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ANALYSIS: ISSUE 7 MAY 2011 £3.95

FTSE on A road to nowehre

TIME TO FLOAT:

The Impact of the FSA 2007

CELEBRITY TRADER: CITY BREAK:

Ricky Hatton

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THE OPEN | WELCOME

EDITOR’S LETTER Your magazine needs you!

As we stand on the doorstep of the good old British summer, things are looking rosy here at The Exchange. The endless Royal Wedding coverage is finally in the books (or at least it will be by the time you read this), the sun is shining, the summer social scene is almost here and it’s been a good month for us in the markets. Here’s to hoping the good times continue to roll.

The theme of this month’s issue is, as you might have already guessed, education. The magazine regularly attends trade fairs and live shows, and after speaking to our readers face to face we felt it was time to really go back to basics with learning how to trade. We’re sure you’ll find the issue useful in putting you on the path to being the profitable trader you’ve always wanted to be.

The issue is still packed with our regular articles, including celebrity trader, market analysis, strategy and lifestyle, so there’s plenty for you expert traders to get your teeth stuck into as well.

As you’ll see in this new issue of the magazine (if you haven’t spotted it on our website already) last

month we launched our search for the Top 50 most influential people in spread betting, forex and CFDs for 2011. As you can see that’s a bit of a mouthful so we’re calling it the Top 50, and are really excited to hear who spread bettors think the most influential people in their industry are.

You can register your vote through the website from 16th May, we value the input of our readers with every aspect of the magazine but especially need your help with deciding who the most influential men and women in trading are. The aim is to compile as diverse a list of people as possible, so don’t be worried about thinking outside the box. We’re also running a competition and offering a prize for the person who nominates the winner (nominations open until 13th May), details of which are also on the website.

I hope you enjoy the issue, and can’t wait to see who you’ll be voting for come the 16th.

EDITOR Alex Hammond DEPUTY EDITOR FRED PALLEY ART DIRECTOR ALEJANDRO GUERRA-PALACIOS WEB DEVELOPER CARLOS PEREZ CONTRIBUTORS SANDY JADEJA NICK BEECROFT DECLAN FALLON KEN FISHER MICHAEL DERKS ALASTAIR McCAIG MARK SOUTHERN Jennifer Von Strohe Alessio Rastani Michael Hewson Peter Webb TOM ROTHERHAM LISA CAMPBELL CHRIS SMITH Public Relations Mark Southern Polygon PR Marketing Albert vellvÉ Subscription@ Theexchangemagazine.com PUBLISHED BY The exchange ADMIN@THEEXCHANGEMAGAZINE.COM

ALEX HAMMOND EDITOR

4 | THE EXCHANGE | May 2011

© 2010. The Magazine is published by The Exchange.

All rights reserved. The publishers declare that any publication of any advertisement does not carry their endorsement or sponsorship of the advertiser or their products or services unless so indicated. Contributions are invited and, whether or not accepted, submissions will be returned only if accompanied by a stamped addressed envelope. No responsibility can be taken for drawings, photographs or literary contributions during transmission or while in the Managing Editor’s hands. Proof of receipt is no guarantee of appearance.

In the absence of an agreement, the copyright of all contributions, literary, photographic or artistic belongs to the The Exchange. This publication (or any part thereof) may not be reproduced, transmitted or stored in print or electronic format (including, but not limited to, any online service, database or part of the internet), or in any other format in any media whatsoever, without the prior written permission of The Exchange.

The Exchange accept no liability for the accuracy of the contents or any other opinions expressed herein.

THE EXCHANGE | ISSUE 7

contents 12

THE OPEN 10 12

UPS & DOWNS CELEBRITY TRADER: RICKY HATTON

FEATURE ARTICLE 16

TIME FOR SCHOOL

THE LONG 34 38 40 42 44 46 48 50

Look for the QR code to see an exclusive interview with Ricky Hatton

16

TO FLOAT, OR NOT TO FLOAT? BANKS ON A ROAD TO NOWERE ANALYSIS: EUROZONE DEBT KEN FISHER UK INFLATION SPORTS EXCHANGE TRADING COMMODITIES: WINE MARKET CHART WONK

22 THE SPREAD 52 RESTAURANTS 54 WEEKENDS 56 CITY GUIDE: VIENNA 60 TRAVEL

28

60

THE CLOSE 66 GREAT TRADES 68 WHO’S WHO 72 GLOSSARY 74 FUNNY MONEY

May 2011 | THE EXCHANGE | 7

LET’S GET GOING

OPEN THE

IN THE OPEN UPS AND DOWNS CELEBRITY TRADER

IN SPREAD BETTING FOREX AND CFDs

The Exchange launches Top 50 In an unprecedented announcement sure to shake the spread betting world to its core, The Exchange revealed earlier this month that we will be publishing the first ever list of the 50 most influential people in spread betting, forex and trading in July.

From CEOs to traders, and politicians to authors, the trading world is waiting with baited breathe to see just who will be voted the winner of what is set to be the most prestigious individual award in spread betting.

Voters will be able champion their favourites through The Exchange’s website. Voting opens on 16th May and will run for four weeks so make sure to head to www.theexchangemagazine.com to have your opinion heard.

To nominate and vote, visit www.theexchangemagazine.com

May 2011 | THE EXCHANGE | 9

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.com

Ex-Enron chief denied new trial

Stan now the man at Arsenal American businessman Stan Kroenke has raised his stake in Arsenal football club to 62.89%, with a view to finding an agreement to buy the rest of the club.

A takeover was triggered after the American, who already owns a host of US professional sports teams including the NBA’s Denver Nuggets and the NFL’s St. Louis Rams, bought the stakes of Danny Fiszman (16.1%) and Lady Nina Bracewell-Smith (15.9%).

Kroenke first acquired shares in Arsenal in 2007, when his company Kroenke Sports Entertainment bought 9.9% of shares in the Premier League club.

The majority of the remaining shares belong to Russian billionaire Alisher Usmanov (27%). The agreement values each share at £11,750 and the club at £731m. Usmanov

has come out swinging, and declared that he won’t sell his shares to Kroenke, but the fighting talk seems to be a mere rouse to push up the price.

Fears that the takeover by Kroenke might load the club with more debt have been allayed.

The statement to the stock exchange said: “The offer will not be funded by way of any debt finance (banks loans, payment in kind loans or other debt or quasi-debt interest bearing obligations) for which the payment of interest on, repayment of or security for any liability (contingent or otherwise) will depend on the business of Arsenal.”

How the takeover will affect Arsenal’s transfer policy is yet to be made clear.

Google first-quarter revenue see sharp rise Online powerhouse Google has reported a sharp rise in first-quarter revenue after the first figures post the re-appointment of co-founder Larry Page at the head of the company were revealed.

The world’s leading internet search engine posted $6.54bn (£4bn) of net revenue in the first quarter of 2011, up 29% from $5.06bn over the same period twelve months ago.

Google currently has a 65% share of the US search engine market, and 90% of the

10 | THE EXCHANGE | May 2011

same market in Europe.

After revealing the results, Google chief financial officer Patrick Pichette said: “These results demonstrate the value of search and search ads to our users and customers, as well as the extraordinary potential of areas like display and mobile.”

Costs have also risen in 2011, with Google hiring a record 1,900 people in the quarter.

On hearing the news Google stocks fell 4% on the New York Stock market.

A US appeals court has denied ex-Enron chief executive Jeffrey Skilling a new trial. The court upheld all of Skilling’s 19 convictions which include conspiracy and fraud.

The court rejected arguments that incorrect direction given to the jury at Skilling’s original trial in 2006 meant that the former Enron chief was legally entitled to a new trial, even though last June a US Supreme Court ruled that the anti-fraud laws used to convict Skilling were used improperly.

Skilling was sentenced to 24 years in prison in 2006 for his part in a huge accounting fraud intended to cover up the state of Enron’s ailing finances from shareholders.

He was the highest ranking Enron employee to be sentenced after the energy firm’s collapse in late 2001. Founder and exCEO Kenneth Lay was also convicted under the fraud laws but died six weeks later before sentencing.

In slightly more encouraging news for Skilling, the three-judge Court of Appeal panel vacated his 24-year prison sentence, sending the case back down to a lower court for re-sentencing.

Skilling’s lawyer Dan Petrocelli said he would continue to fight to overturn the convictions.

THE OPEN | UPS AND DOWNS

Singapore Exchange income The Singapore stock exchange saw profits drop drastically last month after its failed attempt to buy Australia’s ASX stock market.

SGX’s income fell 10% to S$67m ($54m) for the period between January and March, compared to figures of S$74.6m over the

same period twelve months ago.

The cost of the SGX’s attempted takeover of the ASX was a reported S$12m, meaning that it is little surprise net profits have taken a nosedive in the latest reports. In more positive news, the exchange’s operating revenues rose 10% to S$168m from the same period a year earlier.

The SGX bid for the ASX was rejected by the Australian government on national interest grounds.

Despite failing in the bid to acquire the ASX the Singapore exchange has remained firmed in its ambition to expand, meaning that another international merger attempt could be on the horizon in the near future.

Apple taking to Samsung to court over iPhone and iPad “copying” Apple has announced that it is suing rivals Samsung over the latter’s new Galaxy range of electronics.

The Galaxy’s mobile phones and tablets are a “slavish copy” of Apple’s own iPhone and iPad, court papers filed last month claimed. The design features on the Galaxy products including the screen and the look of the icons are at the crux of Apple’s complaint.

The lawsuit accuses Samsung of violating Apple’s patents and trademarks, but Samsung have already hit back, saying that Galaxy product development is a result of full company research.

“Samsung’s development of core

technologies and strengthening our intellectual property portfolio are keys to our continued success,” the company said in a statement.

The Korean electronics giant also said that it will fight the allegations “through appropriate legal measures to protect our intellectual property”.

And with Samsung currently supplying Apple with microchips for a number of products including the MacBook Pro, things really could get nasty before all’s said and done. Not that we’re complaining, after all a bit of competition between the two tech giants can only be good for us consumers in the long run.

Manchester United Voted Most Hated Company They may be about to overtake Liverpool as England’s most successful side in domestic competitions, but Manchester United are already top dog in another altogether different field. In a survey carried out by Online Opinion Polls for The People, Sir Alex Ferguson’s side were voted the most hated company in the UK after 26% of those polled confirmed their loathing of the north-west club.

With 11 Premier League and seven First Division titles in their trophy cabinet, alongside three European Cups, 11 FA Cups, four League Cups, a European Cup Winners’ Cup, a European Super Cup and a World Club Championship, the club were deemed more detestable than second place Ryan Air who received 23% of the vote. Banking giants RBS and Lloyds only scored 17 and 16% of the votes respectively with the club’s hatred reaching 31% in the north-west and London.

A survey spokesman said: “Manchester United is possibly a victim of its own success,” although recent news that parent company Red Football Joint Venture announced losses of £108.9m for the 12 months ending June 30 2010 can’t have helped with Red Football’s total debt now standing at £590.4m.

While The Exchange was not invited to take part in the survey, it can quote company policy on the matter of Manchester United: “Employees must not look towards Sir Alex Ferguson and Wayne Rooney – both of whom have been charged by the Football Association this season for blistering attacks on referees and foul mouthed expletives at television cameras – for guidance on acceptable standards of behaviour.”

Rumours circulating the office, however, are that the (London born) editor is a huge fan. He was unavailable for comment.

May 2011 | THE EXCHANGE | 11

the open | CELEBRITY TRADER

A knockout success:

Hitman pummels the markets

12 | THE EXCHANGE | May 2011

THE OPEN| CELEBRITY TRADER

Mark Robinson

Armed with little more than some probing questions, Alex Hammond went twelve rounds with this month’s celebrity trader, Ricky Hatton There are few British athletes that manage to transcend their sport, attracting new fans to their profession every time they make an appearance on the global stage. Fewer still that have a following prepared to travel the world just to stand in their shadow, forming an army that outnumbers a partisan Yankee home crowd wherever they go.

One man who has earned that level of adoration is this month’s celebrity trader, Ricky Hatton. A multi-time, multi-weight world champion, Hatton carried the torch as the biggest star in British boxing for much of the last decade. He has headlined huge promotions both sides of the Atlantic and earnt a reputation as one of the most fearless men in a sport populated by only the brave, as well as being one of the best pound for pound boxers in the world.

It’s been two years since Hatton’s last professional fight, but it’s hardly as though life has slowed down since temporarily hanging up his fighters gloves following an emphatic defeat to Manny Pacquiao in May 2009. Having turned his head to the business side of the sport he loves, the Hitman is now a fully-fledged promoter, championing local talent from his home town of Manchester and the surrounding North-West. Hatton owns a gym that bears his name in the city, and it’s from there that he and his fleet of rising stars are planning boxing world domination.

Our first conversation comes less than twelve hours after Amir Khan’s victory over Irishman Paul McCloskey, a fight Hatton had co-promoted with friend and Golden Boy promotions supremo Oscar de la Hoya. We discuss it, and Ricky is adamant that, despite a controversially premature ending to the fight (which was stopped after McCloskey suffered a cut about the eye following a clash of heads), there was only ever going to be one winner.

“Khan boxed beautifully and was always in control of the fight. But you do have to feel a bit sorry for McCloskey, the fight should never have been stopped for a cut like that. And I show know, I’m something of an expert on cuts”, Ricky jokes.

There’s no doubting Khan’s meteoric rise

in the world of boxing, from getting tagged as a one round knockout victim of Breidis Prescott in September 2008 to being a world class athlete, and a world champion at that.

But even with the titles and the level of support the Bolton native garnered at the MEN arena, you still have the feeling that he’ll never quite manage to fill Hatton’s shoes, particularly in the hearts and minds of the British public.

So the inevitable question arises, how often does he think about stepping back into the ring?

“A multi-time world champion, Hatton carried the torch as the biggest star in British boxing” “All the time”, he says. “To be honest it was quite upsetting watching Amir fight from the sidelines, hearing the roar of the crowd behind him. But at the end of the day that why I got into promoting, to host big events like this.

