, the trader is saying the EUR is high/the USD is low. In every currency trade, a trader buys what he thinks is a low priced currency and sells the dear one.

When markets are in a non-trending phase retail traders who follow this philosophy tend to be most successful. They buy low and sell high, and become mesmerized by their uncanny ability to succeed by trading in this fashion. Technical tools, such as the Relative Strength Index, create overbought and oversold levels that make trading seem even easier. When trade location isn’t so great, the trader will double up. As long as the market remains non-trending in a range it eventually reverses, providing the opportunity to breakeven or even make money. Life is good.

The Market Breaks and Trends

Then the market changes from non-trending to trending. At first the pattern tends to be similar, but then the currency pair starts from a lower level and starts to move higher. For example, in Figure 1.0 assume the trader buys the EURUSD at 1.3200 in the non trending area. By doing this the trader is buying the cheap EURO and selling the expensive US dollar. The price of the pair goes up and the trader sells, booking a profit. Life is still good.

Buy low, Sell high, Buy higher in Trending Markets

“Buy low, Sell high” works great in a non-trending market. But in a trending market like the EURUSD, traders have to re-train their thinking to a Buy low, Sell high, Buy higher model if they want to be profitable. In next month’s issue, I will continue to explore how traders can attack the currency trends and take advantage of fast and directional markets.

Buy Low. Sell High. It’s the key to making money, or is it?

It’s human nature to want to buy low and sell high - especially in trading. Most trading textbooks and courses emphasize this simple Wall Street axiom.

In the world of equity trading, where retail traders predominantly buy, then sell, the buy low/sell high mentality is engrained in the minds of anyone trying to be profitable in the markets.

the 1.34199 area the price starts to trend higher.

Since the trader last sold at a lower level, and the price is now higher, what does it say about the EURO? What does it say about the dollar? At the higher price it says the EURO is dearer, and the US dollar is even cheaper. The trader – used to buying low, selling high – sells the EURO and buys the cheap US dollar when the price starts to dip.

The market may continue to dip for a very short time, but since trends are fast and directional it will continue to rise shortly thereafter. At the even higher price, the trader is not inclined to cut the loss but instead sells again.

After all, in the non-trending market the market always came back down. Moreover, popular technical tools such as the Relative Strength Index (RSI) are likely telling the trader that the market is becoming overbought. The trader therefore ignores the fast and directional trend and instead still allows the buy low, sell high mantra to dictate their trader bias. He sells the Euro at a higher price and buys the dollar at an even cheaper level.

The price may again fall slightly, but because trends are fast and directional the correction is shallow. And when the trend continues to move back higher the trader inevitably gets caught again as the pattern continues for two more (trading against the trend) sales.

Eventually, fear takes over as the trend marches higher and the trader either closes the position out for a big loss, or is liquidated out of his position.

The trader laments on how he got “killed” by the unexpected trend move, but in reality he ignored the reality of what was going on in the market and chose to trade against the trend.

Figure 1.0, EURUSD Non-trends then trends higher

Since the market is starting to trend, instead of rotating back down, the price goes higher. At

Greg Michalowski is the Chief Currency Analyst at FXDD (www.fxdd.com). He is also the author of “Attacking Currency Trends” published by Wiley, April 2011 (www.attackingcurrencytrends.com)

June 2011 | THE EXCHANGE | 41

THE LONG | ANALYSIS

42 | THE EXCHANGE | June 2011

THE LONG | ANALYSIS

An introduction to CFD markets, by Atif Latif, Guardian Stockbrokers.

Many investors are still not aware that they are able to trade AIM companies via CFDs and are still continuing to use outdated products to trade. Traditionally, investors trading Aim shares over the short term have used T20 trades, allowing them to agree to buy a fixed number of shares at a fixed price and paying for them in 20 days’ time. The costs of the trade incurred by the investor will include a commission of up to 1.5% to buy and another 1.5% to sell, a 1% premium to extend the settlement and finally stamp duty of 0.5%.

Therefore, taking trading costs into effect, investors require a 4.5% movement in share price over a very short timescale (20 Days) in order to break even.

Trading CFDs has a number of advantages over the traditional method outlined above, not least because in some circumstances commissions start from as little as 0.1% to buy and 0.1% to sell with no Stamp Duty or settlement premium to pay. If the share price moves by over 0.2% the trade is straight into profit, or to put it another way 4.3% better off than a T20 trade.

More importantly CFDs can be held indefinitely with no expiry date whereas if T20 trades are to be “rolled over” on expiry for another 20 days then they will have to be sold and purchased, thereby incurring costs again and losing the spread. Unsurprisingly there has been a dramatic influx of investors that are now taking advantage of trading AIM Shares via CFDs. One of the most actively traded sectors within the AIM market has been the junior oil and gas sector. It is easy to see why this is the case when over the last year, research suggests that 131 AIM stocks have more than doubled over the last 12 months, and 16 stocks have increased by over 500%, meaning that the returns can be very high. Of course, on the flipside there are other companies such as Desire Petroleum whose shares have fallen by more than 90% from their highs, so both the risks and the rewards of trading in this sector can be significant.

“Trading CFDs has a number of advantages over the traditional method outlined above, not least because in some circumstances commissions start from as little as 0.1% to buy and 0.1% to sell” Another attraction of trading the AIM market with CFDs is the amount of leverage.

Rather than pay the full value of a transaction, investors only need to pay a percentage of the whole trade value when opening the position.

What this means to investors is that they have to generally commit circa 25% (£2,500) margin to purchase £10,000 worth of shares.

This is referred to as the ‘Initial Margin’. The key point is that the margin allows leverage, so that investors can access a larger amount of shares than they would be able to if buying or selling the shares themselves, and allowing the opportunity to amplify returns either positively or negatively.

With this increase in CFD trading comes a more discerning investor, who is now looking to receive a more sophisticated service from their brokers above simple execution of orders.

Increasingly traders are looking for information such as Level2 Data (DMA), trading flows, trading ideas, charting packages and the ability to trade a vast number of investment instruments across multiple exchanges and markets.

DMA (Direct Market Access) has become one of the buzz words in the investment

industry. Put simply there are two models of trading CFD’s which then have different results depending on when they are used.

The first sees prices based around the underlying market price, but with no obligation to match the exchange bid and offer. This means that the CFD supplier provides the price and controls the investor’s entry and exit price, and can therefore potentially benefit from losses, which inevitably creates a conflict.

The alternative is DMA where the prices shown match the exchange and consequently that is the price investors trade at, ensuring transparent pricing and meaning investors are simply trading against the market. With DMA, investors also have the option to enter their trade at a price that they want to buy directly onto the order book, creating the opportunity to trade in within the spread.

AIM companies have the added advantage for short term investors of large spreads and this allows investors to place orders within the spread when the market is very volatile. One of the reasons this market is volatile is that large buy & sell orders can move the price dramatically. When this occurs it’s possible that stops will be triggered when prices spike down or up. Unlike T20 trading where there is no ability to place stops or limits, on a CFD these are easy to place, trailing stops and normal stops. More importantly you can have Guaranteed Stops that allow an absolute limited liability on your original position to protect against sharp movements against your trading position.

It is important to consider that trading AIM shares with a CFD will not be for everyone as they are a high risk investment using a high risk tool that increases the risk and return.

That said, the CFD sector is a market that is constantly evolving in conjunction with new products and trading tools being released e.g. CFD SIPPS or mobile trading, meaning CFD’s are fast becoming a standard part of an investor’s portfolio.

June 2011 | THE EXCHANGE | 43

THE LONG | ANALYSIS

44 | THE EXCHANGE | June 2011

THE LONG | ANALYSIS

Can anyone challenge the US Dollar’s status as top dog?

By Alastair McCaig, WorldSpreads For decades the US Dollar has been the fashionable global currency of favour, with numerous countries around the world tying their own currency to the USD to ensure that they do not have any liability to the USD strengthening or weakening in the market.

One of the reasons that these countries have tied their currency to the US Dollar is because all of the major commodities are traded in US Dollars, whether that is Oil, Gold or Wheat. There are also a multitude of countries that use the USD as a “de facto” currency, where the USD is widely used to buy and sell everyday goods but is not the official currency of the country. In developing countries it has often been useful to have a have a handful of dollars as well as the local currency and in some cases, such as Moscow, it has been historically almost more important to have US Dollars than Russian Roubles if you wanted to be successful in business. Part of the appeal of holding USD has been that it offered people the ability to hold some value in a highly tradable form, and gave the holder a greater sense of security from inflation or hyperinflation in the official currency.

Part of the reason for forming the Euro had been to create a larger, stronger and more resilient currency that could be viewed by the global investment community as a safe home to place their cash. With the combined volumes of business of all the old currencies, (Francs, Deutsche marks, Lira etc.) this new currency would trade in volumes to rival all of the largest currencies, the Sterling, Yen & Dollar. The plan was to create something that was greater than the sum of its parts.

“Expectations from ten years ago of the relegation of the USD to being the second ranked global currency simply haven’t materialised” To an extent this has worked, but the created currency has never really managed to take the next step forward and become a challenger to the global reliance on the USD. It is a telling fact that now, after more than a decade of existence, the main points of discussion when contemplating the strength of the Euro are the likelihood of the currency managing to stay in its current format or being split into a potential two tier Nordic & Latin Euro. Expectations from ten years ago of the relegation of the USD to being the second ranked global currency simply haven’t materialised. With three of the European Union countries struggling to manage their sovereign debt and suffering with an inability to control their own fiscal policies, the question of countries being forced or choosing to leave the Euro is now being mooted as a distinct possibility.

The United States have been working a quantitative easing policy over the last two years which has seen the Federal Reserve pump over US$2,000,000,000,000 into

the market. Every time the US Government mint “print” money it decreases the real value of a US Dollar. The consequence of this action has had a severe effect. To put this into perspective, if we value the buying power of an original US Dollar at $1.00, the buying power of a US Dollar now is $0.03, though of course this loss has been spread across 240 years. Because of this quantitative easing policy we have seen several countries such as Russia, India and recently Mexico reduce the quantity of US Dollars that they hold in reserve, preferring instead to stockpile other reserves including Gold.

With these pressures reducing the appeal of the US Dollar, it had been hoped that the Euro would have been well placed to take advantage. However, at present the Euro is viewed in an equally negative light. Could this leave an opportunity for third currency to seize the opportunity and leapfrog both currencies in order of global preference, as unlikely as it might have sounded in the past?

The importance of the Chinese Renminbi will continue to become more significant due to China’s global growth and increased world reliance on its manufacturing as well as, latterly, its consumption of western retail goods. It is no surprise that those companies in Europe who have posted the most positive returns are the ones who were able to re-focus their sales distribution to Asia. With the new found wealth, the Chinese consumption of luxury goods is the most buoyant sector, and its attraction to manufacturers will ensure a need to trade the Renminbi, meaning an unexpected changing of the guard may well be on the horizon.

June 2011 | THE EXCHANGE | 45

THE LONG | KEN FISHER

KEN

FISHER

China

Goes Shopping 46 | THE EXCHANGE | June 2011

THE LONG | KEN FISHER

In his latest column, Ken Fisher explains how consumption in China is now having an ever-increasing influence on global markets.

There is no denying that China has been in the headlines over the past eighteen months due to its accelerated economic growth, but many people question whether this growth can continue in the coming years. But despite what people think, the wealthy Chinese population is very much enjoying the fruits of its strong economy.

There’s speculation that luxury goods companies will soon suffer because the economy is too slow and people aren’t spending.

Nonsense, I say. Contrary to popular belief, spending has in fact been rising for the past two years, and I mean globally - (The British tend to think about Britain, Germans about Germany, Yanks about America etc). This is a mistake: The world overall grows strongly - global GDP has already surpassed the prior peak - and growth should continue. The UK and the eurozone may lag the US in 2011, but overall world growth is fine, and will likely beat overly low expectations.

It is of vital importance when considering growth not to forget Emerging Markets, which combined are bigger than the US and are almost the same size as the eurozone in terms of GDP which are growing strongly - hence the reason they’re becoming a major consumer of luxury goods.

If you’re still struggling to contemplate the idea of luxury goods in Emerging Markets, then believe it. Emerging Markets will spend £1.575 trillion in the next three years on infrastructure.

That wall of cash is an investment in future growth, but also helps fuel economies now - aiding an increase in buying power for an already growing middle class. Many emerging markets are already seeing per capita incomes reach levels consistent with increases in big-ticket discretionary spending, such as cars, major appliances, and other discretionary goods.

But this new spending is not just discretionary - it’s also luxury. As an example: China’s recent growth is creating large numbers of affluent households, boosting luxury demand. The number of Chinese “millionaires” (those with 10 million yuan or more - around £625,000) grew a huge 6.1 % in 2009 and 9.7% in 2010

“China’s super rich own, on average, three properties, five luxury watches, and four cars. They enjoy fine wines and collect art” - reaching a total of 960,000 “millionaires.”

The ranks of China’s super rich has also swelled.

Those with 100 million yuan or more (£9.4 million) grew 9% in 2010 to 60,000.

