A belated merry Christmas to all readers, I hope you had a wonderful day and didn’t catch the lurgy like I did.
This is also going to be the last CFDs Weekly of 2022 – so happy new year to everyone, thanks for reading and see you in 2023!
IC Markets has set up a UK entity
The only person I’ve ever met who claimed to trade profitably (and showed me proof of it) was a guy from Mauritius that used to fix phones near Finsbury Park. He did so by trading gold via IC Markets.
The broker took its first foray into Europe as a regulated entity when it acquired a CySEC licence in 2018. However, it seems the company is also on track to get regulated in the UK.
The company set up two entities in the UK last year, both of which are controlled by company founder Andrew Budzinski.
The UK-oriented entity has David Rapp listed as its CEO. Rapp was previously CEO of Eightcap’s UK entity, and also spent time at Saxo Bank and Formax Prime Capital. Mark Payne is listed as Head of Compliance. Payne has held compliance consulting roles at different brokers, including Swissquote and GMO-Z.
It’s unclear if the current set of executives will actually be there to manage and run the company, or if they’ve just been hired to set up the entity and get regulatory approval from the FCA.
IC Markets’ decision to set up in the UK is probably Brexit related. The FCA currently has a ‘temporary permissions’ regime that will likely cease to operate at the end of 2023.
Based on data from Similarweb, close to 10% of IC’s traffic comes from the UK. Assuming the proportion holds for its client base, it probably makes sense for the company to actually have an entity in the UK.
Capital.com stops offering share trading
Capital.com appears to have removed investing in cash equities from its offering. The company launched ‘commission-free’ stock trading in July of last year via Saxo Bank but it’s now gone from its website.
The broker is not the first to do so, with Markets.com and FXCM both ditching their commission-free offerings over the past couple of years as well.
There will be more in the near future in my opinion. One of the comments I’ve heard from lots of people is that today a broker needs crypto and cash equities if it wants to do well.
I think this is a case of hindsight bias. Brokers typically respond to demand, meaning they add assets because people want to trade them.
As such, the main reason companies added cash equities was because there was a bull market in stocks, which increased client demand for them. That bull market is at an end and it’s plausible it will be a while before there is a rebound. For instance, after the 1973 market crash, it took UK and US markets over a decade to recover.
There’s likely to be a simple cost-benefit analysis that many brokers do in response to this. Adding cash equities is expensive and annoying. Expensive because you either have to build the infrastructure to add them yourself or pay another company (probably Saxo Bank) lots of money to do it for you.
It’s annoying because of the huge amount of backend operational work it requires, with things like custody, corporate actions and additional regulatory requirements all creating lots of work for you to do.
These problems can seem like less of a big deal if the costs of overcoming them are more than compensated for by bringing in new clients. If there are no new clients then there is no point in doing it.
I could be wrong but I think this is probably already the case and, if it isn’t, then it will be next year. It’s also unlikely this will be an across the board phenomenon. Companies like Trading 212 and eToro have gone in quite deep on stockbroking, so it’s much more unlikely they’ll discontinue it.
Leveraging leveraged ETFs
I am probably very late to the game on this but it seems as though adding CFDs on leveraged ETFs is a loophole for ESMA’s leverage restrictions.
For instance, a number of brokers now offer CFDs on 3x long/short leveraged ETFs on the S&P 500, as well as on similarly leveraged thematic ETFs.
As these are classed as equities under ESMA’s regulations, you can trade them with 5:1 leverage as a CFD.
So if you imagine putting down £100 to trade the ‘real’ 3x leveraged S&P ETF, it would be kind of like trading on margin of 3:1.
But if you trade the same ETF as a CFD, then to take that same position would only require putting down £20 – or effective leverage of 15:1.
Smart! How long until it gets banned?