And the longer time goes on, the less likely I am to fight again.”

But despite achieving a lot of success in his short business career outside of the ring, the Hitman still hasn’t officially announced his retirement from competing, which is a good thing. And just 24 hours after our conversation de la Hoya went public with an offer to promote a Hatton comeback fight against Erik Morales in Las Vegas. It doesn’t matter how faint the whisperings of a Hitman return to the ring are, it’s enough to rouse the interest of every boxing fan in the UK, in the main because most believe he still has what it takes to re-establish himself as the king of the weight division he once owned. He’d have to go through Khan to do that, and what a prospect

May 2011 | THE EXCHANGE | 13

the open | CELEBRITY TRADER

Scan here to see an exclusive video.

QR readers can be downloaded for free for most smartphones.

“I’ve always been a quick learner.

You WON’t be successful if you CAn’t adapt, pick up new techniques and understand new strategies.”

Kishan Mandalia,

Senior Sales Trader at City Index “Ricky was straight out of the training blocks with his City Index account, trading some of the heavyweights in the UK 100 such as Xstrata and Marks and Spencer. Much like his fighting spirit, Ricky took a bullish approach to the markets, going head strong into the ‘Buy’.

Shorting the Euro and going long on gold was his defence strategy, this technique is very much in vogue at the moment, with many traders using this play to hedge any investment against Euro-Zone and Inflation concerns. The Bullish approach on Equities failed towards the latter rounds of Ricky’s trades as the bears got hold of the market and took it lower; however thanks to his defensive plays – he finished with a net profit of £330.75 Ricky was an avid mobile trader, which worked well for him, as he was able to take advantage of sharp movements in the market, as and when they happened. All in all, I’d say he showed as much courage trading the UK 100 as he did in the ring; he can definitely roll with the punches and come out tops.”

14 | THE EXCHANGE | May 2011

that would be for fight fans. A Wembley sellout would surely be on the cards, a great piece of business for all concerned.

When we begin to talk about Ricky’s time as the celebrity trader his astuteness immediately shines through. Admitting that he’s a novice to the world of stocks and shares, he began his stint by leaning heavily on both Kishan Mandelia, his trading expert at City Index, and his own financial team. However, as he became more comfortable with the process Ricky found himself trading more independently, particularly through the iPhone app.

“It’s really important to have a great team behind you if you want to be successful in anything you do, and I’ve always had that, both in and out of the ring”, he explains as he attributes some of his profits to his supporting cast.

“Plus I’ve always been a quick learner. You can’t be successful in our sport if you haven’t got a good boxing brain and part of that is being able to adapt, pick up new techniques and understand new strategies. I feel like I’ve always had that.”

Hatton traded a range of markets, from the FTSE to gold, and even UK equities heavyweight Xstrata. He also traded

currencies, something that has interested him for years. As the majority of his headline fights have been held in the US the bulk of his prize money has been paid in dollars, meaning that currency fluctuations could have a significant impact on his earnings. It was always something Hatton and his team were aware of, and they planned their financial strategy accordingly.

After some strong early successes, particularly trading the FTSE and gold, losses on his final day as the celebrity trader had an impact on his overall profit total. However, Ricky did manage to net a 13.2% profit of £330.75 from his £2,500 account, placing him well on the celebrity trader leaderboard.

A good mix of ambitious, speculative positions and well-placed defensive strategies was the key to Ricky’s success. And after absorbing so much from the trading team at City Index, his interest in the markets has soared.

But does he fancy turning his hand to trading full-time? Well, probably not. But there’s plenty of time for that in the future, right now we’re keeping our fingers crossed that Ricky will become the Hitman just one, two, or maybe three more times.

Mark Robinson

TRADER’S VIEW

FEATURE

n i d Tra

e m i t e h t

c n e r r u c

a l c the

16 | THE EXCHANGE | May 2011

n o ng

FEATURE

, e l b a et

n i s cie

m o o r s s a Welcome to the first Exchange focus feature. In the coming months we’ll be bringing you a series of articles to improve your trading and we’re starting at the beginning with the first (and probably most important) topic of them all: education.

Unfortunately the laws of space and time mean that we can’t take you back to the “best days of your life”, school dinners, detentions, you know what behind the bike sheds and all, but what we can do is give you all the information you’ll need to kick-start a successful trading career.

In any walk of life or profession career, it’s those who understand that the most educated in their particular field will be the most successful that are inevitably the highest achievers. Yet inexplicably scores and scores of new traders ignore this seemingly obvious piece of advice.

Well, here at The Exchange we’re here to set the record straight and get all of you novice traders back on the right path. That’s because in today’s financial markets there is an overabundance of educational information available for those who know where to find it. From training seminars to live shows, there’s a goldmine of information that will make for a more profitable trading account for those who want it.

And it’s not just those with training wheels still on their trading bike that can learn a thing or two from the city’s schoolmasters. The key to success in a rapidly morphing industry is to stay ahead of the game, and there’s no better way of doing so than by keeping your trading education up to date.

Anyway I think I’ve just heard the school bell, which means it must be time to get to class.

May 2011 | THE EXCHANGE | 17

FEATURE

An introduction to the importance of education in the world of trading forex, by CMC Market Analyst Michael Hewson

18 | THE EXCHANGE | May 2011

FEATURE

When I first started trading currencies in the late 1980s, I was somewhat unprepared for the speed and volatility of currency markets, and how quickly they could move on a whim or a careless comment.

That is as true now as it was back then, and newbie traders need to be aware of a number of different factors when dipping their toes into the unforgiving waters of the markets, particularly forex. New traders need to be aware that currency markets are completely unregulated, and getting involved is comparable to swimming with sharks. For the unwary and unprepared an exploit that you enter into with the intention of being profitable can become extremely expensive, especially if you get the wrong side of a move.

This is why any new trader has to get themselves as educated as possible before embarking on a career, be it amateur or would-be professional, in the world of trading.

If you’re new to forex or spread-betting you should first and foremost seriously consider attending educational seminars on the perils and pitfalls of trading. I would encourage anyone interested in participating in these markets not to skimp in this regard because of the clearly identifiable long-term benefits of having increased market knowledge and awareness.

It is important to understand that equity markets are a completely different animal to currency markets, and that the behavioural aspects of equity trading are completely different to other asset classes.

One of the first things we try and make clients aware of here at CMC markets is the art of preserving one’s capital and learning from common mistakes people make when first exposed to the FX markets. Whilst you could argue that you can learn much from the various books that are available, sometimes it is useful to experience first-hand the perils and pitfalls involved in trading FX at the micro stakes levels to better appreciate the nuances of how to trade and therefore get educated faster.

Training can take a number of different forms, from seminars and online webinars to

“newbie traders need to be aware of a number of different factors when dipping their toes into the unforgiving waters of the markets”

written articles such as those that can be found The Exchange and those that are free to clients of trading platforms.

Technical analysis training is also important with respect to identifying trends as well as significant support and resistance levels in different markets. You can argue about the pros and cons of charts and technical analysis, but from a risk management point of view and for entry and exit points for trading strategies, it is a key element of any good trader’s strategy.

One of the key drivers of currency trading is economic announcements. It is important to stress that to be successful you must understand the different macro-economic events that drive markets and the inter-relationship between interest rate differentials, bond markets and how these markets can affect currency flows.

Education is vital to being successful in fx markets. That being said, the problem most people encounter when first getting started in trading is the amount of training material available to them as well as any potential cost, which is why sometimes people are reluctant to take advantage of it.

With respect to the amount of educational information available a lot of the paid-for material out there is, in my opinion, a complete waste of money.

There seems to be a perception, somewhat misplaced I would say, that because something is freely available it must somehow be of lesser value than paid-for training because it is free, and that there must be a catch.

This is not the case. Whilst there are a good number of training sites that are certainly beneficial to your trading education, it is important to shop around to make sure you get the right information with which to prepare yourself for the markets.

Historically we have offered free seminars at CMC Markets on the basis that if a client is forewarned and forearmed he or she is likely to stay solvent for longer, and as such trade with us for longer.

It is also important to understand that the learning process is evolutionary and something that happens over time. For example, even though I have been in the forex trade for twenty years I still feel that I am learning all the time, and never take the market for granted.

More than anything it is important for the new trader to adopt a style that they are comfortable with and not blindly follow someone else, a mistake I made when I first started out. Just because someone has more experience does not mean that they are always right about the direction of the market.

No-one can be right all the time, I’m certainly not, but the trick in making money in these markets is not just about being right, but also being quick to identify when you are wrong, in order to minimise any potential losses. It is not something that you can pick up from reading a book. This is why training and experience are so important when first exposing yourself to new markets and trading opportunities.

Using demo accounts is a good way to introduce yourself to the markets gradually, but I would stress that it is no substitute for the real thing. There is no substitute for that pit of the stomach feeling when it is your own money on the line. It completely changes your mind-set and attitude towards trading.

May 2011 | THE EXCHANGE | 19

FEATURE

Classrooms for Competence The benefits of training seminars, by City Index Chief Technical Analyst Sandy Jadeja

20 | THE EXCHANGE | May 2011

FEATURE

We know that there are so many opportunities for making money from the financial markets. But what does it take to become a profitable trader, and just how can a person new to the industry determine the right path for long term success?

In any chosen career, whether it’s becoming an accountant, an engineer or a doctor, the common starTing point is education. Without education the chances of success are minimal.

Trading the financial markets also requires education. That doesn’t simply mean having an understanding of the market itself but also having the ability to create and develop unique trading strategies and also an appreciation of trading psychology.

If we consider that the markets will generally only take one of three paths, Up, Down or Sideways, then why is it that so many people fail to be profitable trading within them?

The first problem is that when somebody starts out in this business they invariably find themselves having a tough time in dealing with an information overload, in conjunction with a sense of having to wrestle with their emotions.

In addition, the adage of buy low and sell high, which we hear being banded around every day, does not necessarily work when it comes to trading, which is distinct and separate from investing. With trading we are looking to profit from price movements, whereas with investing we are aiming to buy at a low price with the aim of selling at a higher price.

Trading brings the challenge then of dealing not just with buying at a low price but also being able to sell short at chosen levels, which also increases the frequency of making these decisions.

In today’s financial markets, new and experienced traders alike have to accept uncertainty and volatility, along with the emotional turmoil that comes with it. Trying to make sense of sharp price movements can be a rollercoaster ride, even for the fully fledged trader. But volatility can be a blessing if used correctly.

“instructor led seminars can be very beneficial as it enables students and teachers to engage interactively” Aspiring traders can now learn how to trade in these volatile markets in person, by attending specialist classroom seminars or events, or remotely, by watching online webinars from the comfort of their own homes. The instructor led seminars can be very beneficial as it enables students and teachers to engage interactively.

This also gives the student the opportunity to ask questions and participate in group exercises, as if at school or college.

Most seminars range from three hours through to a weekend event which can last from one to three days. A fee is often required to attend one of the longer events, so students should always do some background research on the trainer or speaker running the class, checking in particular that he is affiliated with a professional body or leading company in the financial sector.

Although the aim of the seminar is to provide information, trading guidelines and ideas, all of which are incredibly important for new traders, the student should bear in mind that this is not a quick fix that will lead to them making millions overnight. Once the information provided at the seminar has been digested, it is then a matter of actually applying the practical side of what has been learnt.

This is a crucial stage in the learning process because it is when external factors such as fear and emotion may conflict with what’s been learnt, and can potentially hinder the progress of success.

To combat a decline in the application of what has been learnt at a seminar, working on an on-going basis with a professional instructor can be really helpful. It allows the student to share their experiences (good and bad) with someone with substantial understanding of the trading process, and also learn how to navigate manageably through the rougher times.

Learning to read charts and use the right software is also an essential component for any trader, there are literally hundreds of different techniques and indicators out there. Qualified trainers speaking at seminars will help point novices and less established traders in the right direction and recommend the most suitable technique to match their personality.

Ultimately trading is a combination of art and science, both of which can be enhanced by attending the right seminar sessions. The road to success is not a straight path, but rather a narrow road which has bumps, curves and hurdles on the way. The journey can be challenging, but equally it can also be exciting and rewarding. If you’re willing to take the first step and explore the markets you’ll find out that, although trading does carry risks, with the right training it can potentially lead to large profits.

City Index has a wide range of educational programmes to help traders make sense of uncertainty and learn useful strategies to potentially profit from the markets.

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

May 2011 | THE EXCHANGE | 21

FEATURE

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Trading and investment can be a lonely business for individuals. Watching your screen, day-in, day-out, taking decisions on whether to buy or sell, hold and watch.

Agonising over that loss-making position that you know in your heart you should have sold weeks ago. Of course, the ups, the profits and the ten-baggers make it all worth it in the end – but there is also another way to help yourself escape some of the more lonely aspects of a somewhat solitary profession.

Take some time to attend live events, time to meet other investors and the companies that can help you, even meet new investment opportunities – and, most importantly, arm yourself with the latest investment and trading techniques to beat the market.

Keep up-to-date with the latest investment and trading techniques

The market is evolving all the time - new techniques are honed and developed, and successful investing strategies discovered as new and exciting areas open up. Attending a live event is one way to make sure that you´re on top of all these developments – by browsing the exhibition, attending the workshops and seminars and meeting and sharing ideas with other investors – it all adds up to a day well spent. At the end of the show you’ll leave the event feeling more confident, more informed and ready to make those desired profits.

“the market is evolving all the time - new techniques are honed and developed” May 2011 | THE EXCHANGE | 23

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A chance to meet the product and service providers face-to-face

Meeting the people who work in the industry can also be incredibly useful for individual traders and investors. There are a myriad of brokers, investment software programs, trading techniques, new investment opportunities and useful products and services on offer, but how do you choose which ones are right for you? One way to help decide is to come along to a live event and meet the companies face-to-face. Let them explain precisely why their product and/or service is suitable for you, and why you should choose them rather than another provider. After actually meeting the company you will be in a far better position to judge them yourself, rather than purely on the back of seeing an elaborate ad or sponsored link.