The increase of China’s affluent class is likely to continue for some time. In China (and other Emerging Markets) fiscal policies have been, and continue to be, aimed at increasing internal demand (i.e., spending) - a significant tailwind to wealth creation. This is in direct contrast to developed markets, where politicians can typically score easy points by demonizing the wealthy, meaning that the economy does not benefit in the same way from policy as the more vibrant (and more relatively democratic) Emerging Markets.

Also, a high proportion of the Chinese wealthy (and the super wealthy) are entrepreneurs and investors, so their wealth should keep growing in the medium and long term.

Behaviorally, the new money wealthy are primed to be big spenders, and China’s wealthy are young, 39 years old on average - about 15 years younger than their Western equivalents.

They usually live in urban centres and mostly in Eastern China, a demographic that spends more per capita than China’s average in any case. But that’s not their only motivation. China, though getting wealthier, is a nation where 1 billion people still suffer subsistence poverty. As the wealthy are mostly newly-so, they want their (mostly) urban neighbours to know it - and are therefore more extravagant on average than their Western equivalents.

China’s super rich own, on average, three properties, five luxury watches, and four cars.

They enjoy fine wines and collect art. Most Emerging Markets, China included, are also culturally super trend followers. As the super rich do, the wanna-be’s naturally emulate. For the 960,000 merely wealthy who aspire to be super wealthy, that’s lots of consumption to catch up on. This helps drive future demand and profits for luxury goods makers - in China but also across other Emerging Markets.

2011 is most likely going to be a frustrating year for strong Bulls and Bears alike. As is common for the third year of a Bull market (which started in March), stock returns are likely to be more measured-up just a little or even down a little - before the next major Bull market up leg. But because broad market returns are likely to be flattish doesn’t mean the year has to be terrible. Instead, this is a year return dispersion of likely increases. To do well, you must do more micro homework - on sectors, industries, and firms. Increasing demand for luxury goods from Emerging Markets is a theme that should provide extra portfolio juice, and the prospects are good. As long as China keeps spending whilst striving for the ultra stylish lfiestyle, luxury companies will continue to enjoy a growth of their profit margins, ultimately rewarding the studious investor.

Ken Fisher is CEO & Chief Investment Officer, Fisher Investments, and Chairman, Fisher Wealth Management

June 2011 | THE EXCHANGE | 47

THE LONG | STRATEGY

CHART WONK #8

Stochastic Oscillator Whether you like it Fast or Slow, the Stochastic Oscillator is an essential tool for Technicians says Declan Fallon of Zignals The Chart: SILVER(USD) from Zignals.com charting application When the major trend is identified, retracements to overbought (for a bear trend) or oversold (for a bull trend) condition can be used as points of entry in the direction of the trend. Again, silver offered a number of buying opportunities, marked by stochastics falling to an oversold condition, most recent of which was March 2011.

Signals can also be taken using divergences between stochastics and price. Silver offered one such opportunity in July and August of 2010 as lower lows in price were not confirmed by stochastics which made sequential higher lows.

What does it all mean?

The Stochastic Oscillator was created by George C. Lane and shows the location of the close price relative to the high-low range over a predetermined time period. The Stochastic Oscillator is a momentum indicator and can be used as a signal trigger when price action is overbought or oversold, or when divergences occur in the signal line.

How does it work?

Stochastics is measured with a %K line and a %D line. The %K line calculates the relative position of the current close relative to the highlow range over the look-back period, multiplied by one hundred. The %D line is a simple moving average of the %K line and is typically set at three periods. The %K and %D line are plotted together and oscillate between values of 0 and 100. The default %K look back period is typically 14, and can be measured in days, weeks, month or even on an intraday timeframe.

The original George Lane stochastic used divergence in the %D line to generate signals

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as the %K line can be volatile. The original George Lane stochastic is referred to as the Fast Stochastic. The Slow Stochastic places greater emphasis on the original %D line; it uses an additional smoothing variable on the %K, again using a 3-day simple moving average, before applying the %D. In effect, the %K value for the Slow Stochastic is the same as the %D of the Fast Stochastic. The Full Stochastic, which Zignals.com offers, gives you the flexibility to change each of the variables, from the lookback period of the Fast Stochastic %K to the smoothing variable of the Slow Stochastic and the final %D signal line.

Stochastic values below 20 typically denote an oversold condition and above 80 for overbought.

Stochastics at overbought or oversold levels are not necessarily bearish or bullish. In strong trending markets stochastics can remain at extreme values. In the chart above, silver emerged from a base in September 2010. In the early stages of the rally stochastics stayed close to, or above 80 for a number of weeks before the late October correction.

So what are the signals to look for?

In the case of Slow Stochastics, signals can be created by direct crossovers between %K and %D when one or both variables are in overbought or oversold territory. For example, a sell trigger generates when %K crosses below %D after or when %K was above 80.

Divergences between price and stochastics, particularly when prices are range bound, can forewarn of a trend reversal or breakout. Trading divergences may mean buying/covering a break of resistance or selling/shorting a loss of support.

Resistance and support can be pulled from a trading range, price channel or recent price reaction in a trend.

Stochastics make for better entry than exit signals as a trade may exit just as a new trend is beginning. To maximise a stochastic trade it may be better to employ a trailing stop, such as a parabolic stop or cross of a moving average.

Stochastics can also be used in conjunction with Elliot Wave Theory, Fibonacci Retracements or Cycle analysis.

Finally, Full Stochastics offer a great deal of flexibility when it comes to defining settings.

Changing %K and %D values will change their interpretation. For example a longer %K period may give better signals on crosses of the 50 mid-line than moves in or out of overbought or oversold conditions. It’s yours to try!

THE LONG | STRATEGY

Getting into the swing of things In the latest article of his series, Peter Webb tells us how to make a profit swing trading on the sport betting exchanges

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THE LONG | STRATEGY

Spread betting on sports markets isn’t significantly different from spread betting on financial markets. Your trading strategy might be to scalp or swing trade the market, and you can use fundamentals or technical analysis to identify a potential entry point.

One of the most common questions I am asked though, quite logically, is ‘how do you know where the odds are going to go?” My first answer to that question is that you don’t actually need to know where the odds are going in order to be successful, but we’ll discuss that point in a couple of months. A simpler way to explain and understand the answer to the question is to look at a swing trade on betting exchanges.

A few years back I was at the World Money Show trying to explain this very same concept. When I put up a PowerPoint slide of a horse up or said the word bet, people would run a mile. Only when I put a graph up on a slide and talked about support, resistance and swing trading, did people really understanding what I was trying to say. A picture of a trend line is instantly understandable to anybody!

In this example we will swing trade a horse race.

The reason we have chosen to do this is that swing trading without exposing yourself to underlying risk on the actual sports event is really only applicable on a horse racing market. We start trading 10 minutes or so before the start of the race and exit our trade just before the race is due to start. This way our result becomes independent of the actual result of the race itself. It’s perfectly possible to swing trade in other sports markets as well, but the only way to achieve this is to be active and in the market while it is in-play.

This means accepting risk on the underlying sport and your interpretation of it. You don’t need to do this in horse racing.

There are also other key factors behind our choice of the horse racing markets. The first is the frequency of the markets. In the summer there is a race every 10 minutes from 2-9pm UK time. This gives you plenty of races to target and a good mixture of opportunities.

The second factor is the volatility exhibited in these markets. Most sports markets exhibit little volatility before the start of the actual event itself, but horse racing is exceptionally volatile. Backer’s efforts to second guess how a horse will run are the primary driver of this volatility. When people look to bet on a horse race there is a lot of information on which to base their decisions, some of it contradictory.

With a handicap race, in theory, the horses should all cross the line together, but this never happens in reality and has therefore fascinated and provided many opportunities for professional gamblers over the years. No matter how good a horse is on paper, you can’t command it to run well. Therefore a lot of professional gamblers pay close attention to how a horse is behaving on the day, and this influences their decisions on whether they’ll place a bet and how, thus creating the volatility.

Pic 1

In the first Bet Angel illustration (Pic 1) you can see a fairly busy image with lots of information. But if you look at the bet history area you can see we recently laid the favourite in this race. Ignoring our first effort, which we decided wasn’t favourable; we have now laid once at 2.46 and again at 2.50. As a result we now have an open lay order on that favourite of just over £1,000. By laying we are effectively selling risk at a low price with the hope of buying it again by backing it at a higher price and netting the difference. The inverse can also be achieved for a profitable trade.

I clearly remember the first time I made such a trade quite a few years ago. Your initial feeling is that you have just bet £1000 on the favourite in a horse race. Of course you haven’t, you want to take an open position in the market and trade out a few ticks higher, and as a result your total risk will never be £1000.

Because sports gambling is result dependant this can feel odd, but if you look at the figures on the left hand side of the illustration, there is a column showing you your net position in the market if you close your trade at those particular odds. £1,000 is never under threat in its entirety, only small parts of it. If the odds now plunge to 2.32 I would lose £66, but if they rose to 2.70 I would make £88.

Typical trading rules apply. If you get the trade wrong you should exit immediately rather than let your loss run. Common novice mistakes are for people to open a trade, and because it doesn’t work out let it turn into an outright bet. That is not your objective, if you start doing this you will almost certainly lose money as a lost bet can lose significant multiples of your winning trade potential, meaning it is clearly best avoided.

Pic 2

Pic 3

Happily, in this case, we got the call spot on and two minutes and thirty seconds later the odds have drifted to around 3.00 (Pic 2) so I close my bet out by backing at that price. Because I have correctly predicted the drift in odds from 2.50 to nearly 3.00, I now have a profit of £500 on my stake of £1000.

By hedging this profit I will now make nearly £175 regardless of which horse goes on to win this race.

One look at the chart of the odds (Pic 3) will tell you that I decided to lay Sir Mozart because it was in a strong uptrend, the odds were getting bigger. People were already laying this horse before I actively got involved in the trade. I just hopped on the back of this general trend in the odds. Thanks to this I have a nice profit on the race, even before it has started. On this occasion, I used my expert judgement on this race; but sometimes the picture is very clear that something is going to drift.

In the next graph (Pic 4) you can see that ‘Law unto himself’ was also steadily drifting, the odds were getting bigger. This really was an appropriate name for this horse as the reason his odds were drifting was because he threw his jockey off on the way to the start and was loose on the race course.

On seeing this, two things are very clear. If the horse is loose it is using up extra energy and will have less chance of winning the race, and this is bound to affect his odds. This also seems to suggest that the horse’s temperament is suspect and this is always seen as a negative factor. In short, when the horse lost its jockey it was inevitable that the odds would drift. As a swing trader you can pick up on this by laying the horse at the current odds to trade out at much higher odds for a profit. It is not a complicated trade at all and relatively low risk. It’s the trading ‘fundamentals’ equivalent of sports markets.

Swing trading is an unusual way to profit from the exchanges, but thanks to the large pay offs it can produce; it’s now a very popular strategy. Whether you use technical analysis to confirm a trend or something more fundamental, it’s a simple strategy to deploy.

Horse racing is the most popular market to swing trade as you can achieve good swings without any underlying risk on the actual sports event itself.

Pic 4

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the LONG | ANALYSIS

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THE LONG | ANALYSIS

A golden future on the horizon?

The unwavering value of precious metals: a mediumterm view, by Svetoslav Georgiev, Hantec Markets

Gold and silver have undoubtedly been the focus of investors in recent months. The price of gold has increased by over 27% in a year and silver has gone from under $20 an ounce in September 2010 to over $49

by April 2011, an increase of over 60%.

Investors, policy makers, and business leaders are all intrigued by the factors - economic and otherwise - that have contributed to this rally.

The increasing demand for precious metals is certainly a primary factor, but the demand for gold is largely driven by changes in investment. Use in jewelry, medicine, and technology account for a smaller portion of market demand. Gold, like most other precious metals and unlike other commodities such as oil, cannot be destroyed when used and can be recycled without losing its value.

However, producers determining the supply side of the market have limited ability to adjust output levels. Proven gold reserves are scarce, and the sector is capital intensive, requiring sizable investments in technologically complex extraction methods as well as time. It is common to prepare a goldfield for years before a mine can be exploited. When producers are unable to meet the increased demand, prices surge to offset the demand level. Although supply can be affected by sales of existing gold reserves by central banks and institutional investors, production determines the market growth in terms of volume.

The demand for precious metals as an inflation-protected store of value and a perceived safe asset has driven gold prices.

India has traditionally been the largest importer of gold, with 624 metric tons imported in 2010, interestingly not for industrial purposes but for cultural and religious reasons. China has more recently become a major importer of gold, whilst also being the world’s largest producer. The World Gold Council expects that China will become the largest importer of gold in 2011, replacing India. China’s imports have increased five times in comparison to 2009 to reach 209 metric tons. This increased appetite for the precious metal is driven not only by inflation fears, but also by the increasing wealth of the population. The demand for gold as an inflation-protected store of value and a perceived safe asset has an impact on gold prices.

The Chinese now have access to investment funds permitted to invest in gold on the international market. Private investors can also hold instruments based on the value of

“The demand for precious metals as an inflationprotected store of value and a perceived safe asset has driven gold prices” June 2011 | THE EXCHANGE | 53

the LONG | ANALYSIS

“Cost effective investment instruments, such as ETFs issuing securities backed by physical stock, make ownership of gold and silver easier� gold. Although gold investment is not openly encouraged by the government, it is available to proactive private investors. This trend will contribute to a shift in demand for gold on a global scale in the coming years.