Learn new skills to help you invest and trade

At the London Investor Show we place a great deal of importance on our investment workshops. Ensuring that each session is delivered by an independent tutor, and that there are key learning points to come out of each hour long workshop are priorities of ours. We believe that it is vital for successful investors and traders to be as well-informed as possible about what they and the industry are doing – and by helping you succeed, we help create a better market for all. Making profits, actively trading and successfully investing are good – primarily for you, but also for the industry as well.

There are some truly inspirational speakers and tutors currently imparting their knowledge to novice traders in the UK. Great speakers are not simply experts in their field – they are inspirational and entertaining, able to convey information and key learning points to their audience. As the organiser of the London Investor Show, I am lucky to have met many of these excellent tutors – and I invite these men and women to come to the London Investor Show to meet YOU, and to help you become the best investor and trader you can be.

A forum where investors and traders can meet and come together

Live events offer individual investors and traders a whole host of reasons to attend.

From the purely educational content supplied by workshops and seminars, to a social and

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“Live events offer individual investors and traders a whole host of reasons to attend” networking angle where meeting like-minded investors and traders becomes an enjoyable part of the day, professional traders and enthusiasts alike can swap ideas, share stories of the “share that got away” and find out more about how others manage their portfolios and trade for a living.

You certainly don´t need me to tell you how hard it can be to break into the world of being a profitable trader – but perhaps what I can tell you is that you will undoubtedly get a huge amount out of attending a show, especially the London Investor Show, by meeting so many aids to share ideas and experiences. And after the show ends you’ll leave with the contacts, networking, new friends and fellow traders you meet there to support you in your future pursuit of trading glory.

You’ll find the people in the industry are on your side – they want you to make money. If active investors and traders are making good,

consistent profits then you will continue to trade and invest – creating a profitable marketplace for everyone, and a successful and financially-rewarding future for yourself.

Invest in yourself

Why not give it a try? If you´ve never been to an investment or trading show before, why not sign up for one today? As the organiser of the London Investor Show, I can assure you as to the quality of our event and the abundance of positive feedback we receive from traders and amateurs after one of our shows – but there are many more events out there to choose from.

Meeting people face-to-face has long been the best way to do business. The internet has a million uses, and is invaluable for today´s active traders and investors – where would we be without it? But we also need the face-toface interaction provided by live events. I urge you to give it a go – come and immerse yourself for a day and see what happens. I look forward to welcoming you to a London Investor Show soon!

The next London Investor Show takes place at London Olympia on Friday, 20th May and looks at trading commodities, and alternative investment. To book a complimentary ticket and one free investment workshop (worth £50), use the special voucher code “exchange” when booking online at www. londoninvestorshow.com.

FEATURE

Alessio Rastani of the Wealth Training Company explains why training is the key to market success Ever wondered how you can lose £10,000 in a week? No, I’m not talking about the financial crisis and the banking sector.

Not this time at any rate.

Here’s how you do it: buy a book from Amazon written by a so-called stock market investing “guru”, do some searches on Google for the latest trading strategies, open a brokerage account, stick £10,000 (or whatever you have) in it, buy shares, then just

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sit back, relax and watch your money disappear.

You may be thinking that nobody could be that naïve or stupid to think that would ever be a profitable trading strategy, but you’d be wrong. Welcome to the world of the “Eighty percent” That’s right, eighty percent of people who invest in the stock market end up losing their money! And even of those that do make some initial profit, not many manage hold on to it for very long.

The irony is that these would-be investors lay the blame for their failing returns not on themselves or their lack of financial education, but on the stock market itself!

Investing is a Business If you have ever started your own business you will know that it takes a lot of work and research on your part to even get a selfemployed career off the ground. You have

FEATURE

to put time and effort into it to make your business a success.

Investing and trading is also a business. Yet it is extraordinary how most people believe that they can achieve success in investing by signing up to tip services or simply by investing in the companies they hear of on TV. I have been involved in the training of investors for many years and I see a common pattern.

There are people who are absolutely not interested in learning and simply buy shares based on “tips” or listening to the news. These investors occasionally get lucky and make a lot of money, but it inevitably doesn’t take long before their luck eventually runs out.

Then there are people who know the importance of doing research and want to learn, but think they can get all the knowledge they need from books or articles on the internet.

Let’s face it. If the internet or books could make you rich, why aren’t there more rich people out there? If those methods worked, there wouldn’t even be a financial crisis.

What the vast majority of new traders underappreciate is the importance of practical learning and education.

“if the Internet or books could make you rich, why aren’t there more richh people out there” The Benefits of Practical Education I wonder how many successful sportsmen or athletes you could name who achieved their success without the help and guidance of a mentor or coach? Some of the best golfers and footballers learnt from the experiences of those who are already successful in their game.

What professionals know is that one of the best investments you can make is to invest in yourself and your education. By learning from the experts one-to-one you have a far better chance of improving your skill and performance. Getting an expert to teach you may not be cheap or easy, but the returns you’ll see from taking that step are well worth the money and time invested. Some of the best investors trading with enormous accounts began by spending many years learning and being trained by the best in the world.

“The Eighty-percent” If you are still not convinced about the benefits of getting training from someone before you start investing, then think about this: every year there are thousands of people opening online trading accounts, and every year there

are people who are losing thousands of pounds to trading professionals. The “eighty percent” keeps getting bigger and bigger.

For example, in early 2000, at the height of the dot-com bubble, there were people buying dot-com shares just as most institutions were getting ready to dump them. In fact, there were both fundamental and technical signals that it was the wrong time to buy technology shares.

Would it not have been useful to know what those signals were and therefore avoid making thousands of pounds in losses?

Taking Action There are a number of ways you can get training on how to invest successfully. For example, find out if there are any stock market education seminars happening around you. Some of these seminars are free to attend.

When choosing the training site or college make sure the company has been around at least for 10 years and has seen bull and bear markets, check that the training will not only provide you with the information on how to use various tools, such as a trading platform, but will also teach you some strategies and principals of investing. Many brokers would offer free training courses, but only on how to use their software or trading platform, which is not enough to be a successful investor.

The Wealth Training Company runs weekly 2-hour training seminars for people who want to learn how to create income from stock market trading and investing.

Alessio Rastani is a trader, speaker and a senior coach for The Wealth Training Company LLP

May 2011 | THE EXCHANGE | 27

FEATURE

The Key to Success – Cut out the Mistakes

As Zoe Fiddes of Easy Forex explains, to be a successful forex trader the first lesson to learn is always how not to throw away your money

In the modern world of currency trading you don’t exactly have to be a celebrity on Wall Street to make great profits from the market.

With huge liquidity being generated from a $4 trillion daily turnover, round the clock trading and high leverage options it’s easy to see why so many people are attracted to forex. To break into the market you now need nothing more than an internet connection and a small deposit with a trading site.

However, before you rush off to open an account, stop and think about what it takes to become a successful trader. There are clearly traders out there who make consistent profits, but just how do they do it?

Well, firstly it is important to understand common mistakes that many novice traders make. There are a multitude of traps that those new to forex will fall into, and by both identifying the pitfalls and learning how to avoid them you will automatically be taking a huge step towards becoming a successful currency dealer.

In this article we highlight the major

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obstacles that will turn your profit to loss and let you in on the secrets of how to overcome these rookie mistakes. Once you understand how these issues will have a negative effect on your trading and can adjust your decisions accordingly, you’ll be well on your way to healthy forex profit-making.

A LACK OF A SYSTEM

Have a clear and concise sense of how you should be approaching the markets by defining a particular trading method. This is the first step on the road to becoming a successful trader and is therefore pivotal to your triumph or failure, if only because without any concrete method you won’t know what constitutes a buy or sell signal or be able to consistently identify the trend or turning points. Write down your method, the analytical tools you employed and how you used them, specifically noting what indicates a buy signal, a sell signal and your exit points. Fundamental and technical indicators are at their most powerful in currency markets when they’re combined, consider this when

investigating new trading systems. Also, have a full understanding of the indicators you use.

I have come across many traders using a signal they found on the internet without knowing the theory behind it.

NO DISCIPLINE

To follow your system, particularly when you’re first starting out on the road to becoming a profitable trader, is invariably difficult.

However, it is vital if you want to realise your long term profits. The formula for success is to always apply the proven method, if you don’t then you are gambling. Trading without emotions is the hardest aspect of this predicament to overcome. Keeping a log is advisable, note your reasons for making all your trades, the stop-loss level and your profit target before executing any buy or sell. This will force you to think rationally and prevents you from entering a deal as an emotional reflex. Using the log, especially whilst you are testing a new method, will help you find repetitive patterns of success and failure, allowing you to iron out

FEATURE

unwanted mistakes and concentrate on what is working.

DISREGARDING REALISTIC EXPECTATIONS

It’s clearly possible to experience above average returns in the short, medium or long term, but this is difficult to do without taking above average risks. In the current climate a hedge fund return of 10% is considered good, this may not sound particularly enamoring but that is the realistic state of the markets. If you are day trading my suggestion is to find out the average true daily range (ATR) of the currency pair you are trading. For example, the ATR of EUR/USD over the last year is approximately 130 pips a day. If you are entering a trade in the pair with a 100 pip profit target you are unlikely to reach this. Don’t be greedy; instead look to take a smaller piece of the range, such as 20-30 pips. This will increase your chances of profiting on each trade. It is also worth mentioning here that you must get into the habit of monitoring the risk to reward ratio as you never want to be risking more than your

profit target.

Another important consideration to take into account is that you have to fight against your natural inclination that winning is always imperative to be successful. Do not delude yourself into thinking that every trade will turn a profit. Accept your losses. If you don’t then you will fall into the trap of running losing trades in the hope the market will come back your way.

IMPATIENCE

Markets are not always moving in a clear direction and for any given time frame there may be only two or three really good trading opportunities. All too often, because trading is inherently exciting, it’s easy to feel like you’re missing the party if you don’t trade frequently.

Overtrading is dangerous, you are most likely to do this after making good profits which will result in overconfidence or after a string of losses which make you desperate to make the money back. Both of these situations will lead to taking lower quality trades.

INCORRECT MONEY MANAGEMENT

Professional traders usually limit their risk on any given position to 1-5% of their portfolio.

If we apply this rule then for every 1000 GBP we have in our trading account we can risk between 10-50 GBP on any given trade. I have seen novice traders risk most of their account balance in one trade, which is a huge mistake.

You can never be 100% sure what will happen next in the market, and when you commit your whole balance it will only take one bad trade to wipe-out your account. Your aim is to be in the market for the longer run to maximize your opportunities to be profitable, which you can do by following this simple rule. If you are new to trading start with a relatively small account and trade mini sizes.

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.

May 2011 | THE EXCHANGE | 29

THE LONG| ANALYSIS FEATURE

The final hurdle

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FEATURE

The last stop between you and the land of the profitable traders, the demo account We’ve all been there. You’ve read the books, you’ve watched the pros, you’ve had the coaching. But standing on the tee for the first time (or whichever sporting metaphor you feel you can relate to most), the doubts begin to set in. And as you bury your tee into the ground and stand astride the ball your hands begin to feel clammy. It’s the eyes of the world on your back, burning a hole right through you, aching to put your mettle to the most rigorous of tests.

The result: well let’s just say that from personal experience it’s probably scuffed, short and very, very wide. If you’ve managed to make a botched job of your drive exceptionally well then you’ll find yourself in the car park much in the same way that I did the first time I played at my new club after moving home.

There are a whole host of reasons why people trying a new activity for the first time, be it professional or as a hobby, suffer in this way. But it can be boiled down to just one simple one: because they’re not very good.

Sure there are those who have so much natural talent that they take to their sport like a duck to water. They’re called geniuses, and because there are so few of them.

The pertinent question isn’t “why are newbies not particular good despite all the lessons, training etc?”, but instead “how do I take the next step to improving my game?”

And the answer’s an obvious one: practice.

Should I keep forking out three figures to play round after horrendous round? Well, I suppose I am improving fractionally each time I play, but it’s costing me a fortune and is pretty demoralising when the inevitable blowup happens.

Or should I leave the course and head to the practice ground where I can work on different shots, approaches, styles and techniques until I’m confident I’ve got the practical and mental skills to combat whatever the real world has to throw at me, all of which will cost me nothing.

You don’t need one of those geniuses to tell you the answer.

And why all this sporting analogy? Well, because the exact same principles apply in trading. Training sites, seminars and coaching are all vital cogs to the educational development of a good trader, but the final stage in the evolution to being profitable in the markets is practice and experience. It’s

experimenting with techniques, tools and strategies to work out which ones work for you and which don’t, because this won’t be the same for every trader.

There are some who will learn the hard way, by plugging their cash into the markets and losing money until hopefully they learn enough to begin slowly clawing those sunken losses back. The more prudent novice traders, however, will realise that what they should be doing in the early stages of a trading career is operating on the “driving range” of the financial markets, a demo account.

All trading platforms have demo accounts

“there really is no rush to get into the markets before you’re confident that you’ll be profitable” where new traders can ply their new found skills in real markets, safe in the knowledge that any rookie mistakes or misjudgments of strategy won’t cost them their entire trading account. A demo account is a replica of the real thing, meaning that it can teach you all things about the markets that you can’t learn

in books but without losing an arm aand a leg for the pleaure.

“But won’t trading on a demo account cost you the money you could be making today?” I hear some of the more impulsive of you shout.

Well no, actually.

The point to remember is that there really is no rush to get into the markets before you’re confident that you’ll be profitable and for the vast majority of traders that won’t be immediately. After all, the markets aren’t going anywhere. Trading on a demo account for six months will only make you a better trader, which means it will make you more money in the long run and save you money in the short term.