The world demand for gold is also driven by the overall shift to precious metals as an asset class in investment portfolios of Western individual and institutional investors.

According to the World Gold Council, investment demand for gold stands at 31% as of 2010. Cost effective investment instruments, such as ETFs issuing securities backed by physical stock, make ownership of gold and silver easier. ETFs are traded like normal stocks during trading sessions, allowing flexibility and making exposure to precious metals possible for a large group of investors. The largest gold ETF, SPDR Gold, now holds 1,229 tons of gold compared to 1,143 last year, and 1,104 tons in 2009.

In developed markets, investors have traditionally used precious metals exposure as a safe asset in times of financial crises or a tight economy. Increasingly though, institutional investors consider gold as a long term capital growth asset. The lack of dividends or any other cash flows have kept gold out of the core assets of institutional investors’ portfolios. The consistent appreciation of the metal, most notably over the past decade, is turning the balance. Pension funds, such as the Teacher Retirement System of Texas, have started expanding their gold assets to a core holding in order to benefit from its long term appreciation and to reduce portfolio volatility.

The traditional use of gold in a portfolio to hedge against inflation and as a low-risk asset has now changed to that of a core asset class.

Once again, gold became a safe haven for investors as revolutions swept through the Middle East, similar to the time of the ArabIsraeli war. Between 1970 and 1972, the price

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of gold reached a local maximum of about $200 per ounce, up from $34 an ounce. In 1979, the political unrest in Iran contributed to the dramatic increase in gold price to over $800 an ounce, the highest ever price in real terms. The fact is that you simply cannot ignore the impact of political events on asset prices and the ability to assess the dynamics of the precious metals market.

The relationship between gold prices and the US dollar has been consistently inverse.

At times of a weak US dollar, gold and other precious metals have consistently shown an upward trend. Gold, as a commodity with strictly limited supply, is priced in terms of a currency, which is subject to monetary policy manipulations.

The monetary and fiscal stimulus programs that governments all over the world introduced in response to the economic recession, precipitated by the financial crisis of 2008, have increased liquidity and monetary aggregates. Most notably, the quantitative easing program of the

Federal Reserve made capital available and cheap at a near zero interest rate level. In an environment of low interest rates, the opportunity cost of holding gold, which does not bear dividends or interest, is relatively low. The ensuing inflationary pressure is an inevitable byproduct of this policy, as it targets a renewal of economic growth. A traditional function of gold has been as a hedge against inflation within a diversified portfolio. Increasing fears of inflation pushed more investors to expand their holdings of gold, causing a powerful shift on demand for gold. The rally of gold prices over the past two years was to a great extent due to the fear of and protection against inflation.

Within the precious metals group, silver outshined gold at the beginning of the past month. Over a time horizon of just nine months the price of silver rose from $20 an ounce range to nearly $50 before falling back to $35, a growth of nearly 60% compared to just 20% for gold. Silver has been considered a more affordable store of value, and as such

THE LONG | ANALYSIS

accessible to a larger group of people. This, combined with the abundance of investment vehicles that made holding silver as an asset relatively easy, drove the demand for the metal more aggressively. Another factor contributing to this trend was the industrial application of the metal. While just 13% of demand for gold comes from medical and industrial application, silver is widely used in optics, for its reflecting properties, and electronics, for its exceptional conductivity. These two sectors accounted for over 60% of silver demand in 2010, according to The Silver Institute in Washington DC. Silver benefits substantially from both areas, i.e. being a recognized store of value and an industrial commodity. It seems, many investors have recognized this advantage and are betting on continued short and medium term appreciation of silver price.

The fundamental factors that have been driving the rally in precious metals are still present and are likely to remain active in the short and medium term. Fears of market instability originating from the Middle East

remain high, with the crisis in Libya still in a deadlock. The potential impact of political instability in the region, which provides a sizable part of the world’s supply of oil, is daunting. Escalation of the crisis can slow the pace of global recovery and reinforce the fears of investors as they consider adjusting their portfolios by moving away from gold to equity. The near zero interest rate policy of the Federal Reserve is likely to continue in the foreseeable future as the US recovery is slow, not irreversible, and with a persistent high unemployment. The recent downgrade of economic outlook in the US by S&P further deepened the lack of confidence in US dollar. This will also drive investors further to the safety of the “ultimate currency�, i.e. precious metals. Moreover, we should not forget the fears caused by the sovereign debt crisis in Europe. The government bonds, which were previously perceived as near zero risk instruments, now carry high risk premiums causing capital flight to the safety of precious metals.

Re-establishing stability requires time.

Meanwhile investors are likely to keep their preference with the precious metals. Growing imports in China and India, increased acquisition of precious metals by central banks, and pension funds will be a key factor determining the dynamics of the gold price in the medium and long term. Considering the economic forces in play and fears fueled by political instability, the growth of precious metals is far from over. Unlike the past, this time we may even witness a long term shift in the perceived role of gold as an asset in private and institutional portfolios. After all, gold has retained its purchasing power for centuries.

Few currencies can compete with that.

Svetoslav Georgiev is Chief Market Analyst for Hantec Markets - Trust Through Transparency. Forex and other leveraged products involve significant risk of loss, it is advisable to seek good advice and training prior to setting up a live account. To find out more go to www.HantecFX.com

June 2011 | THE EXCHANGE | 55

THE LONG | COLLECTABLES

The art of the purchase 56 | THE EXCHANGE | June 2011

THE LONG | COLLECTABLES

With the Henley Festival only just around the corner Stewart Collins, Artistic Director of Festival, shares his tips on buying art for those with an eye for a much more beautiful way of investing their money The visual art side of the Henley Festival has always struck me as being one of the event’s absolute unique selling points. The Festival’s Thames-side location is great, its format is unique, and the mix of performance and dining is pretty unbeatable, but it’s the art that gives the whole thing a unique feel. And what’s even more exciting in my opinion is that the Festival creates a golden opportunity to start or to build a personal art collection.

As Artistic Director of the Henley Festival getting the visual arts programme right to appeal to buyers is one of the conundrums I face yearly. We encourage a range of galleries and artists to be part of the event, from young up and coming professionals such as Jeff Robb and David Miles (represented by Mauger Modern) to established British artists including sculptor Sebastian Wylder (whose life-size bronze elephant will grace the front lawn) and star names such as Peter Blake and local resident Rolf Harris. For those with deep pockets there’s even a chance to snap up a Dali for a cool £1.5m – six monumental sculptures will be dotted around the site during the festival . Prices for the art does start at £100 though.

We also try to help provide some guidance on buying - artists and gallery owners are encouraged to be on site to answer questions and give advice to potential purchasers. I don’t necessarily expect people to arrive planning on taking home a 25 tonne bronze elephant, but it’s not inconceivable that during their five, six, or seven hours on site visitors will see something beautiful, something different and something that they will truly want to live with.

There are of course two main reasons for buying art: one because you love it, the other because of its investment value. These two aren’t necessarily mutually exclusive – but of course budget will have a role to play in any consideration as to whether a piece is right for you. This year, for example, I shan’t be buying any of the Salvador Dali, Peter Blake or John Piper works we are showing despite a love of the pieces, just as last year I would almost have killed

for a Patrick Hughes work – all of which, as established names, would probably be fail-safe financial returns in the future.

But working at Henley I have often fallen victim to the temptation to add something smaller to my modest collection, and several of these works which now sit ranged around my home have proven to be good financial - as well as enjoyable - investments: a fabulous piece of photography by the Venezuelan artist Antonio Briceno, for example, the value of which will not have been hurt by the artist being showcased recently at the Venice Biennale; a small painting

by Australian aboriginal artist Shane Pickett, bought for £350 and now worth significantly more since the artist’s death - and a cheeky garden gnome by the German artist Ottmar Hoerle, bought for only £200 and now quite collectable.

So there are several reasons why one piece of oil and canvas, or one piece of

carved oak costs so much more than another; why one 5’ x 3’ landscape will cost a few hundreds of pounds, another many thousands.

The question is how can you spot something that today is priced at a few hundreds, but which in just a few month’s time may in fact be worth many thousands?

As with any form of investment, the answer to the question is part intuition, part knowledge, part luck. You follow trends, you look to see just who’s doing what and where, and you take a punt. My own approach is actually to do with art pretty much what I do with property. If I like a place, if I want to live there and can afford it I will buy it. If it proves to be a fabulous investment over time, so much the better. Likewise with art. If I like it, I will buy it. If it subsequently becomes stratospherically valuable then that’s a fantastic bonus Ultimately there is no such objective thing as good art or good taste – there’s only ever your judgement and personal preference. And that should be the starting point for any collector.

June 2011 | THE EXCHANGE | 57

THE LONG | Commodities

The Wine Market Update

By Chris Smith, Analyst for The Wine Investment Fund Year-on-year fine wine remains consistently ahead of all major stock market indices Unusually (compared to previous years) April was a quiet month in the fine wine market. Although the main indices were marginally down: the Liv-ex 100 index by -0.03% and the Liv-ex Claret Chip by -0.64%. Yearon-year, the indices are +26.5% and +31.9% respectively, well ahead of all major stock market indices (e.g. FTSE 100 is +9.3%).

Châteaux and vintages Of the five first growths, Lafite was again the weakest with price falls averaging 2% across a range of vintages. Latour, Margaux and Mouton saw small falls (around 0.3%), while Haut Brion continued its stronger start to the year, rising around 1%.

Of the other top names, Cheval Blanc and Pétrus showed the best performance with increases of around 3-4%. La Mission Haut Brion was slightly down, perhaps signalling an end to a few months of overperformance as it played ‘catch up’ with the first growths. However, second growths and ‘super seconds’ such as Lynch Bages, Léoville Barton

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and particularly Ducru Beaucaillou continued their steady rise as buyers looked for more affordable wines outside the very highest echelon.

Vintage effects were again limited and there were no noticeable differences between ‘stronger’ and ‘weaker’ years.

Economic backdrop “The quiet month may have been partly attributable to the spate of holidays in the UK around Easter and the Royal Wedding. However, with the market for fine wines being truly global, other factors may have been in play. One possibility is decreased Asian demand as the region’s supply lines digest the vast quantities of premium wine purchased over the last couple of years.

The results of two auctions in Hong Kong support the view that the market there may be calming. A Sotheby’s sale over three days was 100% sold, but prices were considerably below UK market prices before the addition of the buyer’s premium (although in most cases above, once the commission is included).

Economic developments in the region were concentrated in two areas: stronger than expected economic growth but also increasing inflation

THE LONG | Commodities

“second growths and ‘super seconds’ such as Ducru Beaucaillou continued their steady rise as buyers looked for more affordable wines outside the very highest echelon”

worries leading to interest rate rises.” commented Andrew della Casa, Director The Wine Investment Fund.

Outlook The Wine Investment Fund (TWIF) considers that in the short term, the fine wine market will be most affected by the imminent release of the 2010 en primeur Bordeaux vintage. 2010 undoubtedly produced some very high quality wines. However, as part of the Fund’s clearly defined investment process, TWIF will not be purchasing any of these wines and continues to advise against en primeur as an investment. TWIF is expecting release prices to be high and for these en primeur wines to underperform the wider market in the first few years of their lives – and to be subject to greater price volatility.

TWIF expects a small positive impact on the prices for older, physical available vintages. Looking longer term, the potential of India as a future consumer of fine wines has been in the news this month. The consensus is that import duty rates will need to be reduced before the market can be significantly developed, but should that happen the potential is very large.

TWIF performance TWIF’s performance in April was -0.39% net of all fees and expenses, i.e. effectively at the same level of the indices. Since end December 2010 TWIF is +9.9% while the Liv-ex 100 is +6.7% and over one year TWIF is +26.6% (net of all fees and expenses) compared to the Liv-ex 100 at +26.5% (though the index makes no allowance for the costs of buying, storing and selling wine).

TWIF’s average paid out returns since inception in 2003 is 14.8% (CAGR net of all costs and expenses).

Subscriptions TWIF raises subscriptions on an ongoing tranche by tranche basis - the minimum investment is £10,000.

The Wine Investment Fund’s Information Memorandum is issued by Mazars Corporate Finance Limited. Mazars Corporate Finance Limited is authorised and regulated by the Financial Services Authority.

June 2011 | THE EXCHANGE | 59

THE SPREAD

SPREAD THE

IN THE SPREAD...

SUMMER BLUE CHIP FILES RESTAURANTS CITY GUIDE: MARRAKECH WEEKENDS TRAVEL RESTAURANTS

Hippodrome Casino on course to take London by storm The Hippodrome Casino took another step towards a grand opening this month when its online site was launched onto the web.

With tournament and cash poker tables as well as slots and casino table games, the Hippodrome website offers everything gamblers will expect from the venue which will open later in 2011.

Comprised of four floors of state of the art electronic games, top quality restaurants, cocktail bars and high quality entertainment in designated cabaret space promised, the launch of the Hippodrome

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looks set to be one of London’s highlights this Autumn.

The Leicester Square venue is expected to open its doors to the public later this year.

The Hippodrome’s online will play a key role in the uniqueness of the venue once it opens. Online poker tournament finals will take place live at the Hippodrome’s tables, and players will be able to cash out from their online accounts on the casino floor. www.hippodromecasino.com

THE SPREAD | Summer

Fun in the Sun

The summer is on its way, meaning the season for parties, parties and more parties is here. The best social events of the year are only just around the corner so, with so much on offer, here are our highlights of the coming months.

POLO IN THE PARK Where: Hurlingham Park, SW6 When: 3rd – 5th June Website: www.polointheparklondon.com

Polo in the Park returns to Hurlingham Park in West London in the first weekend in June, kick-starting the summer with an almighty bang.

The Polo festival is only in its third year but has already made huge waves across London and beyond, and 2011 looks set to best last year, when it won ‘London Sport Attraction of the Year’. With some of the best players in the world coming to London for the event, the polo is sure to be fast and fierce, and will be a great spectacle to centre-piece one of the best parties of the summer.

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Teams representing London, New York, Buenos Aires, Moscow, Abu Dhabi and Sydney will do battle on the pitch across the three day event, with a champion being crowned on the Sunday afternoon.

The highlights away from the field are sure to be as lavish as the polo will be competitive on it, and with a Harrods Food Court, Veuve Clicquot champagne garden and bars sponsored by Mahiki and The Punch Bowl Club all to be discovered on site. A day, or even three, at Polo in the Park is something you simply can’t afford to miss this month.

THE SPREAD | Summer

THE GLYNDEBOURNE FESTIVAL Where: Glyndebourne, BN8 When: 21st May – 28th August Website: www.glyndebourne.com

For musical culture lovers there really is only event that stands out as the highlight of the British summer, The Glyndebourne Opera festival.

The festival has been running since 1934 and attracts the biggest names in opera, as well as crowds of thousands who flock to the Sussex country house each year to see some of the best musical performances the British Isles has to offer.

Evening dress and a summer picnic are the order of the day to get the most from a visit to Glyndebourne, so if you’re planning a visit make sure you’re dressed to the nines to slot in seamlessly with the refined crowd.

The festival opens with Die Meistersinger von Nürnberg, directed by David McVicar, which is being staged at the festival for the first time. Robert Carsen will also direct a new production of Handel’s Rinaldo, 300 years after the opera’s first production in London.

Don Giovanni (opening 22nd May) headlines 2011’s revivals, but with L’elsir d’amore (opening 9th June), Rusalka (opening 23rd July) and The Turn of the Screw (opening 11th August) all also on the bill there’s something for everyone to enjoy throughout the summer months.

THE QUEENS CUP POLO Where: Guards Polo Club When: 12th June 2011 Website: www.guardspoloclub.com

Another staple on the summer circuit, the Queens Cup

is perhaps the highest profile and most glamorous event on the polo calendar this summer.

Teams and players from around the world are sure to set the grass afire with some of the highest quality polo Europe will see in 2011, but with so much pomp and show on display this event will be equally enjoyable for sports and non-sports fans alike.

Guards Polo Club is the spiritual home of polo in the UK and hosts only the biggest events the sport has to offer, making it the perfect location to host the Queens Cup. After weeks of chukkas the final will take place on Sunday 12th June, and with who’s who from the royal family to the mover and shakers from the City all expected to be in attendance, this is one event you really don’t want to miss.

June 2011 | THE EXCHANGE | 63

THE SPREAD | Summer

THE HENLEY REGATTA Where: Henley-on-Thames, RG9 When: 29th June – 3rd July Website: www.hrr.co.uk

Traditionally taking place on the 27th weekend of the year, the Henley Royal Regatta is internationally acknowledged as the largest racing regatta in the world. Bars, restaurants, music and entertainments accompany 4 full days of racing to provide excellent entrainment for all ages and interests.

The boats come thick and fast, but it’s the party atmosphere that really heats up as the winners are crowned.

The highlight of the racing is the Men’s 8’s Grand Challenge Cup, however the racing itself is somewhat overshadowed by the fantastic social atmosphere which the regatta invariably provides.

WIMBLEDON Where: All England Lawn Tennis Club When: 20th June – 3rd July Website: www.wimbledon.com

A mainstay of the British summer, the annual All England Lawn Tennis Club Championship at Wimbledon is a beacon signalling the start of warmer months ahead.

Strawberries and champagne is the order of the day if you’re taking a trip to SW19, and when the booze is flowing and the sun’s shining there isn’t a more enjoyable place to spend a hazy summer afternoon than Henman Hill or, if you’re lucky enough, Centre Court.

Andy Murray is once again flying the flag for the Brits on the court, and hopes are high that the Scot can be the first Brit to emulate Fred Perry’s mens Championship title run this year. But even if Murray doesn’t manage to overcome the formidable Rafa Nadal and Roger Federer this year Wimbledon will still represent everything that’s great about the tradition English summer, making it an essential two weeks to mark on your summer calendar.

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THE SPREAD | Summer

THE HENLEY FESTIVAL Where: Henley-on-Thames, RG9 When: 6th - 10th July Website: www.henley-festival.co.uk

The Henley Festival returns in 2011 with perhaps its strongest line up to-date. Fusing art, music, cuisine and partying, the five day spectacular is a unique event unparalleled anywhere in country. The artistic highlight of the festival will be six Salvador Dali sculptures up for sale, with the largest going for a cool £1.5m, but by no means is this the beginning and end of the a fantastic collection of art on display and for sale.

Sir Peter Blake, the father of British pop art, Sebastian Wylder and Rolf Harris are amongst the artists displaying new works for sale at the festival, and with pieces on offer for as little as £100 there is artwork of the highest quality available for every budget.

Tom Jones headlines the musical performances, which also include sets by opera quartet Blake, Alexandra Burke and Jules Holland. London nightclub Chinawhite will be hosting the late evening’s entertainment, ensuring that the revelry continues well into the earlier hours.

And if you think the party cannot get any better, legendary Michelin star chefs Heston Blummenthal and Albert and Michel Roux Jr will preside of the Henley Festival’s kitchen.

With all this on offer, the festival is an event you really can’t afford to miss out on this year. Perhaps the highlight of the entire summer.

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THE SPREAD | FOOD

THE BLUE CHIP FILES #5

The Italian Job The Villa Crespi at Lake Orta Eve Lawrence heads to Northern Italy to sample the provincial delights of the two Michelin star Villa Crespi Hollywood has taught us many things about Italy.

Firstly, everyone is beautiful, but has a tendency to pout excessively.

Secondly, all these beautiful people travel exclusively by Fiat or scooter - pouting excessively, of course.

Finally, food is one of life’s most important things, and should be savoured, whilst surrounded by friends and family.

This last lesson has been drilled home most forcefully during mob mealtimes from The Godfather to The Sopranos, where eating is the major event of the day (unless that day also includes delivering a horse’s head to a rival’s bed).

And because of this mindset, like Don Corleone lecturing an attentive class of young wannabe mobsters at Mafioso School, Italian cuisine dominates the global gastronomic landscape with a peerless confidence.

But, with this in mind, what does it take to be one of the top restaurants in a nation so consumed with the consumption of quality cuisine? Can the two-Michelin-starred Villa Crespi live up to its reputation, and make me a tasty offer I can’t refuse?

In a word, ‘si’. And how so.

Situated on the banks of uber-glamorous Lake Orta, the Moorish villa invites the diner to dream of magical adventures in faraway desert lands. Looking more like a Sheikh’s palace than an Italian food destination, Villa Crespi dominates the serene landscape with its magnificent frescoes and oriental domes, culminating in its ornate minaret touching the sky. All this whilst the grandeur of the lake fills the background of this real-life canvas. Simply, it’s a breathtaking place to be.

The menu offers a traditional Italian food experience, with its signature dish its famous ‘South to North’ menu – offering the diner a taste of every region of Italy.

Like all taster menus, the beauty is in the mystery, and it would take something away from the sensory overload to know too much.

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However, it’s pleasing to report that, unlike some other taster menus where a good start descends downhill, here the excellent beginning improves with each course.

It doesn’t ruin the surprise to learn that some notable highlights include the sheer deliciousness of the Edible Flower Pasta filled with Goat’s Cheese, the perfect blend of flavours of the Striped Red Mullet and Emulsion of Sage, and the truly exceptional Roasted Pigeon and Scallops.

Needless to say the accompanying wines from across Italy are predictably wonderful, and perfectly complement the first-class fare served up.

Movies have taught us that the Mafia operate a code of silence called ‘Omerta’. Quite frankly, if anyone who’s eaten at the Villa Crespi wants to keep schtum then I can only suggest booking a session with Tony Soprano’s shrink. Simply benissimo!

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THE SPREAD | CITY GUIDE

Moroccan’roll Than You’d Expect Much of North Africa is going through a hard time right now, but there’s at least one oasis where a perfect getaway hides. Mark Southern discovered what makes Marrakech the go-to weekend destination for the cool kids in the know.

Right contestants, fingers on your buzzers. Here’s your starter for ten. Which city is famous for hedonistic parties, great weather, wonderful food, and is within just three hours from London?

Ibiza Town? No. Madrid? It’s good, but it’s not right.

Berlin? If it’s up there, I’ll give you the money myself.

Ok, hands up who had Marrakech in North Africa? No-one? Ok, apart from the smart one at the back, probably not many of you.

And why would you? For one, surely Africa’s more than three hours flight away, right? And secondly, how can a small city in an Islamic country possibly be a party capital?

Well you’d be wrong on both counts and would be walking away without even a cuddly toy, because despite its relatively small size, Marrakech is as close to the perfect weekend retreat as it gets for those wanting to head off and experience exquisite culture, excess and cuisine in a sun drenched lovers’ playground.

It’s undeniably surprising, but it’s also unquestionably wonderful.

So, when you’re next asked the question, of ‘where should you go for a genuinely different weekend experience?’ you shouldn’t need to phone a friend. Don’t even ask the audience.

Your first and final answer should be simple: “Marrakech, Bob. Now I’ll have a P please.”

“it’s better to be just outside of the centre, and travel in for business or pleasure”

Where to Stay?

Marrakech is not a particularly big place, so getting around is easy (although taxi drivers appear to be constantly competing for an award for ‘ the narrowest gap fitted through in full size car at full speed’). This means that, whilst most of the action takes place in the old town medina, it’s better to be just outside of the centre, and travel in for business or pleasure.

The very best place in town is Les Deux Tours, which even our rusty GCSE French

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is able to translate into The Two Towers. The hotel sits just 20 minutes away from the centre, in what locals call the palmery; a vast oasis of palm trees as far as the eye can see. Legend has it that the estimated 150,000 strong ocean of palm trees brings good fortune to the locals, and if by ‘good fortune’ they mean ‘exceptional hotels’ then the myth is certainly true, as Les Deux Tours blows away all others in town with

its luxurious excellence.

The hotel has acres of private gardens, fountains and wildlife, and is a perfect location to plan your trip from. Its award-winning restaurant and exceptional service means that you’ll be tempted to spend all of your time within the hotel’s imperious walls, but you would be missing out on the full Moroccan experience if you didn’t venture out at least once.

Make sure you book one of the Villa Suites, and treat yourself to the remarkable private dining experiences, where your own private waiter for the evening will serve you a fabulous taster menu of local produce from the hotel’s Michelin-starred restaurant. Also, take time to wander around the extensive gardens, reveling in the relaxed ambience, and enjoying cocktails by your own private pool.

This is a genuinely delightful hotel, and one that is an absolute must-stay during your time in Morocco (www.les-deux-tours.com).

THE SPREAD | CITY GUIDE

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THE SPREAD | CITY GUIDE

Where to Eat?

Food is of great importance to Moroccans, and you’ll be given special service wherever you go. However, it can be a little too busy in some places, and taking yourself away from the hustle-bustle of the medina (and it really does hustle and really does bustle) is a very good idea indeed.

Les Jardins de la Medina is one such hidden gem, located behind the most unsuspecting door you’ll ever come across. What appears to be nothing more than an empty street houses the nondescript brown door, which acts as a TARDIS-esque portal to another world away from the hectic hullaballoo outside.

You’ll sit by the pool within the quaint riad, where history and opulence pass on their relaxing qualities like osmosis whilst you eat.

Try the fish here, or their excellent French interpretation of the local delicacy, lamb tagine (www.lesjardinsdelamedina.com).

Alternatively, for a more authentic experience, get into the souks (or marketplace) right in the heart of the medina, and enjoy the local flavour from any of the stalls pedaling their wares. It’s cheap, it’s cheerful, and it’s never anything less than delicious.

Where to Party?

Morocco is an Islamic country, but they

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“get into the souks (or marketplace) right in the heart of the medina, and enjoy the local flavour” have a laid back attitude to alcohol, bars and nightclubs. In fact, Marrakech is building up something of a reputation as being the party capital of North Africa, with a growing number of cool nightspots shooting up over the past decade.