We asked Michael Derks, Chief Analyst at FxPro, to give us his opinion on demo accounts: “Any would-be traders invariably try their hand on a demo account, which is essentially an account using only fictitious money. This provides potential traders with the opportunity to refine their trading strategies, understand how a particular trading platform works, and possibly to learn more about themselves in terms of trading style and approach to risk management. Fx trading platforms understand the benefits of these demo accounts – clients benefit from them (because all other things being equal they might become better traders), and once they are confident the transition to a proper funded account is much easier.”

So once you’ve acquired your new found trading knowledge use it to trade well. But remember that a stop off at the driving range will let you know if you really are as good as you think you are.

May 2011 | THE EXCHANGE | 31

THE THINKING PAGES

LONG THE

IN THE LONG TOM ROTHERHAM ALASTAIR MCCAIG NICK BEECROFT MICHAEL DERKS PETER WEBB KEN FISHER DECLAN FALLON CHRIS SMITH

US hedge-fund supremo goes long on IG GROUP Wall Street legend William von Mueffling has dipped his toe into the UK spread betting pool this month by acquiring a 5.01% stake in market leaders IG Group. von Mueffling’s Cantillon Capital has invested £80 million into the spread betting firm, which has been received as a welcome boost to the industry.

Analysts had speculated that despite the rising success of spread betting companies, and IG in particular in recent years, the industry may have already peaked as firms are now struggling to attract new clients.The acquisition of von Mueffling as a major shareholder may go some way to alleviating this concern, and indeed help IG achieve their ambition of cracking the FTSE 100.

A member of the “hedge-fund elite” of New York, von Mueffling rose to prominence on Wall Street as a leading stock-picker at Lazards’ European Opportunities Fund. The highlight of his time with Lazards was a successful prediction of the demise of the dotcom boom, making investors millions in the process.

He founded Cantillon in 2003 and developed the company into one of the biggest hedge funds in the US, managing a fund of over $10bn at its peak.

However, he shocked the markets in 2009 by announcing that he was retracting from the hedge-fund market and instead would return to long-only stock-picking investment. IG Group is the latest example of this method of investment.

May 2011 | THE EXCHANGE | 33

THE LONG | Analysis

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THE LONG | Analysis

To Float, or not to Float?

How the implementation of the FSA 2007 may, or may not, have a lasting impact on law firms in the investor marketplace. By Tom Rotherham In the biggest shake up of legal services in decades, on 6 October 2011 the first alternative business structures (ABS) will be able to open for business in the legal services marketplace in England and Wales. This will mean that for the first time non-lawyers will be able to fully own and invest in law firms.

This reform comes about as the Legal Services Act 2007 (The Act) finally comes into full force.

Amongst regulatory changes, The Act enables new forms of legal practice to develop. In a landmark change legal disciplinary practices, or LDP’s, will enable solicitors and barristers to come together and co-exist under one roof, alongside further investors or other non-lawyer services which can total up to 25 per cent of any firm. ABS’s will allow both external ownership of legal businesses, so called ‘Tesco law’, and the ability for firms to provide a full range of professional services via multidisciplinary practices.

The Solicitors Regulatory Authority (the body responsible for regulating all solicitors firms in England and Wales) anticipates that there we will see two types of ABS. These are those which, as described above, retain a traditional management and governance structure but aim to provide a ‘one stop shop’ for professional services, and those which will continue to provide only legal services, but are now able to do so without external investment. Whilst much of the media focus around these changes has been centred around the ability for the commoditisation of consumer legal services, with one MP commenting that under the new changes consumers should be able to purchase legal services as easily as a tin of beans, at the City end of the profession the Act finally opens the door to private equity investment in law

firms and, in theory, allows law firms to access capital markets through an IPO. Even with six months remaining until the changes take effect, private equity funds are beginning to raise cash to prepare for the changes in October. Jeremy Hand, managing partner of Lyceum Capital, has already stated that his London-based leveraged buyout firm may invest in certain legal service models, and Bloomberg reports that Fleming Family, a money management firm, is in talks to buy law firm stakes of as much as 20 percent.

With stable cash flows and long track records of clients and business operations as well as an increasingly eagle-eyes regulator, it is not difficult to see why law firms would be an attractive proposition for any investment house. Indeed, Alan Hodgart of H-4 Partners in London stated last summer that financiers could expect returns from potential law firm investment in excess of 15%. Although, as Jeremy Hand has pointed out, the benefits are not all retained by the investors, private equity can offer firms not just capital, but the culture change and specialist management expertise which many feel has been lacking in the legal sector for some time.

Given that half of one percent of all firms generate almost fifty percent of all fees billed annually (the 50 largest UK law firms generate around £12 billion a year in fees) it can be argued that the reason law firms have been so successful in the past is due to a serious lack of competition. The changes being implemented on 6th October will usher in a new era of true competition which all firms will be forced to react to as clients seek real value for their money.

One criticism often levelled at firms is that fee earners are charged out at top hourly rates for doing jobs they are vastly overqualified for. In an

May 2011 | THE EXCHANGE | 35

THE LONG | Analysis

increasingly competitive marketplace it would be tempting for any outside investor to outsource costly, time consuming work such as document reviews, legal research, litigation support and disclosure meaning lawyers are charged only for their advice. In searching for such efficiency gains, private equity investors must be careful to balance cost cutting for the client with the quality of work the firm provides. Whilst outsourcing such voluminous, time consuming tasks may work well as a model for high street firms, partners at City firms will justify charging top dollar for due diligence or disclosure because of their importance to the deal or case. They will argue that outsourcing key processes to those with less experience or qualifications is something of a false economy, because one missed, discarded or accidentally disclosed document could cost the client millions.

Given the above, and based on market reaction thus far, it appears as though The Act will have the greatest influence on mid sized firms. This certainly seems set to be the case in relation to firms which may elect to float.

Magic Circle firms (Linklaters LLP, Freshfields Bruckhaus Derringer LLP, Clifford Chance LLP, Allen & Overy LLP and Slaughter & May) have all declared their ambivalence to listing, simply because they don’t need the capital. Mid-sized and high street firms may also benefit from being able to use stock and stock options as a recruitment and retention tool, although associates, whose main role has never traditionally been business development, may be uncomfortable being remunerated based on the

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“the most likely candidates for a UK IPO are firms with high volume, commoditised practices such as insurance litigators, or areas such as debt recovery” performance of a business over which they have no control.

Certainly the already global City elite have no need to raise capital for expansion, which was the principle result of Australian firm Slater & Gordon’s IPO in 2007. The firm raised A$39 million in the world’s first law firm IPO, and has since taken over two other Australian personal injury practices.

Following this antipodean example, the most likely candidates for a UK IPO are firms with high volume, commoditised practices such as insurance litigators, or areas such as debt recovery, real estate and personal injury which are ripe for consolidation. Such practices are also far less likely to suffer from conflict issues. Due to the fact that Magic Circle firms count large investment banks amongst their top clients,

an IPO may put them in the uncomfortable position of owing both a duty of care to the banks as clients, and a duty to them as part owners of the firm.

For these reasons it’s safe to say that we are unlikely to see law firms without a pressing need to raise capital chomping at the bit to float themselves, but what is also evident is that there are also difficulties for the potential investor.

The most fundamental of these is how one goes about valuing a law firm; while the reported profit margin, which treats the total net income distributed among the equity partners at the end of the financial year as the absolute bottom line, may look good, it actually presents an overly positive perspective by ignoring any fixed salary that these managers might receive. This also precludes the calculation of EBITDA - the favored tool for private equity valuation.

In addition, the scope for external investors to generate value by cutting costs has also been reduced by the significant efficiency drives that most firms have been forced into in the wake of the recession. Without radically changing the structure of the firm, it may be difficult for outside investors to trim any more fat off already lean businesses. The efficiency gains talked about in earnest by potential investors may be much harder to realise than first thought.

So whilst the prediction of a ‘big bang’ in the change of the provision of legal services is likely to be the case for the bottom end of the market come October, investors keen to share in the revenues of the UK’s top firms would be well advised not to hold their breath.

THE LONG| ANALYSIS

FTSE Banks on a road to nowhere fast

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THE LONG | ANALYSIS

By Alastair McCaig, WorldSpreads The trading community will always migrate to those areas it feels will offer the best environment for traders’ manoeuvrability, ensuring that they can both get into positions and get out of them.

On the 11th April the Independent Commission on Banking (ICB) issued details of their interim results giving recommendations to the government for the restructuring of the UK banking sector. The ICB is due to give the government its final report in September and, judging by the lack of details in this report, Antonio Horta-Osorio of Lloyds, Stephen Hester of Royal Bank of Scotland and Bob Diamond of Barclays will have one less thing to worry about when it comes to print. If the government were looking for a stick to beat the banks with then the latest report certainly was not it. The market reflected this with a FTSE 100 that was largely flat, letting Barclays, Lloyds & Royal Bank of Scotland appear unusually positive.

So if the ICB is not announcing recommendations that move the market, what will be the catalysts for sentiment in the banking sector?

Probably something that will be on all European banks radars is the implementation of the recommendations in the Basel III report. The Basel Committee on Banking Supervisions has updated their guidelines and the third instalment of this will require all banks to increase their Bank capital adequacy and liquidity. Not only will this require banks to increase their cash ratios but also curtail the amount of leveraging the bank can utilize. The implementation of more stringent risk strategy procedures, allowing regulators to more easily and accurately monitor the banks, will be something that many of the banks will have been factoring in. All of these requirements will take both time and money to implement but, more crucially, will affect the strategy the banks incorporate for their day-to-day business.

The current government investment in both Royal Bank of Scotland and Lloyds probably weighs more heavily on the market’s sentiment than the financial implications. The ability of the government to extract itself from these companies and possibly make a small profit from its investment is undoubtedly something they would like to do as soon as possible.

This would send out two clear messages to

“The ability of the government to extract itself from these companies and is undoubtedly something they would like to do as soon as possible” the markets. Firstly it would signal that the government felt that the banks were in a rude enough state of health to be able to handle life on their own again, and secondly that the government had taken another large step in reducing the UK deficit.

These factors are widely known by the market, as are the obvious magnetic levels of where the government effectively “break-even” on these stocks. Some effort will be needed from the markets to see this off. In the case of the Royal Bank of Scotland 49.9p is the key level and for Lloyds it is the 63.2p level. It should of course be noted that the longer the government holds onto these positions, the higher the real break-even levels should be as the UK has had to borrow money from the debt market to finance these positions and an interest charge will relate to this.

Can the banks move away from these levels?

We know that the government would like to sell off its exposure in the banks, but for political reasons really needs to make a profit when it does. We also know that the UK is using a substantial quantity of cash to hold these positions and, if the rating agencies were to talk about downgrading UK sovereign debt, selling off the banks would be one of the easiest ways to reduce that pressure. When you consider the UK is borrowing through sovereign debt to finance these positions the country may get to a point where the government feels it needs to sell, even if they will not crystalize a profit. The problem lies in the fact that anyone who is considering buying these banks is aware that at some point in time there will be a very large forced seller and traders know that the price will reflect this overhang of shares for some time to come.

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THE LONG | Analysis

The Eurozone debt crisis: a long and winding road to nowhere?

By Nick Beecroft, Saxo Bank Although you might not guess it to look at the remarkably resilient Euro, the Eurozone debt crisis rumbled on this month. To add to the drama, yet another domino toppled when the caretaker Portuguese government was forced to request a bail-out from the EU/ IMF in the wake of a debt auction on 5th April which came perilously close to failure, raising fears that Portugal would be unable to honour the Euro 5bn of bond redemptions due in June.

Jose Socrates’ minority government had previously been forced to resign when opposition parties refused to support proposed austerity measures designed to address Portugal’s budget deficit.

Mainly as a result of domestic Euro-sceptic opposition in Finland, France and Germany, an announcement of the final architecture for the promised re-vamp of the current EU rescue fund, the European Financial Stability Facility, (EFSF), and its son, the European Stability Mechanism, (ESM), due to succeed it 2013, has been delayed. Both are key components of the ‘Grand Plan’ which we were promised would be forthcoming from March’s EU

40 | THE EXCHANGE | May 2011

leaders’ summit, but now we will have to wait patiently until June for the details.

Meanwhile, seemingly inhabiting a parallel universe all of his own, ECB President Trichet assured us at the post-ECB meeting news conference in March that the governing council would maintain ‘strong vigilance’ over inflation-code for an imminent policy tightening. Sure enough, they delivered this tightening on April 7th by raising their main policy rate by 0.25% to 1.25%, heralding what the market now expects will be a series of hikes over coming months.

The ECB is maintaining its stance that the question of raising rates is entirely separate from that of its provision of extraordinary liquidity to banks and sovereigns. However this is surely untenable over time. If banks and countries are on the brink of collapse, does that not affect the health and spirits of consumers and companies? Will that in itself not mitigate against a rise in inflation, without any need for a rise in interest rates?

The ultimate test awaits; in the light of Portugal’s bail-out, attention will turn to

Spain-El Grande. This crisis will grind on, mainly because the solutions being chosen are addressing an insolvency problem as if it were a liquidity problem. But never underestimate the will of the Eurozone governments to make it work, maybe at least until 2013 when their bail-out money becomes senior to other creditors under the ESM, as opposed to their current status as equal in the pecking order with private lenders.

Unstable equilibrium is probably the best way to describe the Eurozone status quo. With bond maturities totalling $502bn in 2011 in the PIIGS countries, the markets are still digesting the horrendous Irish bank stress tests results and the ongoing Portuguese political vacuum. Until elections in mid-June the question arises as to exactly who has a clear mandate to agree to the austerity measures that will no doubt accompany the EU/IMF bail-out? The whole cause of the minority government’s collapse was a failure to get opposition parties to buy-in to belt-tightening; the IMF’s demands will be even more burdensome.

THE LONG | Analysis

Suspicion mounts that revamped EU-wide bank stress tests will once again be sugarcoated, and that banks across Europe will remain ‘addicted’ to ECB liquidity. Some regional German banks, which are repeat offenders, will be most heavily involved. These banks infamously had a previous addiction to toxic U.S. mortgages.

The current fad of confidence that Spain can somehow extricate itself from the debt crisis is at best hopeful and at worst naïve.