As throughout the rest of the country, music is the narrative through which the party story plays out, and whether it’s the traditional sounds of the old town square, or the booming house music blaring from a latenight bar, peace and quiet are not to be found here. Instead, energy, fun and friendliness are the watchwords, and you shouldn’t miss the cluster of cacophonic Kasbahs around Avenue Mohammed V. Special mentions should go to Le Bar Churchill, with its marvelously Moorish feel and impossibly glamorous cocktails (www.

mamounia.com), and the extravagance and Western ambience of the most high profile nightclub in town Diamont Noir (www. hotellemarrakech.com).

High Roller

Casinos and gambling are in surprisingly high supply here, with the odds very much in the players favour when choosing their favourite.

The best in town is also the oldest; Le Casino de Marrakech. This impressively opulent palace of inequity has been keeping locals and tourists alike at the tables for over five decades, and this experience shines through, with a chic confidence its competitors lack. Featuring fourteen hours per day of everything you could want from a top casino, this is the only place in town to gamble big (www.ilove-marrakesh. com/casino).

Cultural

There are few places in such relatively close proximity to Britain that have such an authentic sense of cultural identity. Unlike many historic cities where Westernism has diluted the local culture down to a grey shadow of its former glory, here globalism plays second fiddle to local ambience.

From the red shading of every building, to the refusal to build any high rise buildings as

THE SPREAD | CITY GUIDE

they would challenge the unique dominance of the main city mosque, locals care about their city, and it’s better for it.

Indeed, as long as you can ignore the ubiquitous iphone earphones in every other shopkeeper’s ears, taking a walk through the medina is like stepping into a cultural time machine, as though you could be stepping through the same souks at any time over the past century.

“taking a walk through the medina is like stepping into a cultural time machine”

Extravagance

The beauty of Morocco cannot be fully appreciated by land, for a complete understanding of its wonders you must take to the skies.

The best way of doing this is not via any motorized method, but by helium. Take a thrilling hot air balloon ride and you’ll witness the real colours of the desert, the unique way the city fades into a fuzzy glory against the dry African sky, and above all the soothing silence of nature. It involves an early start (normally around 5am for the best views), but it’s worth

of Marrakech in the Atlas Mountains, you’ll traverse rapid-running rivers, and experience breathtaking drops. Of course it’s perfectly safe, but your heart will be in your mouth for a sensational excursion with a difference.

How to Get There

BMI has just launched a new route to Marrakech from London Heathrow (www. flybmi.com). Don’t forget to upgrade to their exceptional business class if you can; it’s second to none. www.flybmi.com

the lack of sleep as the tranquility you’ll feel as you and a significant other sip a champagne breakfast aboard your own private hot air balloon flight is exquisite. This experience couldn’t be more recommended (www. travellink.ma).

Exhilarating

For something a bit more white-knuckle, you’ll need to go more white-water. Rafting that is. An unknown gem just an hour outside

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THE SPREAD | WEEKENDS

Sunday, Yummy Sunday For many, the good old Sunday lunch remains a highlight of the culinary calendar. Mark Southern discovered that life’s moved on from the traditional roast beef and Yorkshire puddings, and finds the very best spots in Britain for a spectacular Sunday lunch.

The Frogmill Cheltenham, Gloucestershire The Cotswolds is blessed with a wide range of great boutique bolt-holes, but few places are worthier of a Sunday trip than the newly re-launched, The Frogmill.

Not only a stunning boutique hotel, but its restaurant Adam’s Pantry, headed up by the talented Adam Murray, is perfect for a relaxed Sunday lunch. What it lacks in size (just intimate dining for forty), it makes up for in quality as Murray serves hearty home cooked dishes for Sunday lunch using all locally-sourced ingredients, and using his years of international experience. Genuinely a thrilling culinary experience, and all in the leafy Gloucestershire countryside, this is the only restaurant here serving up frog’s legs on a Sunday! www.bespokehotels.com/thefrogmill

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THE SPREAD | WEEKENDS

The Duke of Wellington Marylebone, London The original Duke of Wellington may have risen to prominence in the Napoleonic Wars, but this one rises to prominence by offering a gem in London which stands out for its quality, gimmick free Classic Modern European Food, using the best seasonal British produce. Vintage Sputnik lighting, gilt frames and electric blue walls create a contemporary backdrop whilst staying true to a welcoming “old pub” feel. Upstairs is where the real culinary magic happens though, with an intimate space for thirty diners to enjoy the splendid food, watch the world go by, and pretend the following day isn’t Monday. www.thedukew1.co.uk

Tylney Hall Hook, Hampshire The imperious Tylney Hall stands proud above vast grounds of stately gardens, croquet lawns and hidden alcoves. Stepping into the building brings thoughts of a more gentile past coursing through your veins, and the relaxed ambience is perfect for a Sunday treat. Head Chef Stephen Hine prides himself on using the best ingredients available to create classical dishes with a modern approach. Lunch is served in the woodpanelled Oak Room Restaurant, with delightful views of the gardens, and we recommend taking dessert and coffee in front of the fire in the Grey Lounge, or on the terraces in summer. www.tylneyhall.co.uk

Lucknam Park Chippenham, Wiltshire Sunday Lunch has returned to The Park restaurant at Lucknam Park by popular demand, and it’s been well worth the wait. With its Michelin star you can be assured of a gourmet dining experience from award winning Executive Chef Hywel Jones and his team. If that name sounds familiar it’s because Hywel is currently starring on The Great British Menu on BBC2, and he uses all his know-how to produce simply sensational Sunday food every day of the week. Afterwards, walk it off in the vast manor grounds or take a horse from the stables for a hack around the woods. A tip though, if we may: make sure you save room for dessert; simply magnificent.www. www.lucknampark.co.uk

Baumann’s Brasserie Coggeshall, Essex Essex may not be the first place you think of for a cracking Sunday lunch, but hidden in the charming market town of Coggeshall, Baumanns Brasserie regularly attracts plaudits from its clientele and food critics alike.

Unlike some of the cast that make up the county’s current TV persona The Only Way Is Essex, Baumann’s is a relaxed, stylish environment with topquality locally sourced ingredients. Sundays tend to get busy thanks to the reputation owner Mark Baumann has developed, so book in advance and venture forth into Essex without a sun-bed in sight. www.baumannsbrasserie.co.uk

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THE SPREAD | Travel

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THE SPREAD | TRAVEL

Travel dating is a virtually un-known concept when compared to its internet and speed dating bedfellows. That might be about to change though according to a number of leading travel dating companies, as this rather luxurious form of courtship is currently on the rise, specifically amongst successful City professionals willing to scour the globe for their perfect partner. With adventure on his mind, Mark Southern lifts the lid on an industry that brings a whole new meaning to the phrase ‘wander-lust’.

Hollywood’s got a lot to answer for…

Until recently, it was quite possible to be happy leading a “normal” life with a “normal” girl, going away to “normal” places. After all, what could possibly be wrong with a regular life, and getting away for a couple of weeks of sunshine every summer?

But no, not anymore. Not since the world’s most prolific dream factory polluted our minds with its fancy fairytale love stories.

Thanks to Spielberg and co it’s out with the old tried and tested technique of being moderately content with life, and in with the rather showy concept of having a dream life with a dream person, in a dream place. It’s sickening.

Except it’s not sickening. It’s actually a jolly good idea.

From the streets of wartime Casablanca to the glam and glitz of Breakfast at Tiffany’s, Hollywood has long recognised the intrinsic link between far-flung lands and star-crossed lovers; and the greater the backdrop, the more intense the cinematic sonnet.

And yet for decades cinema-goers, accompanied by only a ticket-for-one, stared at the silver screen grinding popcorn to make up for the bitter disappointment in their lonesome souls. Time and technology have kindly swept us along, but the story remains the same; goodbye Gone With The Wind, hello Meg Ryan and ‘You’ve Got Mail’.

We’re all familiar with that iconic phrase ‘you can’t have your cake and eat it’, but it would seem that what once was true is no longer, as a growing number of single professionals are not only replacing their popcorn for cake, but packing said sponge into their suitcases and travelling to foreign shores, to share this delicacy with their potential match. Traveldating amongst successful people is now box-office gold, and shows no sign of retreating back to its battered old VHS case under the stairs.

As the global elite come to their senses and demand more from what little time they

“As the global elite come to their senses THEY demand more from what little time they have for romance and travel” have for romance and travel; Luxury intercontinental introduction agency Berkeley International have stepped up to the plate.

Berkeley’s is the World’s leading pioneer in travel-dating, and as such business is booming.

Berkeley CEO Mairead Molloy is the blonde cupid making magic happen for successful people the world over. Offering a unique matchmaking service, Molloy travels the globe looking for that very special person that will be just right for her clients, regardless of international border constraints. Once she finds the right person, she then plots their perfect first date in an exotic location.

Molloy sympathizes with a culture that has a grueling work ethic, as she remarks, “I know how tough it can be to balance a career and a love life, and unfortunately the more successful your career becomes, the less time you have for love. Some people don’t have the time to settle down and start a family whilst others that have done that have found that for one reason or another, things have not worked out, and need to start again.”

That’s where Molloy and her team come in.

But what kind of person could you meet with Berkeley?

“I never reveal who my clients are, as privacy is paramount to how we operate, but we’ve got A List actors and celebrities, CEO’s and entrepreneurs; all sorts of high flyers really.

The one thing they’ve all got in common is that they are successful in life. I even set up two Hollywood actors in the past but I really

mustn’t tell you who! (Speculation on Tom Cruise and Katie Holms maybe..?)

I suppose the difference with us is that everything has that personal touch. We don’t have catalogues of men and women to choose from, or holiday packages to send people on.

We get to know our clients, find out what they want and then we make it happen. It’s all about trust. Our clients don’t have to do anything, just enjoy themselves.”

And the number of people enjoying themselves is rising, with Berkeley reporting a 25% growth in clients over the past year.

Michael Clarkson (Would John Smith be better?)* is one such City worker who realised the wonders of travel-dating after reading an article online two years ago.

Forex trader Smith recalls, “I’d not long come out of a long term relationship and was daunted by the London dating scene.

Everything was so much more complicated than I remembered it being, and every date I went on felt so transient. Also, for a big city, London can be claustrophobic, seeing the same faces all the time.

At the same time I remember work had been stressful and I needed to get away, but the problem was I hadn’t been on holiday with anyone other than my former girlfriend for years. I was looking online for travel ideas when I saw a company offering high-end dating introductions overseas, so I emailed them my details.

I got a call just ten minutes later inviting me to come into their office for coffee. I arranged a time for the following week, and was pleasantly surprised to see their Chelsea offices were plush and professional (for some reason I thought they would be seedy), and the matchmaker was genuinely interested in finding out about me, and what I wanted from life.

Afterwards I went away not expecting a great deal, until they called me the following day saying they had dates lined up for me in Milan, St Tropez and Madrid, with women they thought I’d get on well with.

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THE SPREAD | Travel

Work was as busy as ever, so I was delighted that the matchmaker made all the arrangements, including flights and excellent hotels. So the next weekend I finished work early on the Friday and made my way to Heathrow to fly out to Milan for date number one.

I arrived in Italy for mid-afternoon, checked in and had a panic attack; what the hell was I doing here, miles from home, about to meet someone for dinner I hadn’t even seen a picture of? It was ridiculous, and surely there could be no other ‘normal’ person doing this; they must have some kind of major fault in their personality or appearance to take this idea so far!

I was all set to pull out there and then, and get on the next plane back to London, before the matchmaker calmed me down over the phone and reassured me pre-date nerves aren’t all that unusual for the first time travel-dater, and a relaxing bath and glass of wine would be a good idea.

The pep talk worked, just in time, and it was time to go.

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“the matchmaker had sourced the very best table in the house” An arranged car was waiting outside the hotel, and drove me straight to the Michelinstarred restaurant, where the matchmaker had sourced the very best table in the house for the evening. I help myself to a little Dutch courage just as my date arrived.

Maria* was from California, and was one of the most beautiful girls I had seen in my life, making a mockery of my pre-date perconceptions.

Not only was she insanely attractive in a strangely recognizable way, but she was also warm, funny and clearly very bright. It wasn’t until she had shown a huge interest in my career that we even got talking about hers, where she revealed that she was a model, and had done a bit of television, which is why she

was so recognisable!

However, whilst Maria was great company, the spark wasn’t there, and a lovely dinner remained just that.

The following day, I boarded the plane for Toulon before being picked up by the matchmaker’s driver and taken to my hotel in St Tropez.

By now I was a adept travel-dater, so rather than spend the daytime paralysed with pre-date neurosis like the previous day, I chose instead the rather more enjoyable option of reading by the pool, before getting ready for date number two.

As with date number one, the restaurant was exceptional. This time the matchmaker had secured a private terrace with our own waiter, and again my dining companion was breathtakingly stunning.

Julia* was Australian, and also worked in trading, but out of Dubai rather than a London office. She had genuinely funny stories to tell, laughed at my own clumsy efforts, all in all she was perfect.

The end of the night came, and with the

THE SPREAD | TRAVEL

idyllic Mediterranean setting, award-winning food and fine wines created I could sense a spine-tingling atmosphere. I remember thinking clearly that this is what I wanted from life, and thought I’d chance it; afterall, you soon realize that one of the beauties of traveldating is that it makes you more spontaneous.

Luckily, Julia felt the same way.

The following day arrived, and despite having one more date in Madrid on my weekend break, I didn’t want to leave Julia.

I called the matchmaker who was thrilled that things had worked out so well, and politely cancelled my third date. However, as luck would have it, the reservation for the restaurant was still in my name and I had a flight booked anyway, so Julia came with me and we jetted off to the Spanish capital to make use of the restaurant booking together, before walking dinner off in a nearby vineyard.

Julia and I now live together in London, and whilst I didn’t tell anyone I was going before setting off to Milan, having seen how lifechanging it can be, I now recommend it to all of my single friends. It’s incredible.”

Smith’s story rings true to many of Berkeley’s clients, but has Molloy had any unusual dating requests from her globetrotting matchmaking?

“we jetted off to the Spanish capital to make use of the restaurant booking together”

“I get all kinds of weird and wonderful requests, some are specific, others more vague.

Either way, I always try and make them happen” she says. “I recently had a lovely male client who worked in the City but wanted a break in Cape Verde with a partner from Russia. It took a lot of organization, and I even travelled to St. Petersburg to find the right girl, but I made it happen and they had a great time! They have met up again since and make a perfect couple.”

But whilst many of Molloy’s matches may end up in heaven, what of those who don’t have that special something?

“Everyone is different and no two outcomes are the same. Some people come back and start a relationship, others arrange another trip away and some lose touch. That’s the beauty of my line of work; nothing is set in stone and you can never predict how things will end up. All the same, I can guarantee that you will have the most glamorous escape with a bit of fun along the way!”

Skeptics out there believe that there’s no such thing as a real Hollywood ending in life, but as the travel-dating phenomena continues to gather pace it’s clear that anybody can be the star of their own epic adventure, indulging in spectacular vistas and walking away into the sunset with the leading lady.

And that, my friends, is a wrap worth waiting for.

Berkeley International is the world’s premier inter-continental introduction agency. See if they can make you meet your perfect match at www. berkeley-international.com *We have changed names to protect the anonymity of contributing parties.

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THE SPREAD | RESTAURANTS

Restaurants of the Month We’ve been diligently traipsing the streets of London once again to bring you our best findings of the month

Brassiere Joel Park Plaza, Westminster Bridge, SE1 Situated on the first floor of the Park Plaza south of Westminster Bridge, Brasserie Joel is nothing short of a contemporary French food lovers paradise.

Set to a background of sleek but still welcoming décor and exquisite service, every plate that emanates from Brassiere Joel’s kitchen comes masterfully presented, and is even more delightful to the taste.

Chef Joel Antunes menu is mouth-wateringly enticing from top to bottom, and on arrival the food exceeds its culinary promise. The fois gras terrine with red wine and apple chutney and the tuna tartare with a Japanese dressing are both sensational and cannot be more highly recommended, as are the roast monkfish with chorizo and the roast suckling pork shoulder.

For those with a sweet tooth a fabulous array of desserts are available, with apple tart tatin being the star of the impressive show.

And after finishing your evening at the excellent restaurant head across to Primo bar, also located on the Plaza’s first floor, for a fantastic evening of live music and an exciting drinks menu. Elegance and sophistication are the styles of choice for Primo regulars, and the whole venue is ideal for couple in search of a cool and vibrant evening out.

A live salsa band povides the tunes on a Friday night and, with lessons running from 8pm until 10pm before a free dance session that lasts well into the night, is the perfect exclamation point to a fantastic night at Brasserie Joel.

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Babbo 39 Albemarle Street, London, W1S 4JQ Considering Babbo is owned by Tatiana Joorabchian, the woman whose husband’s chosen career path revolves around part-owning South America’s finest footballers and bringing them over to Europe for exorbitant fees and salaries, I almost expected Mayfair’s Babbo to convey the arrogance of our own Premiership footballers; swanky, cocksure and out of touch with the common man. Located on Albemarle Street, it’s but a stone’s throw from the WAG shopping grounds of Bond Street and even closer to the bozo hunting grounds where their husbands stray at night.

Yet inside Babbo, with the in-part exposed brick walls, open wine racks and low lying chandeliers, one thing is for sure: this place is too classy for the English footballer. Not that they wouldn’t understand the menu mind you. Head chef Douglas Santi has avoided the arrogance of giving fanciful names to ordinary dishes, preferring instead to mark the fanciful dishes with ordinary names.

The lasagne is deemed the house speciality thanks to the ‘secret recipe’ which has been passed down the generations for over 100 years - and it’s certainly worth trying. Yet while succeeding to render all future homemade lasagnes redundant in comparison, it’s by no means the standout dish on the menu.

There’s the undeniably tempting ‘Roast Suckling Pig’, which must do a killing by name alone and is yours for £22.50, the Mediterranean style steamed sea bream, which the waiters serve at the table from a spaceship of tin foil, and the roasted veal rack with porcini and morel mushrooms and asparagus. And that’s after you’ve sampled the quite stunning “Lardo di Colonnata”– sea scallop medallions with potato and leek cream – starter, priced at just £13.90.

The standout main for me though had to be the traditionally cooked Italian Fiorentina beef, offering everything you could ask for in a fine piece of meat. Reminiscent of the beef in Turin’s Ristorante del Cambio (if you’ve never been to Turin, this place is worth the trip alone), it was succulent and delicious, bordering on orgasmic.

Speaking of which, if ever there was a dessert that was the edible version of an orgasm, Babbo has it. “Semifreddo al amedei crocolata com gianduitto fritti” is what it’s called; essentially rich warm chocolate balls coated in delicate and light crispy pastry. My partner for the evening could only handle one for fear of exploding – and not in the ‘eaten too much’ sense of the word. Not bad at all for £6.90.

Complementing the one third of an orgasm which the dessert of dreams provided was the delightful sweet creamy burata caprese; a mascarpone and ice cream infusion, sheathed in the ice cream skin and appearing somewhat like a large cut of fresh mozzarella cheese. Biting into this was a sensation I won’t forget, especially with my opposite number still afloat from the chocolate, and felt like I was eating soft bundles of sweet creamy air.

The Babbo menu is quick to remind us that Babbo in Italian translates as ‘The Daddy.’ So to head chef Douglas Santi, the honour is all yours.

NEXT ISSUE:

in Spread Betting FOREX AND CFDs

Don’t forget to get your copy!

The July issue of The Exchange will contain the first ever definitive list of the industry´s most influential as voted by the industry.

In addition to this exciting feature there will be over 100 pages of news, market analysis and entertainment including our regular sections, The OPEN, LONG, The SPREAD & CLOSE as well as Celebrity Trader, making July the most eagerly anticipated issue of the year so far.

THE CLOSE

CLOSE THE

Look who’s back (again) Just when you think its time to get up off your sofa, spread your wings, leave the nest and head into the longer day’s cool evening air for your nightly entertainment, the good old BBC have to suck you back.

Last month The Apprentice returned to our screens with another sixteen fresh-faced contestants desperately eager to show us what they cannot do.

And yes, Lord Sugar is back again alongside sidekicks Nick Hewer and Karen Brady to put these intrepid group of “the best candidates the city has to offer” through their paces.

Expect gaffes, cock ups, ineptitude and incompetence galore. But most of all expect great telly.

80 | THE EXCHANGE | June 2011

IN THE CLOSE DRINK WHO’S WHO GLOSSARY OF TRADING FUNNY MONEY

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THE CLOSE | DRINK

THE SPIRIT OF BERMUDA How a chance arrival became a country’s biggest export, By Sarah McArdle As Malcolm Gosling, 7th generation CEO at the helm of the Bermuda family business of the same name would agree, the age-old Chinese blessing/curse, “May you live in interesting times,” is something of an industry theme these days.

Born and raised in Bermuda, Malcolm began working for the company at the tender age of 14 during his school holidays. With a hunger for learning about the business, and the drinks industry in particular, on graduating high school Malcolm moved to a small winery in California and ended up doing just about every job there was going.

He is now the President of Gosling’s Export (Bermuda) Limited, a wholly owned subsidiary of Bermuda’s oldest surviving family business, Gosling Brothers Limited, and is responsible for the production and export of the Gosling’s portfolio of rums.

He is also the President of Gosling- Castle Partners Inc., a US company that was formed to manage the marketing and sales of the Gosling brand outside of Bermuda. With a focused and forceful plan, Gosling’s has more than doubled in international sales over the last five years.

The story Malcolm tells of his success dates all the way

82 | THE EXCHANGE | June 2011

back to the spring of 1806, with London Wine and Spirits merchant William Gosling chartering a ship named Mercury. He and his son, James, loaded it with £10,000 worth of merchandise with the intention of opening a shop in America.

After ninety one days on becalmed seas the charter ran out, forcing Gosling to put in at the nearest port —St. George’s, Bermuda.

Determined to make the best of uncertain circumstances, James opened a shop on the King’s Parade, St. George’s, in December 1806.

By 1820 James and his brother Ambrose, who’d come to join him in the venture, discovered that there was business to be made in the importation of bulk spirits, and in the creation of their own magical blends. In approximately 1850 the first oak barrels of rum distillate arrived in Bermuda. After much experimentation in the blending process, the distinctive black rum destined to be Black Seal was created and offered for sale.

There was no bottling line at the time, meaning that the blend was sold by draught only.

When it first went on sale the rum had no name at all, and until the First World War it was sold from the barrel, so folks

THE CLOSE | DRINK

“When we enter a new market we do it with a plan for sustained support and growth. We are not simply chasing cases”

brought their own bottles for a fill up of “old rum”, so called because of its distinctive smoothness. Eventually the black rum was sold in champagne bottles, reclaimed from the British Officer’s Mess, and the corks sealed with black sealing wax. Even though the bottles at the time had no labels, people just asked for” the one with the black seal”. After thirty years of listening to this request, the Gosling’s decided to give their product a name. Eventually a play on words and images gave birth to the little, barrel juggling “Black Seal”, and Old Rum was known as Black Seal forever more.

As demand grew, mainly from tourists keen to take Gosling’s Black Seal Rum home with them, Malcolm saw another opportunity in exporting the Bermuda rum, and so began work on a business model to expand into the global marketplace. In 1980 the first shipment of Gosling’s Rum arrived in the USA, launching the export enterprise. As Malcolm notes, “All markets are important, but we need to focus, we need to be systematic. We look at building each market we enter for the long term. When we enter a new market we do it with a plan for sustained support and growth. We are not simply chasing cases.” Through following this simple mantra Gosling’s has become the largest exporter of a Bermuda made product.

The Gosling’s success can also be linked to the distinct Dark n’

Stormy® cocktail. Bermuda’s national drink had its origins in a ginger beer factory run as a subsidiary to the Royal Naval Officer’s Club, when the purveyors discovered that an added splash of the Gosling’s Black Seal Rum was just what the ginger beer was missing. The name was said to have originated when an old fisherman observed that the drink was the “colour of a cloud only a fool or dead man would sail under,” which was likely followed by, “Barman, I’ll have another Dark ‘n Stormy!”

In an exceptionally rare instance for the cocktail world Gosling’s registered the Dark ‘n Stormy trademark meaning that legally the line is drawn preventing the presence of other rums in any cocktail bearing the Dark ‘n Stormy name.

“If you use a lesser, un-aged version of a caramel-coloured white spirit that’s called a black rum, it’s not going to have the same taste,” Malcolm Gosling insists, “and I don’t want that to be your first Dark ‘n Stormy.”

In contrast, Mr Gosling also invites you to try the delicious ‘Bright ‘n’ Sunny (1 part Gosling’s Gold, 2 parts ginger ale, topped with a splash of tonic and garnished with a slice of lime).With ginger being a flavour very much back in fashion and the resurgence of Tiki bars around the country, the Dark ‘n Stormy and its younger sibling look set to grow ever popular once again on many a cocktail lists.

To this day, award winning Gosling’s Black Seal Rum (Platinum Medal/World Spirits Championships) is made in Bermuda according to the original family recipe from a unique, premium blend of pot still and continuous still distillates, aged independently in used bourbon barrels made from American Oak. The barrels, charred on the inside, contribute to the colour and mellowing of the rum as it ages. The rich, smooth, fullbodied taste of Gosling’s Black Seal Rum is nuanced with butterscotch, hints of vanilla and caramel, and may account for the expanding loyal following – from students to celebrities – all are appreciating of the unique taste of, the Spirit of Bermuda.

June 2011 | THE EXCHANGE | 83

THE CLOSE | INFORMATION

WHO’S WHO IN SPREAD BETTING? Whether you’re new to nancial markets or just looking for a better deal, The Exchange has all the info you need. By Toby Anderson

ETX CAPITAL ETX Capital is the trading name of Monecor (London) Limited.

The company joined interdealer broker Tradition in 2000 and in 2002 Monecor became the retail derivatives arm of Tradition. In 2007 Robin Houldsworth and Peter Shalson acquired Monecor for an undisclosed sum from Tradition UK. The name ETX Capital was adopted in 2008.

What’s their pitch?

ETX Capital provides institutional, high net-worth and retail customers with multi-asset dealing capability through contracts for difference and financial spread betting products.

It seeks to offer high levels of customer support and guarantees total client confidentiality. ETX offers spreads from just 1 point and margins from 1%.