Although the Spanish have shown some zeal for austerity, including raising the retirement age, huge questions remain over the banking sector, with its enormous exposure to property and land. The ECB’s determination to raise interest rates is a move as entirely inappropriate for the peripheral countries as it may be appropriate for Germany, and it could have dire consequences for Spanish mortgage lenders.

The Euro is starting to remind everyone of nothing so much as the eponymous hero of Hans Christian Andersen’s tale - the Emperor’s New Clothes.

In truth, the Euro was always a political animal, a well-intentioned plan to help keep the peace in Europe by linking inextricably the fortunes of North and South. It was always flawed, launched as it was without a fiscal union. Prancing around in new clothes, it was surrounded by sycophantic courtiers happy to perpetuate the illusion that the credit standings of Portugal, Ireland, Italy, Greece and Spain were the same as Germany’s. The death-knell was sounded when France and Germany chose to ignore the Growth and Stability Pact in 2002. This was hubris personified; nothing could destroy the dream.

EURo: Turbo-deflation?

The Euro was always destined to be a

“The current fad of confidence that Spain can somehow extricate itself from the debt crisis is at best hopeful and at worst naïve” deflationary beast with the ECB at the helm.

Bundesbank dominated, and with the Euro founded in the shadow of the German fear of hyperinflation acting as an ever-present, if misguided, precept, how else could the ECB have contemplated its extraordinary rate hike in July 2008, as the world’s financial systems were collapsing around it? A ‘sound money’ policy would ensure that all Eurozone countries, sooner or later, would emulate Germany’s laudable labour cost restraint, thus maintaining their export competitiveness.

Like all fiat currencies, the Euro experiment was built upon intangible foundations-in the good times, consumed with hubris, the Euro could prance around naked without comment.

The Euro has made a big comeback in the FX markets since the beginning of the year as the PIIGS sovereign debt crisis has so far been relatively contained, even if the situation in Greece, Ireland and Portugal is tenuous at best and still points toward eventual debt restructuring in those countries. Meanwhile, the ECB has been rattling its sabre on the need to raise rates to fight the threat of inflation from commodity prices. A strongly flattening

yield curve on ECB hike threats, vicious austerity at the Eurozone periphery, and a possible slowdown in export markets as China clamps down on growth all point to deflation and maybe even turbo-deflation.

How long can European politicians continue to fail to represent the views of their electorates, most of whom are dead set against further bailouts, (especially the Germans, who are footing most of the bill), and the Euro itself, with peripheral countries unable to devalue their way out of the crisis and facing endless years of austerity? The Euro may enjoy a small resurgence in Q2 if the politicians can put enough fingers in the dike and the ECB ploughs ahead with its first rate hike, but the entire dike will continue to erode, as it has done for several years, as long as bailouts remain in place and the longer term viability of the Eurozone project remains very much in question. Euro tailwinds may continue into Q2, but we haven’t seen the final test of the European banking system and the sovereign debt issue.

We expect risk contagion, as European growth fails to materialize later this year, leaving the policymakers with widening budget deficits, higher marginal cost of capital and political upheaval due to continued high unemployment. The year 2011 looks set to be one of austerity, leading, by definition, to lower growth, less disposable income and continued elevated unemployment.

Portugal has now joined the “exclusive” club with Greece and Ireland, countries whose funding program needs a European guarantor to tap the financial markets. This was hailed initially as good news by the market, but for us, it’s merely buying more time before the final bill comes through.

Enjoy Euro strength while it lasts.

May 2011 | THE EXCHANGE | 41

THE LONG | KEN FISHER

KEN

FISHER

A Longer Long Road

42 | THE EXCHANGE | May 2011

THE LONG | KEN FISHER

There’s good news and bad news to digest this month. The good news—you’ll likely live far longer than you think. The bad news—your portfolio may not.

Most investors think about time horizons wrongly, surmising, “I’m 60, getting old, and will retire at 65. So I should be conservative, sell shares, and buy more bonds.”

That is a very wrong way to think and will likely leave you poorer than you should be in your old age. Your spouse won’t thank you for that. The right way to think is to ask, “How long ahead is my needed investment lifespan?”

Answer: Likely your whole life and that of your spouse. Which may be quite a long time.

A new study found that the average Americans’ life expectancy is now 78.2—and rising. Pretty good, though the UK’s is even higher at 79.4. That’s the average—meaning that statistically half will live longer, and the chances of this is even greater if you’re still healthy and active. Also life expectancies have been rising rapidly in recent decades thanks to better medicines, innovative medical devices and improving diets, and this trend is set to continue. Who knows what life-extending innovations will arise in the next 20 years, extending life expectancy even further— and consequently extending your likely lifespan and investment time horizon.

If you’re 60 your investing time horizon isn’t five years. It’s at least 20 years, and may be even 30 years or more. A 30 year period is long, not short. And if you have a younger spouse, it’s his or her time horizon that matters.

Note to men: the odds are that your wives live longer than you. In the US, UK and almost uniformly globally (except in very poor nations where childbirth is materially riskier), women’s life expectancies are higher than men’s. British women live, on average, over four years longer than men, so you must assume a time horizon that includes the life expectancy of your spouse—which could extend to 40 years or more if your spouse is even younger or healthier than you.

When considering these matters you should also assume on the long side so your money doesn’t die before you do. Suppose you’re a 60-year-old man with a 55-year-old wife

“Remember: The risk of murderous despots disrupting sending oil higher” whose parents are still alive in their 80s. As life expectancies extend in coming decades, she might well live to be 100, meaning you have a 45 year investment time horizon ahead of you.

It’s also late in life when you both really want the comforts money can buy.

All of this means that most investors reading this will need growth to avoid being devastated by inflation. And since over almost all very long time periods in all developed nations stocks have done markedly better than bonds, most people will benefit from investing in equities during their old age more than they think. The odds are overwhelming that the average 60-year old who heavily avoids equities won’t get the growth needed to maintain his lifestyle over a further 30 years. The chances also are that he may not realize it until the damage is done and it’s too late to do much about it.

One common but wrong strategy for deciding how much to hold in equities is to take 100, subtract your age, and that’s the percentage to have in shares. This seems easy but utterly ignores medical science and increasing life expectancies. To wit, some practitioners now say you should use 120.

Whichever equation you use, it ignores the fact not all retirees are the same. Should a 75-year-old widow in poor health invest the exact same as a healthy 75-year-old man with a very healthy 65-year-old wife, just because they share a birth year? Of course not.

Ignore such static prescriptions—instead

think, firstly how long you need your assets to last. From there you can calculate how much growth you need—which is likely to be much more than you have envisioned.

And if you, like most reading this, have 20 years or vastly more to invest, the odds overwhelmingly favor stocks. For the period we have good daily data on world equities in pound sterling (1969 onwards), stocks beat bonds in 96% of rolling 20-year periods—and in most cases by a huge margin. On average, shares returned 911% and bonds just 352% over 20 years. The three rolling year periods shares bonds returned a higher yield that stocks it wasn’t by much, and shares were still positive.

Over 30 year rolling periods, bonds have never beaten shares. Shares returned an average of 2,897% to bonds’ 893%.

However some folks just can’t stand shortterm stock volatility—never mind thinking about 20 year periods. Well if this is you, begin by thinking just a bit longer term. On a daily basis stocks are positive 53% of the time— slightly better than a coin flip (using US stocks which have a better long historical data set— but it’s the same story in Britain and globally).

But the longer the period, the greater the odds are that shares are positive. Calendar months are positive 62% of history, 68% of quarters are positive, and a larger 71% of years are positive.

That’s over two-thirds! Give it a bit more time, and there’s no contest—87% of rolling 5-year periods are positive, 94% of 10-year, and 100% of 20-year periods.

This isn’t to say that having a portfolio of all or mostly all equities is always right for everyone. But to get growth over a longer period of time, you can’t beat equities. And most Brits at or approaching retirement now have a very long time ahead of them, meaning they will need equities for a long time—much longer than they think they do.

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

May 2011 | THE EXCHANGE | 43

THE LONG | ANALYSIS

Lower UK inflation now on the way?

By Michael Derks chief strategist FxPro

44 | THE EXCHANGE | May 2011

THE LONG | ANALYSIS

The inexorable rise in UK inflation over the past year or so may now finally be starting to moderate.

According to the ONS, the consumer price index (CPI) increased by 4.0% year-on-year last month, down from 4.4% in February and comfortably below expectations. For March alone the CPI was up 0.3%, after a 0.7% increase in the previous month. Excluding energy, the rise in the CPI was just 0.1% in March.

In recent quarters a number of external forces have combined to push inflation higher, including a weaker exchange rate, soaring food and energy prices, and higher taxes (most notably, the increase in value-added tax in January). In the past three years, the pound’s broad effective exchange rate declined by 15%; food prices jumped by 68% in the two years to February and the price of a barrel of West Texas Sweet has surged by 140% over the same period. There have also been some significant domestic sources of higher inflation – for instance, car insurance premiums rose by a record 40% over the past year, according to the Automobile Association (AA). Of some concern for policy-makers and commentators alike, however, was that some of these exogenous price pressures appeared to be finding their way into core measures of inflation. In February for instance, the core CPI rose by 3.4%, up from 2.6% back in the summer of 2010.

Source: UN Food & Agricultural Commission

In the early weeks of this year, the Bank of England’s Monetary Policy Committee (MPC) was under enormous pressure to raise the

“For March alone the CPI was up 0.3%, after a 0.7% increase in the previous month.

Excluding energy, the rise in the CPI was just 0.1%” base rate (currently 0.5%), in response to the continued acceleration in inflation. Indeed, with inflation at 4.4% in February (well above the Bank’s 2% medium-term target), three of the nine members of the MPC were minded to vote for a rate rise as a response to concerns about emerging inflationary pressures.

For the other six members of the MPC who were against tightening, the March inflation figures certainly provided some respite.

Encouragingly, there was some significant discounting in evidence, especially in food and travel. This should come as no surprise – consumers have gone into hibernation in the past three months in response to an unprecedented squeeze in financial conditions.

In 2011, real household disposable income is expected to fall by a further 2%, after a 0.8% decline last year, according to the CEBR; this would represent the biggest squeeze on living

standards for 90 years! Earlier this week, the British Retail Consortium reported that retail sales last month were the worst for twenty years.

Source: Conference Board and Bloomberg

With consumers likely to remain reluctant, we can expect discounting to both broaden and deepen in coming months, which should help to take some of the sting out of inflation.

Most of the major supermarkets have already announced major discount programs in attempt to reinvigorate sales. Consumers are increasingly only tempted to buy non-essential items if they are discounted, and even then it often requires a heavy discount.

Thankfully, there are also signs that some of those external forces that have been pushing up inflation might be moderating at the same time.

With Middle East tensions easing somewhat and high prices starting to weigh on demand, the very high oil price may now have started the process of normalising. Just this week the price of a barrel of West Texas declined by $7 to $120. The Food and Agricultural Organisation reported last week that global food prices fell by more than 2% last month.

For the MPC, having received a lot of criticism earlier this year for its collective failure to act, some better inflation news over coming months will provide them with more breathing room.

The policy doves on the Committee, including Governor Mervyn King, are likely to feel vindicated. As a result, the first rate-hike from the BOE now looks a lot further away. Little wonder then that the pound has struggled recently.

May 2011 | THE EXCHANGE | 45

THE LONG| STRATEGY

Exploiting the quirks of the sports exchanges:

Keeping it green

In the second of his series of articles on trading on the sports exchanges, betting exchange expert and MD of Bet Angel Peter Webb points the way to a profit, no matter what the outcome

In the last issue we examined how to trade on betting exchanges. While we discussed that trading on a sports exchange was similar to spread betting on financial markets, there are some important differences to examine and explain.

Most of these curiosities relate to the way in which the exchange was set up to deal with settlement of a sports market rather than

46 | THE EXCHANGE | May 2011

financial markets, and this should influence how you choose to trade them.

Making a loss, but not losing any money On the financial markets there is a traditional saying that you should ‘let your profits run and cut your losses’. While that mantra is true in general, for trading on most markets, it is not strictly true for betting exchanges. One of the

real oddities about trading on betting exchanges is that it is possible to get your trade wrong and make a loss, but still not lose any money! The reason for this strange situation is due to the unique way in which markets are settled. When you place a bet on a betting exchange you will either win or lose - that is fairly obvious. In a horse race there can be many runners, but only one winner and betting exchanges only settle a

THE LONG | STRATEGY

market on whoever wins.

In the illustration above (1) you can see we have made a bit of a mess of the trade. We backed Thundering Home at 3.50 for £200 and his odds drifted out, got bigger, so we had to close for a loss of £25. Our loss occurred because, to be profitable, we needed to lay at a lower price than we backed at and we haven’t on this occasion, so we have incurred a loss. But, because the market is settled on the eventual winner of this race we may still not lose any money. Our loss on Thundering Home will only be recognised as a loss if Thundering Home actually thunders home. To clarify, only if that horse wins we will make a £25 loss - if it fails to do so then we will lose nothing.

The reason for this is that we have no position on any of the other horses. If any horse other than Thundering Home goes onto win we will win nothing but we will also lose nothing. In this particular case the horse did not win, which was less likely anyhow as it was not the favourite. Therefore our £25 loss did not mature. Despite losing £25 on this trade we actually ended up losing nothing on the race, strange but true.

It’s at this point that I can flip things the around the other way. If we traded this well and correctly predicted the price movement, we would win some money. You can see that we have successfully done this earlier in the same race (2), realising a £5 profit. Unfortunately, in the same manner in which we would only make a loss if the horse with our losing position goes on to win, the same applies in reverse to our profit. We will only make a profit on this horse if we have traded it correctly and the horse goes onto win. However, there is a neat solution to this problem which allows you to win regardless of who goes on to win the event.