Anything for newbies?

ETX Capital provides up to £250 cover if the client is not in pro to within the first 10 days of trading.

Contact www.etxcapital.com 020 7392 1430

PROSPREADS ProSpreads is a Gibraltarincorporated division of London Capital Group.

What’s their pitch?

ProSpreads’ advanced trading technology provides the same functionality as direct market access, delivering execution in a fraction of a second, extremely

84 | THE EXCHANGE | June 2011

tight spreads and no re-quotes.

It offers speculators a unique trading platform with direct market access functionality to trade the major indices, commodities and currencies.

Anything for newbies?

Clients can open an account with £1,000 and take advantage of the same technology used by direct market access brokers and futures traders. Account holders have access to a complete package of trading tools and a number of education options, including a demo account allowing them to test trading strategies.

Contact www.prospreads.com 0800 804 8772

GEKKO GLOBAL MARKETS Used to be known as VDM, the company now styles itself Gekko Global. We are not sure quite why.

Users rate the speed of execution and the simple-to-use platform.

What’s their pitch?

They claim to have highly competitive spreads (1 point on the UK 100 through the day and up to 8pm), low initial deposits, low minimum trade sizes, a userfriendly platform, free guaranteed stops and cutting edge technical research. All of which ticks a lot of boxes for us.

Anything for newbies?

You bet. A cash bonus of 25% of your initial stake up to a maximum matched amount of £500. That’s the most generous offer out there.

Contact www.ggmarkets.com

020 3326 2131

CANTOR INDEX Cantor Index is a financial spread betting company, established in 2000. Part of the global Cantor Fitzgerald group, Cantor Index is open 24 hours a day, and offers bets on a wide range of markets from shares and indices to bonds and commodities.

What’s their pitch?

Cantor Index has a comprehensive data service which allows clients access to detailed market reports as well as news from third-party sources, and state-of-the-art stock screening tools. With specialised forex and commodity pages, as well as an economic and company diary, the data service has detailed financial information available free to all account holders.

Anything for newbies?

Cantor Index offers new clients a £50 account opening bonus. To qualify for the offer clients simply have to fund at least £250 and have placed a minimum of two non-equity bets (each with a stake of at least £2 per point) within 1 month of account opening. The offer is available until the 30th November 2010.

Contact www.cantorindex.co.uk 0207 894 8040

PAN INDEX Pan Index was established in Ireland in 2001 and focuses

predominantly on China but also retains operations in Europe.

What’s their pitch? Pan Index seeks to offer clients secure online access to trade on stock indices, forex and commodities, with competitive spreads and low margin requirements. The company has a multi-lingual customer service team that operates 24 hours a day. It offers streamed spread trading news, analysis and professional charting, giving clients continuous access to up to date market information.

Anything for newbies?

Compared with many, Pan’s front end is easy to use and negotiate – important for beginners. Contact www.panindex.com +353 1855 9404

SPREAD CO The Spread Co group of companies, with offices in London and Singapore, is a specialist provider of retail derivative trading products worldwide. It provides the facility to bet on CFDs, forex and the usual range of spreads. What’s their pitch?

“The Spread Co trading platform is the simplest and most userfriendly CFD platform I’ve seen,” says Alpesh Patel, a professional trader. Anything for newbies?

A new account funded with £300 or more allows the client, once having placed four qualifying trades, the opportunity to take on Head Trader Rajesh Patel in a one day, head to- head challenge.

If the client beats him, Spread Co will double the client’s profit by

THE CLOSE | INFORMATION

up to £150. If the client happens to lose on the trade, but still fares better than the trader, the company will refund losses on that trade up to £150.

Contact www.spreadco.com 01923 832 682

FINOTEC Offering forex, commodities and CFD trading, Finotec serves serious retail as well as institutional clients. The minimum contract sizes on forex, for example, underline that this is a site for the more committed trader.

What’s their pitch?

The Finotec Trading Platform offers one of the most diversified range of products in the industry, including currencies (at least 32 pairs), options, commodities and CFDs on all major indices. New products are regularly added and the platform is regularly upgraded.

The level of trading capital and volume generated through Finotec allows it to negotiate inter-bank conditions with liquidity providers. Forex can be traded with margin requirements of up to 0.5%, and up to 5% for CFDs – among the lowest available in the market.

Anything for newbies?

The Finotec Demo Account enables clients to simulate trades and spread bets in real market conditions. Clients can trade with $100,000 in virtual money and learn how to use trading tools and real-time charts.

Contact

www.finotec.com 0207 398 0170

WORLDSPREADS WorldSpreads was founded in 2000. It offers a range of services to retail clients, specifically spread trading and CFDs. The WorldSpreads head office is in Dublin, and it has offices in London, Paris, Frankfurt, Stockholm, Copenhagen, Madrid and Kuala Lumpur What’s their pitch?

WorldSpreads offers zero – you read it right, zero – spread on a range of 10 instruments with plans to bring more on stream.

It aims to provide high quality financial trading services to a global audience. Services offered include trading of contracts for difference and spread betting.

Anything for newbies?

Clients opening new accounts with a minimum deposit of £500 can receive up to £300 in cash back against realised losses. Good deal.

Contact www.worldspreads.com 0207 398 5220

ODL Markets / FXCM Originally founded in 1994 as an options house, ODL Securities was bought by FXCM Holdings LLC. It has 200,000 live trading accounts and over 700 employees worldwide. Voted Best Retail Platform by FX Week last year.

What’s their pitch?

ODL allows clients to spread bet on forex, oil, gold and global

stock indexes. Functionality is a strong suit; you can trade in one click, and direct from the chart you’re looking at.

The software works on all manner of smart phones and mobile devices.

Anything for newbies?

ODL requires a minimum deposit of £300 for all new accounts.

Also, should everything go south, there’s a no-debit deposit guarantee, so you can’t lose more than your deposit.

Contact www.odlmarkets.com 0207 903 6550

MF GLOBAL SPREADS MF Global Spreads provides the opportunity to trade in forex, futures and options and to spread bet.

What’s their pitch?

MF Global Spaces offers news and views throughout the day as a guide to the client’s trading decisions. Clients are able to monitor the markets and stocks they want by creating watchlists in My Markets. Subscribers to MF’s My Markets Product will soon be able to access content via iPhone or other mobile devices.

Anything for newbies?

New clients will be given a £2 free FTSE index bet with a 1-point spread, a year’s free access to technical analysis worth £300 and access to a special discount book club.

Contact www.mfglobalmarkets.com 0207 144 5678

DELTA INDEX Delta Index was founded in 2001

by Joint Managing Directors Conor O’Neill and Technology Specialist Micheal O’Shea. The team is led by non-executive Chairman, Dermot O’Donoghue, former Head of Treasury at AIB. What’s their pitch?

Delta Index seeks to provide transparent and tight pricing throughout its range of markets, whether trading through its online trading platform XDeal or speaking to its traders over the phone. Clients can trade commodities, shares, forex and indexes. “Where the traders trade” is their tagline.

Anything for newbies?

The offer of one-on-one training beats anything the rest of the pack offers, like videos or tutorials.

You can also sign up for the Trading Ideas service which will send you info like buy and sell signals.

Contact www.deltaindex.com +353 1 664 8500

SPREADEX Spreadex was formed in 1999 by former City dealer Jonathan Hufford who was hooked on the sheer fun offered by spread betting and decided to set up his own company to make spread betting more accessible and user-friendly.

What’s their pitch?

Spreadex offers leveraged access to trade on a huge range of global financial markets including

June 2011 | THE EXCHANGE | 85

THE CLOSE | INFORMATION

indices, shares, commodities, currencies, interest rates, bonds and exchange traded funds all via a professional yet simple-to-use trading platform. The firm offers a full suite of charting tools, tailored phone trading service, some of the most attractive margin rates in the industry and also provides credit, subject to client status. On the sports side of the business, Spreadex offers thousands of sports spreads and fixed odds prices on a range of sporting events with hundreds of markets offered in-play, all from one platform.

Anything for newbies?

New customers at Spreadex can qualify for up to £400 in offers and once signed up they can receive £50 for every friend they refer to Spreadex. On the financial platform, new clients can gain up to £200 cashback on net losses on trades in the first two weeks providing a minimum of five opening trades have been placed in that time.

There are sports deals too.

Contact www.spreadex.com 08000 526 570

ShortsandLongs.com ShortsandLongs.com is an arm of Spreadex Ltd and was formed in October 2008 as a unique alternative from the existing spread betting firms. The aim was to make trading cheap, simple and hassle-free while also offering spread bettors much greater risk-control.

What’s their pitch?

ShortsandLongs.com has some

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of the tightest spreads in the industry on key markets such as the UK 100 daily, Wall Street daily, gold, light and Brent crude and major spot currency pairs.

It also offers a further weekly half-price spread reduction on its most popular markets and provides guaranteed stop losses completely free of charge on every trade. Coupled with a full charting package and fast and easy to follow trading platform with no re-quotes, ShortsandLongs.com is the ideal choice for either the novice spread bettor or for day traders who wish to be in complete control over their positions.

Anything for newbies?

New customers can enjoy £100 of risk-free trading in their first 14 days with ShortsandLongs. com. Provided they have placed a minimum of two opening trades, any net losses in that period will be refunded up to a maximum of £100.

Contact www.shortsandlongs.com 01727 895 140

CMC MARKETS CMC Markets started when Peter Cruddas put £10,000 into a firm he called Currency Management Corporation. In 1996 he launched the world’s first online forex trading platform, from where CMC Markets has evolved to become one of the largest financial spread betting companies, with over 26 million trades executed annually.

What’s their pitch?

CMC says it wants to become the world’s leading online retail

financial services business, constantly innovating to differentiate its content, services and products.

“You bet in pounds sterling and you can keep your bets open as long as you like,” the company says.

Anything for newbies?

CMC provides demo accounts and the front-end is going to look familiar to anyone who’s done a lot of video gaming. That said, if you haven’t, it still looks slick and is easy to drive. There’s also a handy ‘Insights’ section which tells you essential trading details but also tells you what influences price and there’s a news feed too.

Contact www.cmcmarkets.co.uk 0207 170 8201

INTERTRADER InterTrader.com says its aims are simple: to make the markets accessible to all, to make trading affordable and to provide a service that the client can trust.

InterTrader.com is a trading name of London Capital Group.

What’s their pitch?

Clients can take their own positions on global markets.

InterTrader.com covers a variety of markets from stock indices and FX to commodities, oil and metals to UK, US and international equities.

Anything for newbies?

InterTrader’s cash loyalty programme allows clients to receive a monthly rebate on trading costs of up to 10%, dependent upon the volume of trades. Also, sign up before the end of the year

and they’ll add 10% to your starting deposit, up to £500.

Contact www.intertrader.com 0207 456 7677

CITYINDEX City Index was established in the UK in 1983 and is part of IPGL – a privately owned company with substantial shareholdings in the derivatives broker ICAP plc. The company has over 600 employees worldwide and offices in the UK, US, Poland, Singapore, China and Australia. It transacts in excess of 1.5 million trades every month for individuals in over 50 countries worldwide.

What’s their pitch?

CityIndex says it seeks to provide consistently competitive spreads (like 1 point on the FTSE) and margin access on thousands of markets worldwide including indices, shares, currencies, commodities, bonds, interest rates and more. Award winning mobile platform.

Anything for newbies?

There’s a four-week ‘Learn to Trade’ program where you can trade lower-than-normal value bets to get your eye in, like 25p per point on spreads.

Contact www.cityindex.co.uk 0207 550 8500

FINSPREADS Finspreads offers access to thousands of instruments on the world’s financial markets. It claims to have pioneered fully interactive

THE CLOSE | INFORMATION

online spread betting in 1999. It is part of the City Index group.

What’s their pitch?

Finspreads sells itself on transparent and fair prices. It publishes the size in which it is prepared to deal at its quoted price, meaning what you see is what you get.

Anything for newbies?

New account holders are offered up to £100 in trading credit and while you’re learning the ropes you can trade as little as 10p per point for the first eight weeks of your account. After that, trades start as low as 50p per point.

Contact www.finspreads.com 0207 150 0400

GFT UK GLOBAL MARKETS GFT Global Markets is a whollyowned subsidiary of the US forex and futures dealing firm Global Futures & Forex and a sister company to worldleading online forex dealing firm Global Forex Trading.

What’s their pitch?

GFT’s trading software, DealBook 360, is capable of handling virtually any kind of order. Except your lunch. DealBook is a software platform that streams data direct from the dealing desk to the client, allowing them to operate using the most up to date prices.

Anything for newbies?

GFT offers a 5% deposit matching scheme for all of its new spread betting customers, hoping to draw even more attention to the potential tax benefits offered to investors by way of spread betting.

Contact www.gftuk.com 0207 170 0770

IG INDEX IG Index was initially established to give investors the opportunity to bet on movements in the price of gold, without having to actually buy or sell the physical commodity in the market. When founder Stuart Wheeler hit upon the idea of trading the price of gold as an index, IG Index was born, laying the groundwork for financial spread betting as it is now known in the UK. The IG Group has over 120,000 clients worldwide, making more than four million transactions per month.

What’s their pitch?

IG Index has been responsible for pioneering several types of financial spread betting products, including the innovative Binary and Bungee Bets, which offer clients yes/no and bounceback propositions. All this is available on its PureDeal trading platform which features Price Improvement technology and one-click dealing. There’s a mobile phone platform too.

Anything for newbies?

IG offers two types of account: the Limited Risk Account will cost a few points in terms of the spread, but it means you’ll have risk management in place and won’t lose more than your deposit. The Plus Account has tighter spreads and options on order types including Limited Risk orders and Trailing Stops.

Contact www.igindex.co.uk 0207 896 0011

PADDY POWER Paddy Power Trader is a unit of the ever-popular bookmakers.

Incidentally, there was no Paddy Power; the name comes from a result of the merger between three bookmakers, none of whom was called Paddy.

What’s their pitch?

PPT aims to be the best value offer in the market with, for example, just a two-point spread on cable. There is a strong analyst and recommendations offering, with targets and suggested stop-losses. There’s a useful long/ short percentage indicator so you can see what your fellow PP traders think about various bets.

Anything for newbies?

Deposit £200, trade four times, and they’ll top you up by £100. In addition there is the usual suite of seminars and online help videos.

Contact www.paddypowertrader.com 0207 456 7041

CAPITAL SPREADS Capital Spreads is another division of London Capital Group, providing the expectation of a solid platform and financial stability to the CS offer.

What’s their pitch?

Capital Spreads allows clients to trade in many financial products using one of the several major currencies from one platform.

It also offers a limited margin policy, where clients are required

to deposit only the maximum value of their stop-loss (plus 20%). This means that large sums of capital are not tied up funding the spread betting account. It also says it offers ‘extremely’ tight spreads and offers them for far longer than many of its competitors.

Anything for newbies?

A nice interactive tutorial, and a load of other learning tools: ‘take a tour’, user manual, FAQs section, free seminars plus the usual practice account stuffed with 10,000 practice pounds.

Contact www.capitalspreads.com 0207 456 7020

TRADEFAIR Linked to the phenomenally successful Betfair, Tradefair offers a wide variety of markets.

The no-nonsense interface offers customers thousands of financial instruments with some of the tightest spreads on one of the most reliable spread betting platforms.

What’s their pitch?

Simple but sophisticated frontend with low spreads. Nothing much new there. The USP here is Autochartist, which can send signals about significant potential trading triggers as well as allow you to customise your own charts.

Anything for newbies?

Free subscription to info service ADVFN, plus £100 matching when you deposit and make a few trades.

Contact www.tradefair.com 020 7456 7071

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TRADING GLOSSARY Welcome to The Exchange financial glossary. We’ll be updating every month and we welcome additions (decent and clean, please) – bottle of champagne for each issue’s best suggestion. contact@theexchangemagazine.com

A

ABS Asset-backedsecurities; ie. securitiesbacked by mortgage loansor suchlike which areobtainable if the creditor defaults.

ACTUALS The physical assets behind commodity securities.

ADR American Depositary Receipt. These are sharesof foreign companies listedon exchanges in the US. ALEXANDER’S FILTER A method that measures the rise or fallof a share price in percentageterms over a given period. Afast rate of increase suggestsa buy; the reverse, a sell.

AMERICAN OPTION Can be exercised at any time during thelife of the contract.

Europeanoptions, by contrast must beexercised on the expiry date.

ARBITRAGE The action of profiting from the differencein price for similar securitiesin different markets.

B

BACK MONTH The traded future or option that is due to expire latest.

BACKWARDATION A situation within futures markets wherethe cash price is greater than the price for future delivery.Such a scenario often occurs when supply of a particular commodity is short but the futuresprice remains low because the expectation remains that further supply will come online in the near future. See Contango.

BEAR An investor who is essentially pessimistic about the fundamentals of a given market. So called because a bear fights on its hind legs, moving its paws in a downward motion.

BEAR RAID The attempt to push down the price of a security, most often by SHORT

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SELLING. BEAR TRAP The belief that the market will start to fall having risen significantly, there by leaving short sellers trapped by increasing prices, forcing them to cover their positions by buying stock at higher prices.

BED AND BREAKFAST DEAL A transaction where by stock is sold and subsequently bought back after the end of the tax year, allowing shareholders to register either or a loss or a profit for tax purposes.

BELLS AND WHISTLES Feature sadded to a security put up for sale to attract investors or reduce the costs assumed by the issuer.

BID/ASK SPREAD The difference between the price at which adealer is prepared to buy and the price at which they will sell. The spread between the best bid and the best ask (or offer) is sometimes known as the touch.

BLUE CHIP COMPANY A long-established company with a long and strong record of profitability and endurance.

The term is taken from the most expensive chip on a poker table.

BOTTOM FISHING The practice of buying shares when they lie at a level the investor believes is unlikely to decline further. The same term is also used with respect to companies buying competitors that are cheap or failing.

BOTTOM UP An investment strategy whereby investors pick stocks, rather than rely upon achieving a balanced weighting in each sector.

Such a strategy is based upon the management of individual companies rather than market or economic trends. The opposite of Top Down.

BUCKET SHOP A brokerage, often from overseas, that sells shares with little underlying value at, by definition, elevated prices.

BUFFER STOCK A stockof commodities held by an international entity, which seeks to buy and sell from its stockpile as a means of maintaining price stability.

BULL An investor who believes that the market will rise. So called because the raising ofthe head (denoting a command to buy a security) is redolent of the action of a bull raising its horns before attacking.

BULL MARKET A market where prices have risen significantly over a prolonged period of time.

C

CALL An option giving the holder the right to buy an instrument for a particular price within a set time.

CALLABLE Callable bonds give an investor the right to redemption at a set price on a set date.

CIRCUIT BREAKERS When an exchange imposes the closure of trading after prices have fallen by a certain percentage- a move designed to restrict so-called panic selling.

COCKTAIL SWAP A mixture of different kinds of swaps. Often used to spread risk on large deals.

CONTANGO A situation in which futures prices rise progressively as the maturity date moves further away from spot. The increase reflects the addedcost of storage and insurance for commodities. Contango isthe opposite of backwardation and is the normal relationship between spot and future prices.

CREDIT RATING The assumed creditworthiness of a company or sovereign nation issuing debt securities and their ability to repay the investor.

Credit ratings affect the ability of a government or company to secure financing from banks and also inform the price their securities might command on the open market.

D

DEAD CAT BOUNCE A rise in a security or broader market following a sustained drop, followed by another precipitous drop due to a lack of change in the fundamentals of said financial instrument or market.

DISCOUNT A derivative that is trading below the current market price it is said to be trading at a discount.

DOUBLE DIP A second drop in a market or economy after significantly dropping for first time.

DUTCH AUCTION An auction in which the price is gradually lowered until a bid is secured. That bid then becomes the price at which the offering - such as US Treasury Bills - is then sold. The term is often synonymous with tenders.

E F

EXPIRY DATE The date at which a security matures. It can no longer be traded thereafter.

FAIR VALUE The priceat which a security canbe expected to trade.

FALLEN ANGELS Bonds that have fallen below a previously held investment grade, becoming junk.

FIBONACCI NUMBERS A mathematical phenomenon described by 13th century mathematician Leonardo Fibonacci, whereby the sum of any two consecutive numbers equals the next highest number. The system is used by technical analysts to establish price objectives.

FILL OR KILL An order to buy or sell stock at the particular moment that a security reaches a certain price. FOKs are usually initiated when an investor wants to buy a large chunk of stock at a particular price.

THE CLOSE | INFORMATION

FRONT RUNNING 1) The practice whereby a trader illegally deals on his own behalf prior to carrying out a client’s order to buy or sell a specific security when he knows the client’s transaction will likely move the price.

2) A brokerage’s trading in shares ahead of publication of its own research report.

G

GFD A term signifying that an order can only be filled on the day it islodged and will expire at the close of business.

GUARANTEED ORDER An order that limits losses to anamount specified both duringand outside office hours.

H

HAIRCUT The difference in price between market value and the value o fthe collateral used in repurchasing agreements. (see repurchasing agreements) HEDGE FUND An investment fund, usually only open to wealthy clients, that seeks to produce high returns from short-term markets. They use a broad range of strategies but aim absolute returns, rather than returns benchmarked to an index or asset class.

HEDGING A strategy whereby investors seek to minimize risk. Hedging often involves buyingassets in one market to offset potential losses in another.

HIT Jargon for the acceptance ofan offer to buy or sell a security.

I

IN THE MONEY A term used to describe an option when the current price for the underlying security is above the exercise for price for a call and below the price for the exercise for a put.

K L

KERB MARKET A term applied to trading outside official market hours.

LIBOR London inter bank offer rate.

LIMIT UP/LIMIT DOWN When an exchange imposes either a floor ora ceiling on a security price, closes or suspends trading in order to

prevent extreme changes in price.

M

MARGIN The use of a margin allows an investor or a spreadbetter to trade without them being in full possession of the necessary funds. The margin is the part payment of costs to cover contractual obligations, thereby protecting the investor or better against unlimited losses.

MARGIN CALL The call made by a spread betting company to a client whose account has fallen below the minimum requirement.

MARGIN TRADING A process that allows investors to borrow funds from a brokerage at a particularrate of interest. The added gearing will however cost the investor more money should the market move in the opposite direction tothe way they had anticipated.

O

OUT OF THE MONEY When the current market price of an instrument underlying an option is below the exerciseprice for an option to buy and abovethe price for an option to sell.PPUMP AND DUMP A formof fraud whereby falselyoptimistic about a company’searnings are circulated aheadof their official publication with aview to pushing up the share price.PUT/CALL RATIO The ratio of thenumber of options to sell traded inrelation to the number of options traded to buy. The number is viewed as a gauge of market sentiment.

R

RED HERRING A term used for preliminary prospect uses for a new issue used to measure market sentiment for the in the security. The keyfigures on such an announcement, such as the profit forecast, will always be deliberately left blank.

REVERSAL DAY A term used to describe the day on which a security makes a significant change of direction in terms of its price. The term is not applied until the security has made a significant change in the opposite direction to the previous trend. RSI Relative strength indicator. A technical indicator (see page 38) based on the momentum of prices in a preceding 14-period block. A reading above 70 (out of 100) is classed as ‘overbought’; a reading below 30 is deemed oversold.

RESISTANCE The price level at which a security

or index will tend not to rise above, either for technical reasons regarding the price or psychological ones, for example gold rising above $2000 per ounce.

S

SCALPERS Futures andoptions traders who switch their positions within a very short time in order to make money from small gains frequently.

SHORT SELLING A transaction whereby an investor borrows stock from a shareholder for a fee and with a guarantee to return theequity at an agreed later date. In theory, the borrower is anticipating a decline in the share price, which will allow them to benefit from the differential between the price at which they sell the borrowed stock and the price at which they repurchase it. For spreadbetters, it is selling the hope that the stock will decline. The trade is then closed by buying – the‘long’ – to balance the book.

SPOT The price of a security for immediate delivery. This is usually executed two days after the trade.

SQUEEZE A short squeeze happens when investors buy shares to cover short positions. The term is also used when a particular commodity is in tight supply.

STOP LOSS The level below the purchase price at which a spread better automatically closes their position.

STOP ORDER The instruction to buy or sell below the current price of the financial instrument in question.

STRADDLE An options trading strategy whereby the investor buys one call and one put option with the same execution and expiry date.

This allows the buyer to take advantage of price movement in both directions.

STRANGLE An options investment strategy, whereby the investor purchases a call and a put option with different strike levels but the same expiry date. The investor will then make a profit if prices break above a set range. The strategy is basically a bet on volatility.

STRIKE PRICE The agreed price atwhich an option can be exercised.

SUPPORT The price level at whicha security or index will tend not to fall below, either for technical reasons regarding the price or psychological ones, for example gold falling below $1000 per ounce.

SWAP A security, agreed between two parties, that seeks to offsetinterest rate or currency fluctuationsto match the parties’ assets to their liabilities. The security is basedupon cash flow rather than the underlying amount of fixed debt.

SWAP SPREAD The difference between a swap interest rateand the benchmark government bond yield at the set maturity.

T

TOP DOWN An investment strategy whereby the investor seeks a balance by buying stocks in particular sectors.

Such a strategy is basedupon historical and forecasted economic and market trends.

TRIPLE WITCHING A quarterly event whereby stock index futures, stock index options and options of individual stocks expire. The event usually results in increased market volatility.

U

UP AND IN An option that is triggered when the price of the underlying security reaches a set level. The reverse of this isknown as Up and Out.

V

VANILLA BOND A bond with no unusual features.

Such paper pays a fixed rate of interest and is redeemable upon maturity.

VARIATION MARGIN The amount of money owed by a spread better when holding open positions and they are in a negative position.

VARIABLE REDEMPTION BOND A bond, the redemption value of which is determined by a variable such as the exchange rate between two different currencies or perhaps the performance of a stock index.

W

W/I When issued.Trading in bonds can start in the so-called grey market as soon as the formal announcement of their issuance has been made but before they are delivered. Thisis also known as free to trade.

June 2011 | THE EXCHANGE | 89

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