Win whatever the result: Greening up I coined the phrase ‘greening up’ many years ago. The term refers to the status of your profit and loss display on the betting exchange after you have successfully completed this transaction. When you ‘green up’, your entire profit and loss displayed for this event will be green - in profit - rather than red. This means you will win money whatever happens in the actual event, hence the name. It’s a marvellous feeling looking at an event and seeing it all green and knowing you can’t lose whatever happens in the underlying sport. What you are effectively doing is hedging your traded profit to ensure a win. But how is that achieved?

When you hedge, what you are effectively doing is transferring profit from one selection to the rest of the field. You do this by laying off some of your profit on your profitable traded position. If we had £100 traded profit at odds of 2.00, we would lay £50 at 2.00. This would mean that the profit on the eventual winner will be lower at £50, but you would also win £50 if any of the other runners won the race.

The benefit of doing this is that the result of the event, from a profit perspective, becomes

“It’s a marvellous feeling knowing that you can’t lose whatever happens” irrelevant. It doesn’t matter who wins from this point onwards, you would win £50. The criteria for greening up is very simple, all you need to do is make a profit on something in that event.

Then it’s best to use software to perform the greening transaction. We could talk about the actual maths of how it’s achieved, but that is irrelevant if you use software like Bet Angel. All you need to do is click a button on the screen

and it will instantly spread the profit out across all selections. You can choose not to hedge, but your profit then becomes dependant on the result of the underlying event and that means that most people typically hedge all the time.

Leveraging your capital Another key factor that works well in your favour if you trade on betting exchanges is instant settlement. On a betting exchange there is no concept of delayed settlement or result dependant settlement when initially trading. When your trade is complete, your stake is returned to you immediately and you can put that back through the market. If you have just £100 in your account you can open a trade and close it seconds later, hopefully for a profit, and immediately put the same £100 back through the market again for another turn.

Taking advantage of this characteristic allows you to put through significant sums, while only using a small bank. By turning the same capital repeatedly you can effectively leverage up quite small stakes into potentially very large traded sums.

In illustration three you can see we have combined all the elements we have talked about into one neat profit. First we traded Thundering Home with £100. The first trade went well and made us £5 but the next trade didn’t work and we made a £25 loss. We let this loss stand and then decided to trade Keenes Royale. We did better on this horse and managed to put through five trades of £100 each making a total of £500 traded on the back and lay side. In total we managed to put fourteen trades through the market. The final bet was a ‘greening up’ bet and this ensured we won whoever went on to win the race. The favourite, Keenes Royale, went on to win, so we made £48.20 for only ever risking £100 at any one time, all just a few minutes before the start of the race.

There is no doubt that some of the characteristics of exchanges are unusual if you are used to traditional spread betting. But if you are aware of them you can incorporate them in your trading strategy and use them to your advantage.

May 2011 | THE EXCHANGE | 47

THE LONG | Commodities

The Wine Market Update

By Chris Smith, Analyst for The Wine Investment Fund Fine wine prices rose modestly in March. The Liv-ex 100 index increased by 0.4% and the Liv-ex Claret Chip by 0.3%. Both indices have now risen in all but one month over the last two years – the exception being a small (1.2%) fall in July 2010.

The pattern of price changes within the month was revealing. Over the first three weeks, prices dropped and were around 1% down as of 23rd March. However there was strong demand in the last week which more than reversed the earlier falls. It is probably not a coincidence that the price increases of late March came at the same time as the first reports from the Bordeaux 2010 en primeur tastings. Release prices of the 2010s will be a key driver of back (i.e. earlier, physically available) vintage price dynamics this year. In years when a good (and highly priced) Bordeaux vintage is released, back vintages usually post strong gains between April and June (i.e. from the tastings to the end of the campaign). The first reports from tastings of the vintage this year came out unusually early in late March: they have been very positive indeed and seem to have kickstarted the process slightly early.

Variations between châteaux and vintages were less marked this month. Lafite was slightly weaker than the other first growths, with prices very slightly down on average across a range of vintages. Haut Brion and Mouton again led the way among the first growths, with average increases of around 3%. Latour and Margaux both registered average gains of 1.5-2.0%. On the right bank Cheval Blanc was broadly

48 | THE EXCHANGE | May 2011

flat, while Pétrus fell slightly. However, of the most prominent châteaux, the strongest rises were experienced by La Mission Haut Brion, and specifically the lesser vintages – precisely the wines we highlighted as the most undervalued in last month’s report. Several of these wines rose by around 20% in March.

Looking at vintages, there was no clear pattern. Younger (2004 onwards) and older (1996 and before) were marginally weaker, with stronger demand for the wines in the mid-range which are approaching their drinking windows.

March saw continued increases in global economic uncertainty, particularly as a result of the rising oil price – in turn partly caused by the unrest in Libya, which exports around 2% of the world’s oil – further fuelling fears about rising inflation, which is likely to be positive for physical assets. Governments around the world continue to raise, or at least threaten to raise, interest rates in response.

The earthquake and tsunami in Japan, while fundamentally human tragedies, will also have a significant economic effect: they are estimated to have an impact of around 3-5% of GDP on the world’s third largest economy. The impact on wine prices is unclear: it could be positive through (again) increased uncertainty, and/or negative through an effect on direct demand from Japanese consumers.

News on economic growth elsewhere remained positive though as the US posted an annualised gain of 3.1% in the final quarter of 2010, up

THE LONG | Commodities

“there are signs that the American wine market is recovering too, forecasts are that 2010 will see the return in force of American buyers” from 2.6% in the previous quarter. As we mentioned last month, there are signs that the American wine market is recovering too, and there are forecasts that the 2010 en primeur vintage will see the return in force of American buyers. This may be true, but we remain somewhat sceptical because of the exchange rate (which is worse for American buyers than this time last year) and the limited presence of buyers from the region at the en primeur tastings in Bordeaux.

Meanwhile, the outgoing Bundesbank president gave a very bullish review of prospects for Germany, the largest economy in Europe, saying that there was a “roaring economic recovery” in place.

Although the centre of gravity of the world fine wine market may be shifting slightly back towards Europe and North America, Asia (and particularly the new wealthy classes in China) remains the key driving force. In this respect it was interesting to read the latest Hurun ‘rich list’, which tracks the fortunes of China’s richest men and women. The list for 2010 noted a 36% increase in the number of Chinese billionaires, with the average wealth of those on the list rising by 64% in the last two years.

Overall, with economic signals being mixed, the dominant influence on the market over the next couple of months is likely to be the en primeurs as described above.

Looking longer term, an interesting statistic released by the Bordeaux promotional bureau the CIVB showed that sales of Sauternes (sweet) wines to Hong Kong rose by 50% in 2010. This may be relevant because the famous Sauternes Château d’Yquem has seen very little price growth during the wine market’s recovery phase, this being attributed to the lack of appeal of sweet wines for the Asian palate. If this is changing, then we might expect to see uplifts in the prices of back vintages of Yquem, many of which now look well-priced relative to their red equivalents.

The next few months the fine wine market will be dominated by the release of prices for the 2010 Bordeaux vintage. Current indications point towards record high prices which is likely to be positive for existing physical vintages.

May 2011 | THE EXCHANGE | 49

THE LONG | ANALYSIS

CHART WONK #7

Chaikin Money Flow Study changes in buying and selling over time with Chaikin Money Flow says Declan Fallon of Zignals.com The Chart: Google (GOOG)

What does it all mean?

Unlike many volume indicators, Chaikin Money Flow (CMF) does not use a cumulative total of volume. Instead, CMF is the sum of Money Flow Volume over a defined look-back period divided by the sum of Volume for the same period. CMF can be calculated for any time frame, including intraday, but is typically used over a 21 day period.

CMF trade signals are generated on a cross of the zero line.

How does it work?

The CMF calculation starts with a Money Flow Multiplier. The Money Flow Multiplier is the difference between the High and Close subtracted from the difference between the Close and Low, divided by the difference between High and Low. This value can be a positive or negative. The Money Flow Multiplier is then multiplied by the Volume to give the Money Flow Volume for the day. The CMF is then the sum of the past 21-days of Money Flow Volume divided by the sum of

50 | THE EXCHANGE | May 2011

Volume for the same period.

CMF oscillates around the zero line and is bound by +1 to -1. A rising CMF represents buying pressure and a falling CMF is selling pressure. A positive CMF confirms a rally, but a negative CMF as part of a rally is a warning sign for change. The opposite is true for a decline; a positive CMF on falling prices might point to a bullish reversal.

So what are the signals to look for?

A ‘buy’ signal occurs when the CMF moves from below to above the zero line and a ‘sell’ on the corresponding reverse from above to below the zero line. The Google chart above shows a highlighted ‘buy’ in September and ‘sell’ signal in November.

Whipsaw signals can be a problem. In February 2011 there were a number of zero line crosses which can nickle-and-dime any trading account.

To reduce whipsaw, filter lines can be placed above and below the zero line and signals derived from crosses of these lines. For example, ‘buy’

when the CMF crosses above a value of 0.10, ‘sell’ when CMF breaks below -0.10.

However, caution is advised when trying to play divergence, particularly when the CMF is indicating selling pressure (i.e. CMF values below zero). “Bullish Divergence”, when price makes a new low and CMF makes a higher low - while the latter is below zero - still points towards selling pressure, albeit reduced selling pressure.

Only when the CMF crosses above zero is there a swing to buying pressure and the possibility for a reversal in a price decline.

CMF cannot account for gaps. This can have a huge bearing when measuring money flow during gap breakouts and breakdowns. The CMF is more vulnerable during gap breakouts when trading volume is typically high. Because the CMF calculation is dictated by trading action during the day, not by its relationship to the prior day, it’s possible to have volume traded on a breakout gap attributed as selling pressure when the close on the day of the breakout is near the day’s low. The reverse is true for gap breakdowns.

CMF is also vulnerable to big swings when heavy volume days are added and later dropped from the sum calculation. This double whammy can further contort CMF. Twiggs Money Flow is a derivation of the CMF which accounts for gaps and heavy volume days and may be used as an alternative to the CMF where available.

When do I make my move?

Because of the aforementioned vulnerabilities in the CMF, it’s best employed in conjunction with other technical indicators. Fibonacci retracements can be used as a guide to trading retracements; buying when prices fall but CMF is positive or shorting when prices rise and CMF is negative. CMF can be used alongside momentum indicators like the RSI or stochastics, buying a move out of oversold conditions when the CMF is positive or selling a move on a push out of overbought conditions when the CMF is negative. The same could be applied to MACD crossovers too.

TRADING’S DONE

SPREAD THE

IN THE SPREAD...

RESTAURANTS WEEKENDS CITY GUIDE: VIENNA TRAVEL

A right posh party at the polo Now a regular on the socialite summer circuit, Polo in the Park returns for a third time to Hurlingham Park on the 3rd, 4th and 5th of June.

Six teams will compete across the three day event with a final taking place at the end of the festival on Sunday.

And with the Veuve Clicquot Champagne Garden, the Harrods Food Court and lively new bars brought to you by Mahiki and The Punch Bowl Pub, all with direct

views of the polo field, the party will be as impressive off the field as the polo will be competitive on it.

The event being sponsored by brokers MINT, and team Sydney will be sponsored by spread betting giants IG Index, the trading world will be well represented at what is sure to be one of the best social gatherings of the British summer. www.polointheparklondon.com

May 2011 | THE EXCHANGE | 51

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

Benares Berkeley Square, W1J In the heart of Berkeley Square’s serene surroundings lies Benares, an exquisite restaurant of Indian cuisine that offers joy to the palate unparalleled by its curry contemporaries anywhere in the capital.

Ascending the stairs from Benares’ entrance hall to an altogether unique eating space is a spectacular journey in its own right, from the moment you step inside the vibrant décor and calming water features of the restaurant’s interior lay the foundations to a fantastic dining experience.

The à La Carte and tasting menus are heaving with jump-off-thepage delights from head chef Atul Kochhar’s Michelin star kitchen that represent every region of India’s superb cuisine.

Our highlights include rabbit seekh kebeb with chicken liver masala and a caraway paratha, spice crusted scallops, kafir lime marinated tandoori prawns and roasted roe deer fillet with venison biriyani and

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a sesame peanut sauce, but with such an extensively mouth-watering menu one visit to Benares will only leave you wanting to return again and again to sample what other jewels lie hidden behind the kitchen door.

The wine menu is also thoroughly well researched and offers quality for diners on all budgets, and for an even more special night both the chef ’s table and sommelier’s table are exceptional dining spaces.

No review of Benares can be complete without mentioning the deliciously original cocktail menu in the restaurant bar. The Mumbai martini, which finds its distinctive flavour from ingredients of curry leaves and ginger, is a beautiful balance of flavours, and the passion fruit chutney martini is nothing short of sensational.

There’s no doubt about it, Benares is an unequivocal jewel in London’s crown.

THE SPREAD | RESTAURANTS

Pearl Holborn, WC1V Pearl Restaurant exemplifies many of the same traits as the gem sharing its name; opulence, beauty and distinction.

Pearl Executive Chef Jun Tanaka, who is best known for his regular TV appearances on UKTV’s Market Kitchen, has created a modern French restaurant with a refined menu, accomplished service and exquisite surroundings. The moment you enter the doors you are showered with a sea of pearls. The majestic walnut and marble dining room and lounge is accented with strings of pearls hanging from chandeliers, windows and walls and the pristine white dining tables are illuminated and dressed with pink blown glass tableware.

The menus at Pearl offer two and three course option lunch and dinner menus, as well as a six course degustation tasting menu. The modern take on classic French cuisine is exemplified in dishes such as the pan-fried Foie Gras with pickled rhubarb and poached Monkfish with seaweed and oyster tortellini. My meal began with an amuse-bouche of canapés displaying treats ranging from a duck spring roll to a mushroom risotto ball and stuffed cherry tomato. The flavourful bites awakened my taste buds and prepared me for the next course. For the starter I chose the roasted langoustine accompanied with a creamy scallop mousse, black spaghetti and fennel puree. The langoustine was cooked to perfection and the scallop mousse leant a welcomed creaminess and rich tone to the dish.

When choosing the main, I went with the server’s recommendation, Lamb Wellington. As a self-acclaimed Wellington aficionado, I was pleasantly surprised by Tunaka’s elegant take on the traditional dish. Moist, perfectly cooked lamb was presented inside a flaky pastry with truffle filling aside roasted root vegetables of cauliflower, Brussels sprouts and glazed shallots.

The truffles brought a depth and earthy flavour to the dish that made this Wellington stand out significantly from any I’ve had previously. I would highly suggest this dish for any lamb lover.

While the menus, well presented dishes and exquisite decor alone make Pearl an amazing choice to for any diner looking for exquisite culinary entertainment, the libations on offer compliment the dining experience to a tee. Enjoy a bottle or two from the award winning list of over 200 wines, all of which are stored in a brilliantly crafted cellar and served by eloquent and informative sommeliers, or partake in one of the many perfectly mixed cocktails served with distinction in the lavish bar.

Some say diamonds are a girl’s best friend, but after visiting Pearl I have a new gem of choice. Jennifer Von Strohe

108 Marylebone Lane W1U 108 Marylebone Lane is a quaint and casual brasserie located in The Marylebone Hotel. The ambiance is relaxed and the large informal bar and lounge area makes 108 the perfect choice for after work drinks with friends or colleagues.

The small dining room offers a menu that presents simple and delicious brasserie dishes. Use of local and fresh ingredients is what makes 108 a stand out amongst the rest of its kind. You can find several of Marylebone’s local food suppliers on the menu, such as acclaimed and award-winning La Fromagerie, The Ginger Pig and Biggles Sausages.

Choose from a bar menu with selections of small bites, sandwiches and cheese plates or dine in the restaurant with choices such as Salad of Smoked Gressingham Duck Breast, Poached Halibut with Lobster Cream and Baked Cannelloni of Aubergine with Ricotta.

On my visit to 108, I was excited to see Long Horn aged beef from Ginger Pig as an option for a main. I quickly grabbed the opportunity and challenged the kitchen to make a perfectly medium rare cooked filet. While I waited for my steak I enjoyed a starter of Italian cured Prosciutto Ham served with rocket, figs and shaved Parmesan. It was clear that only the freshest ingredients were used and the dish exemplified both flavours of the parmesan and ham magnificently. Once my steak arrived I was more than happily surprised.

The steak was plump, juicy and cooked to perfection. The taste and texture was exquisite, a tell tale sign that the meat was properly aged for several days.

While my charcuterie starter and steak main was more than enough to satisfy my appetite, it was difficult to say no when I was offered the mouth-watering dessert menu. Our server listed off delights such as Pear Tart Tatin, Bitter Chocolate Fondant and Baked Lemon Tart with Cranberry Compote.

I chose a Chocolate Tart with Orange, the pastry was flaky and the rich chocolate filling melted in your mouth. It was a lovely end to my feast of local Marylebone fare.

If you are looking to take in all the culinary treats that the Marylebone area offers, you need not go any further than Marylebone 108. The food is local, the atmosphere is comfortable and the location is great. Jennifer Von Strohe

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THE SPREAD | WEEKENDS

The West End will always be Britain’s thespian epicenter but, as Mark Southern has discovered, you don’t have to be in London to experience great theatre breaks. Actors are treading some of the country’s finest boards in places you might not normally consider for a weekend away

The Rep Dundee Dundee doesn’t often appear very highly in your stanard arts round-ups, and with good reason.

However, what it lacks in tourist traps, it makes up for in its remarkable theatre, The Rep. Featuring an incredibly diverse what’s on list, it will continually push you out of your comfort zone with challenging, and often dark, seasons. This is a truly unexpected treat in an oft bleak setting.

After the darkness of The Rep’s stage, get back to the traditional Scottish welcome of the five star Old Course Hotel, and take in a round of golf the following day to head back down South feeling fully satisfied. www.dundeerep.co.uk

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THE SPREAD | WEEKENDS

The Mayflower Southampton Situated in the town centre, The Mayflower is a grand old sight in a city lacking much in the way of striking architecture.

With an eclectic seasonal balance of blockbuster shows and small indie productions, The Mayflower is a real jewel on the South Coast.

Because it is by far the most influential cultural hotspot in the area, tickets don’t hang around so book early to get the best seats.

To make the most of the weekend, stay at the De Vere Hotel, only five minutes walk from the theatre, and in prime location for the many bars and restaurants you’ll find on Oxford Street. www.themayflower.com

The Grand LEEDS Standing out in the newly resurgent Leeds is The Grand; an opulent opera house which was built over a century ago and houses some the most ornate décor you can see anywhere in the UK. Featuring genuinely inclusive but challenging seasons, there really is something for everyone here, and you will certainly be able to find something to fit your tastes as runs tend to not be for more than three days.

For a cool and trendy stopover, head to the Park Plaza, Leeds, for a contemporary base in which to enjoy your dramatic break. www.leedsgrandtheatre.com

The Haymarket Basingstoke As a weekend getaway location, Basingstoke isn’t somewhere that gets a mention too frequently. However, whilst it does suffer from many ‘newtown’ issues, it does have a wonderful asset in The Haymarket, which is quite unlike anything in the area.

Featuring seasons which take in opera, classical music, comedy, independent shows and much more, The Haymarket is a gem in need of your appreciation.

Stay at Tylney Hall for a liberal dose of Hampshire country air, and you’ll have had a truly refreshing weekend. www.anvilarts.org.uk

The New Theatre Cardiff Soon to reach its 200th birthday, The New Theatre is more contemporary than almost anything else you’ll find in the Welsh capital.

As you might expect from a nation which adores singing as much as Wales, the upcoming what’s on list is filled with lung-busting tunes. Not be overshadowed though, the venue is noted for its electric atmosphere as much as its creative seasons.

Complete your weekend by staying at the outstanding St Davids Hotel and Spa; a five star resort on the seafront, to blow the cobwebs away and allow you to enjoy your cultural break in style. www.newtheatrecardiff.co.uk

May 2011 | THE EXCHANGE | 55

THE SPREAD | CITY GUIDE

Having Ball in

VIENNA

“This means nothing to me”, Midge Ure once said of a love affair started in the Austrian capital city of Vienna. Mark Southern found out if it should have meant more.

Traditionally art and science haven’t always been the closest of bedfellows. Art says Science is too stuffy, and Science is forever moaning at Art for stealing the duvet and squeezing the toothpaste in the middle.

Sometimes, however, these two opposite forces attract rather than repel, and then something magic happens.

In sport this happens from time to time, giving mere mortals a glimpse of great masters combining their artistry with science; think Ayrton Senna making his car purr, a young Tiger Woods wowing the Masters in 1997, or Sachin Tendulkar’s complete mastery of both physics and flair for two decades.

But whilst the odd individual can channel both concepts simultaneously, few cities in the world can claim such an accolade.

One, however, most certainly can.

Vienna is a city of such undisputed culture that if extra-terrestrial life descended upon the place they would fly off assuming every earthling was blessed with innate grace, exquisite style and a fabulous ability to make any musical instrument sing, before picking up a paintbrush and creating a masterpiece. It’s a place where the vagrants wear Versace, and children are taught to waltz by the age of six.

However, it’s also a city with a proud history entwined with science; a place with learning in its blood, and an incessant Teutonic efficiency that gives the city a clockwork core to keep it running smoothly.

It’s because of this that Vienna isn’t like most weekend destinations. Yes, it looks lovely, but then so do many European cities. And yes, it’s well catered for tourists, but then it’s hardly unique in that respect. No, the essence of what makes the Austrian capital a must-visit is the seamless blend of the old and the new; the cultural and the technological; the beauty and the brains.

It’s the city that Mozart made his home

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“the essence of what makes the Austrian capital a must-visit is the seamless blend of the old and the new” (and, boy, do they ram that point home time and time again), and the place where Strauss composed his world-famous waltzes, that Beethoven and Haydn created wonders in, and where Klimt produced his most celebrated works of art.

And in contrast it’s also the city that schooled the mind of Sigmund Freud, and thus

helped give birth to a new way of thinking for the entire world. It’s a city that knows its history, but hasn’t stopped looking to the future as well.

Culture and pragmatic modernism can exist in the same town, and that town is Vienna. Go visit; you’ll have a Viennese ball.

Where to Stay

As you’d expect from a luxury city, Vienna is full of quality hotels. Of all the quality resting spots the best is The Ring Hotel, situated in the town centre on the famous Ringstrasse road, which encircles the city.

A self-styled ‘casual, luxury boutique hotel’, The Ring is a stunning love letter to luxury, wrapped up in cool, clean lines and chic décor.

From the moment you arrive you cannot help but be seduced by the beauty of the place, it’s a welcome relief from the more stuffy traditional hotels nearby.

What’s even more appealing is that the hotel

THE SPREAD | CITY GUIDE

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THE SPREAD | CITY GUIDE

is around the corner from the business district, and as such is a perfect place to entertain clients in a cool, but not gaudy manner.

Book the best suite you can and embrace every second in what is undoubtedly a hidden treasure overlooking the busy shopping high street. If you find time, make sure you check out the spa in the hotel too, as it’s a step above almost any you’ll have been to before.

The Ring is a genuine destination hotel, and will be the best base for your Viennese adventures. www.theringhotel.com Where to Eat

Vienna is famous for its food, its cakes, and its coffee shops (locals drink 2.6 cups of coffee per day, apparently) – and presumably its statistics on caffeine consumption too. This fame is well deserved, with good food available on every street corner. Indeed, some of the most mundane looking cafes proudly boast Michelin Stars in their window; this is not a city that takes its food lightly.

For fine dining, you can do no better than heading to the Grand Hotel Wien for a selection of exceptional restaurants, the best of which is Le Ciel. This high calibre spot serves outstanding classic French cuisine, and is often

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“some of the most mundane looking cafes proudly boast Michelin Stars in their window” noted for its ability to attract VIP dignitaries of royal and political persuasions. www.leciel.at For those looking for a more authentic Vienna experience, daytimes should be spent meandering through cobbled streets in search of a café with outdoor tables that takes your eye. These eateries flow through the city like the Danube, and are an excellent way to spend any lunchtime. Evenings, however, should be spent enjoying food and the local delicacy of the most wonderful music you’ll hear – as you’d expect from a city with such an aural heritage.

Get along to Wiener Rathauskeller, a fabulous hidden delight in a cellar in the Town Hall, which serves spectacularly good Austrian food with musical a accompaniment. (www.wiener-rathauskeller.at)

Where to Party

It’s worth noting that, whilst the locals are exceptionally friendly, and the night-time atmosphere remains relatively buzzy, Vienna isn’t famed for its hedonistic party scene, and with good reason. Bars are frequently spotted, but infrequently frequented, even on weekends, and the notorious Gurtel Road district (a Viennese Soho, in reputation at least) is remarkably calm and middle-class.

However there are gems to be discovered, and on a visit you should certainly take in Sky Bar together with its stunning panorama over the city. Strawberry Daiquiris are the only thing to drink here, and are famous throughout the city. Perfect for a summer’s evening. www.skybar.at High Roller

Vienna is an unlikely gambler’s playground, with a host of high quality casinos offering live entertainment, Vegas-style, and big buy-in games.

The best is the Vienna Casino, with its split-level gaming rooms, and sophisticated bars. Here you’ll find the high fliers of Viennese society, and more gaming opportunities than you’ll know what to do with. www.wien-casinos.at

THE SPREAD | CITY GUIDE

Cultural

There simply aren’t enough words to describe the wonderful cultural sights in store on a visit to Vienna, and 48 days wouldn’t be enough time to fully appreciate the beauty that is housed in the city, let alone 48 hours. However, if you’re cramming everything into a weekend you should get down to the Museum Quarter, where you’ll have dozens of museums and exhibitions to go along to, depending on your tastes.

A really great way to see as much of the cultural city as possible is on a Segway Tour.

These amazing gadgets allow you to zip through traffic and pedestrians alike, and the guide will chat you through the remarkable history and architecture that surrounds you. Be warned though; I guarantee that you will want one afterwards, as plain old walking will seem so passé. www.segway-vienna.at Extravagance

There’s only one place you’ll find the real cream

“48 days wouldn’t be enough time to fully appreciate the beauty that is housed in the city, let alone 48 hours” of society on a Saturday night, and that’s at the Ball. Like a real-life fairy-tale city Vienna lives for the pomp and ceremony of dancing at the opulent Balls that take place in the major venues around the city. These black-tie events are wondrous and terrifying places in equal measure; simply sensational events to be at, but awfully scary if dancing to you means shuffling

around on the same bit of carpet. Here, children are expert ballroom dancers by the age of twelve, and it can be quite intimidating to join the dance floor, when everyone else is so clearly excellent at it. You can reduce the fear-factor by attending a dance lesson in the daytime before, and you won’t find better than the award-winning Elmayer’s Dance School.

Elmayer himself is the Austrian equivalent of Len Goodman on Austrian TV’s version of Strictly Come Dancing. He is utterly charming, and a great teacher, who will guide you through the basics and help you enjoy the Ball so much more. www.elmayer.at How to Get There

BMI has just launched new routes to the city, flying from Heathrow.

It’s also worth noting that their business class is outstanding, and now is the equal of any of its competitors with its exceptional comfort and service. www.flybmi.com

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THE SPREAD | Travel

Everybody falls in love with a holiday destination from time to time, but are you brave enough to miss your flight and stay forever? Mark Southern discovers that in an argument of head versus heart, it’s not always common sense that wins the day. And that’s a very good thing indeed.

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THE SPREAD | TRAVEL

Now at THE EXCHANGE we’re no medical experts (although we did once try to claim we were when the powers-that-be-discovered the doctors and nurses uniforms in our desk), but we’re willing to make a bet with you that at some point in your life you suffered from a severe case of PHEB-itis – it’s our own acronym, so remember where you heard it from first.

Symptoms of PHEB-itis are disillusionment, paranoia, and gut-wrenching dread. Physical sickness has been known to occur for extreme cases, and for years there has been no known cure.

By our (made-up) statistics, 99.9% of holidaymakers have suffered from it, and it shows no sign of abating. You’ve had it, your next door neighbour’s had it, and even the health freak in your office who takes potions and pills every day to ward off illness has had it.

It’s a pandemic.

But what is this disease that has been sweeping the nation for the past century, and what can be done about it?

PHEB-itis AKA Pre-Holiday Exit Blues is the moment you realise your fantasy holiday world is coming to a sad end, and the humdrum of your real-life is hurtling up towards you at a rate of knots.

We’ve all been there, suffering from acute PHEB-itis as we feel the joy that flows through our body during a particularly life-affirming vacation making way for the near tangible emptiness that tomorrow brings.

For a truly great travel experience makes us feel alive in ways we cannot create through other means. It brings back those memories of a bygone age when a teenage version of ourselves felt that nothing was impossible; the first love we chased around on the sun-drenched beach, the rose-tinted recollections of incessant sunshine and dreams of rock’n’roll/movie/ sporting stardom (delete as appropriate) – all playing in our heads in glorious sepia-vision. It connects our mind and soul in a way we’re not ready for, and makes the world wonderful for a moment.

But as wise men say, all good things have to come to an end, and they are wise after all.

However, those same wise men are no different to you and us, and the higher the high they feel, the lower the low feels when PHEB-itis kicks in for them on their penultimate getaway day.

“a great travel experience makes us feel alive in ways we cannot create through other means” However, a cure has been identified to end this suffering once and for all. Be warned though, side-effects include a regular tan, worklife balance, and a year-round smile on your face. And not forgetting a hefty hit to the bank balance.

Because, dear reader, the 100% moneyback guaranteed solution (“this is not a 100% money-back guaranteed solution – please desist from writing this article, pack up your desk, but leave the nurses outfits”, TEM lawyers) is to listen to your aching soul pleading with you not to go.

Yes, it’s that simple. That voice inside your head that’s urging you to stay and make a life in the sun is your subconscious, and your subconscious is your friend. It knows when you are sad, and it knows how to make you happy.

You just need to trust it.

A growing number of holidaymakers are doing just this, simply asking themselves the question, ‘if I am happy here, and unfulfilled in my reality, do I really want to go back to my old life?’ More often than not the answer is

“no”, and because they have the financial means to make it happen more and more City people are taking the plunge, buying their dream home overseas, and uprooting to paradise.

It takes courage, and a healthy savings account, but those that make the leap rarely regret what they’ve done.

Andy Dukes was one such individual who traded up his life when he fell in love with Dubai.

“I was a hard-working businessman, and had spent years of my life focused upon stressful work and making my company successful. After a hard slog, I finally got the business to a point where it was attractive to buyers, and sold up.

At this point, I felt I had to get back to work again, and had my mind set on repeating the process. That is until I went to Dubai on a break to get away from the stresses of selling a company.

They say that there are magic moments in your life when you simply know that you are in the right place at the right time, and the minute I got off the plane I knew that this was home for me. The weather, the people and the lifestyle were sensational, but it was more than this – it just felt perfect.

I had a fabulous six days’ worth of holiday there until I got to the final day of the trip, and the familiar pangs of dread spread through me, making me feel paralysed with abject disappointment. I just didn’t want to go back to cold, rainy England, and the nose-to-thegrindstone life I had ahead of me.

I remember clearly hoping I would lose my passport and have to stay, or for the flight to be cancelled, but sure enough tomorrow came, my

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THE SPREAD | Travel

passport was where I’d left it, and the internet told me my flight was right on time. However, it was when leaving my hotel that I saw an estate agents across the road, and made the most important journey of my life.

That journey was less than 100 yards across a quiet road, but it changed my life more than thousands of miles of flying ever had, as I discovered they were building the Palm Jumeirah just half a mile from where I stood.

This feat of engineering brilliance would raise the bottom of the ocean to create a perfect man-made sand palm tree growing three miles out to sea – a project so ambitious it would later be nominated to be one of the modern wonders of the world.

Upon the many branches off of the central ‘trunk’ (or fronds as they call them in Dubai), some of the world’s most luxurious villas would be built, creating a community of the successful, where celebrities would mix with businesspeople, with each villa housing its own private beach and shoreline.

I was hooked from the moment I first heard about the plans, and bowled over when I saw the villas that could be created to my own specification.

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“That journey was less than 100 yards, but it changed my life” But then I had the big decision – did I play safe and return to the old life, or gamble and snap up the very first property on the Palm?

Sweat ran through my hair, my heart felt like it was going to burst through my ribcage at any second. I knew, without doubt, that this was a defining moment in my life. What I said next would change my life indelibly forever.

It all seems so obvious now, but the moment I said yes I felt the weight of the world lift off of me, and the hope and excitement I felt as a teenager return. My dream lifestyle would be mine, and I would experience a 24/7 luxury holiday lifestyle all-day everyday. Don’t get me wrong, my brain was still telling me I was being foolish, and not thinking things through, but

THE SPREAD | TRAVEL

my heart was telling me there was only one possible decision I could have made.

After tying up his affairs in the UK, Dukes returned to Dubai to collect the keys to his Lifestyles of the Rich and Famous style mansion on the Palm Jumeirah, and had the distinction of being the only resident on the development for weeks as work continued around him. Within a few short months, building had been completed and the world’s newest, and most exclusive community had sprung up, creating his perfect paradise hotspot.

However, the endless work-free holiday couldn’t go on forever and soon Dukes felt the familiar drive to accomplish.

“The first few months were incredible, and felt like they were making all the years of toil in business worthwhile. However, after a while I began to miss getting up in the morning and achieving, and so looked for something to focus my attentions on.

After much thought, it finally came to me that I could allow others the chance to experience my dream Dubai life, and so began buying up other villas and making them even more luxurious than my own, so I could offer others the chance to rent this life even for a short while.”

It wasn’t long before Dukes had ten villas on the Palm, and they were in high demand after being acknowledged as the very best available, with exceptional standards of décor and service from his house staff.

“Having the ten luxury villas makes all the difference from living life as a permanent holiday, and feeling like I am keeping my hand in with business. However, unlike before where every day merged into another grey day, these days I am living a dream lifestyle and keeping a perfect work/life balance, meaning I feel motivated but completely satisfied.

Had I not listened to my heart all those years ago, I would be back in England slogging away endlessly, but that one decision to go with my gut-instinct has changed my life forever, and I would urge everyone who falls in love with a holiday place to be brave and go for it.”

Dukes’s story has the archetypal happy ending, but it should be noted that, like any decision where the head and heart say different things, what’s good for one isn’t necessarily best for another. However, as the SAS (and Peckham’s finest) say, ‘He Who Dares’. Do you?

You can stay at Andy Dukes’ jaw-dropping villas on the Palm Jumeirah, Dubai by visiting www.dubai-holiday-villa.com. We highly recommend them. And who knows, maybe

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IN THE CLOSE GREAT TRADES WHO’S WHO GLOSSARY OF TRADING FUNNY MONEY

Around the world with every trade With the summer fast approaching you can be forgiven for letting your thoughts wander to an impending holiday in a couple of months.

And with this in mind, City Index have launched “Around the world with every trade”, a new promotion which will result in one lucky trader winning a trip around the globe later this year.

Each week up until 3rd June one trader will win a luxury

experience via a prize draw and five others will receive a £100 Red Letter Day voucher, and all you have to do to qualify for the promotion is to trade on the platform.

Every person who trades with City Index until 3rd June will go into the draw and be in with a shout of claiming the grand prize so, if you’re still without a holiday plan for the summer, maybe City Index will be on hand to come to come to your rescue.

May 2011 | THE EXCHANGE | 65

THE CLOSE | GREAT TRADES

GREAT TRADES #6

Trader Andrew Hall is something of an enigma. A one-off in the financial markets, He’s as secretive as he is brilliant, but what we do know is there’s no doubting his credentials as currently one of the world’s elite traders.

Hall, a UK-born commodities trader, is known as somewhat of an eccentric in the annals of Wall Street. In addition to heading up the former Citigroup trading unit Philbro that was sold to Occidental Capital after the collapse of the US subprime mortgage market, he is also one of the foremost art collectors in the world and lists a host of pursuits from music to ballet amongst his favoured hobbies.

However, it is for his performances in the financial sector that Hall is spoken about in the most reverent terms. And when you learn that in one year he made 10% of Citigroup’s total net income almost single-handedly, it isn’t difficult to understand just why he is held in such high esteem. To appreciate just how great a trader Hall

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is, many point to his unbelievably accurate trade on oil futures as proof of his genius.

The economic climate in 2003 was one of caution, the dotcom crash was still fresh in the mind of investors and the successive recovery had only just reached a level of comfort for the markets. In a reflection of this mood oil was trading at just $30 a barrel, a level it had been at for more than a decade.

Despite being known as an eccentric with an incredibly individual approach to trading, it was also acknowledged that Hall was a brilliant market analyst. Surmising that demand, especially from the rapidly growing economies of India and China, was beginning to vastly outstrip supply, he foresaw a fortune in the offing for

anybody going long on oil futures.

The only bridge to be crossed was how to maximise this prediction. The solution: to pull off one of the greatest trades of all time. Hall’s speciality had always been long buy and hold investing rather than a more conventional interpretation of trading, so it was through this “buy and sit back” policy that he looked to capitalise on the inefficient market.

Convinced that the world would soon be forced to drastically re-evaluate the value of oil as a non-renewable, high-demand commodity, Hall bet on long-term oil futures, and bet big.

He wagered that within five years oil prices would top $100 a barrel, and notion that was met mostly with ridicule when it was first

THE CLOSE | GREAT TRADES

“The trade was the biggest gamble for a generation, and one that most thought Hall couldn’t possibly win”

made public. When it was revealed that if oil didn’t reach $100 a barrel in the time frame his contracts would expire worthless, ridicule was replaced by uninhibited shock. The trade was the biggest gamble for a generation, and one that most thought Hall couldn’t possibly win.

However, oil prices began to rise almost instantly. The concept of oil being $100 a barrel, which had at one point been nothing more than speculative fantasy, began to look more and more like a distinct possibility.

And when, in 2008 as had been predicted

by Hall, the price of a barrel of oil shot past $100 well into three figures, Hall’s courage and strength of conviction were justly rewarded. The potential fortune Hall identified back in 2003

went the way of his Citigroup employers, and Hall took home over $100m for himself.

In addition to the magnitude and uniqueness of the deal, it was the precision of Hall’s prediction that made his trade truly great. All traders can appreciate the difficulty of correctly predicting the direction of a price movement and good entry point, not only did Hall get the price movement direction and entry point spot on but he also pinpointed the timeframe of the trade, the exit point and exit price. To have such convictions in the accuracy of your analysis with hundreds of millions of dollars at stake delvers Hall his legacy as one of the greatest traders of all time.

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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

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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

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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

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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

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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.

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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.

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FRED

PALLEY

Bank Holiday Billion Bonanza Not one to lament over good things past, Fred Palley is already looking forward to next year’s spree of days off that the Queen’s Diamond Jubilee and Olympics will provide, even if the economy isn’t.

I know what you’re thinking; plenty of days off work, a wide range of alcoholic beverages to indulge in and members of the Royal Family pottering about on television; last month was just like Christmas. And now that it’s all over, we’ll have to wait a whole twelve months for a repeat. Except that unless Prince William follows in his father’s footsteps and books in another Royal Wedding several years down the line, the Bank Holiday Bonanza we’ve just enjoyed is not coming back.

But hold on. For while not wanting to put myself on an equal footing with the original bearer of good news, the Archangel Gabriel, there are yet more bank holidays to look forward to in light of the Queen’s Diamond Jubilee next year. To mark Her Royal Highness’ 60th year on the throne, an extra day off will be thrown into the mix following the second May bank holiday in 2012, giving us a four day weekend come the beginning of June. Great news indeed.

But not so for the economy. And that’s because whenever good folk like you and bad folk like me rejoice in a bonus day of freedom, we’re costing the economy a whopping £6 billion a pop. That’s £6billion that could be put towards attempting to plug the enormous hole that is our National Debt; £6 billion that could be spent ensuring our troops have all the right military equipment they need in Afghanistan; £6 billion that could pay for a further ten Olympic Stadiums in Stratford.

Which brings us nicely on to the other economic assassin of 2012; the Olympics. It was almost six years ago now that we celebrated as Kelly Holmes jumped around Trafalgar Square in delight, and those responsible for bringing the Games to London will no doubt remind us of the hefty chunk of money the thousands of freespending visiting fans will generate. Yet that was before we plunged into recession in a way Tom Daley could never hope to do off the top board, and what they have conveniently failed to admit is how that very same money will be negatively

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offset by us lot taking endless days off work to watch the damn thing.

Granted, the nation is unlikely to come to a complete standstill when the preliminary rounds of the canoe slalom take place, and there’ll be plenty of events which we’ll have no interest in watching and no chance of winning. But when faced with the option of going in to work on a blisteringly hot July afternoon or tuning in to watch Sweden take on Brazil in the women’s beach volleyball final, there’s only going to be one winner. It wouldn’t be that surprising if the economy itself booked the day off to watch the scantily clad women on show at Horseguard’s parade. Disregarding the six Olympic days that fall on weekends, Seb Coe and co will be costing the economy somewhere in the region of £60bn,

give or take a few quid; that’s £1bn for every year Elizabeth has been Queen.

Still, if ever there was one glimmer of light that we can cling on to – asides from the countless days off work we’ll be enjoying – it’s this: with Elizabeth set to celebrate her Diamond Jubilee and athletes and fans from all corners of the globe attending the Games, prohibiting Prince Philip from talking to the world’s media will prove nigh on impossible.

And if we can somehow get him on stage at the closing ceremony, mic in hand, delivering a congratulatory speech to the winning nations (ideally China first, India second and Romania a close third), forking out £60 billion in entrance money just to listen to that speech alone will be considered money well spent.