Any thoughts of this has any mileage?
Discussion
I've long since become very bored with how my industry, CFDs and Spreadbets, has moved away from being used for investment purposes and just become pointless gambling products targeting people least able to throw hard earned money away.
I joined the industry at the beginning around 20 years ago and built up the largest book of clients and AUM in the industry but I did so by looking after investors and I kept the gambling side at arms length as I simply don't believe in it, have no interest in it and don't think it adds any value at all. But over the last decade that side of the business has expanded massively while the quality and credible side has shrunk to almost nothing. Brokers are now just bookmakers and everything is orientated to onboarding suckers and rinsing them quicker than ever before.
By the start of this year I had lost all interest in UK business and I've been selling out and looking to stop offering retail services in the UK. I'm a saver and investor at the end of the day and want my clients to have the same mentality not to be crazy gamblers desperate to get rich quick and with zero comprehension as to what they are doing.
An old colleague who I was a graduate trainee with on the investment broking side where we started out has always held the same view as me that these are great products for investing and hedging and terrible for gambling. He remained as an investment manager but always used CFDs to make low risk trades to enhance client long term investment returns and spreadbets to manage their CGT liabilities.
The long and short is that he is really good at delivering 10-20% a year on small side portfolios that effectively sat alongside larger investment portfolios effectively adding alpha to them.
We've been chatting for years about bringing back a product that we ran about ten years ago and using the new, automated gambling tech to make it easier and more efficient and it's something that we really want to do but I'm not wholly convinced that there is a large enough market for it to be viable like it once was.
The system trades small positions of ftse 100 constituents, typically just one trade per week/fortnight so activity and time in the market is extremely low. Modern trade automation means you can bypass the huge expense of a discretionary license but most brokers who automate are bookmakers so need your clients to lose all their money within six months for them to make profit.
I have managed to find a clearing broker who would do this so the mechanism can be created and Inpersonally feel that there is a strong market for such a product but I'm not convinced that the end investor is there in enough numbers.
The idea is essentially just an automated trading system that looks to add a few percent in returns alongside an investors traditional and much more static holdings.
I joined the industry at the beginning around 20 years ago and built up the largest book of clients and AUM in the industry but I did so by looking after investors and I kept the gambling side at arms length as I simply don't believe in it, have no interest in it and don't think it adds any value at all. But over the last decade that side of the business has expanded massively while the quality and credible side has shrunk to almost nothing. Brokers are now just bookmakers and everything is orientated to onboarding suckers and rinsing them quicker than ever before.
By the start of this year I had lost all interest in UK business and I've been selling out and looking to stop offering retail services in the UK. I'm a saver and investor at the end of the day and want my clients to have the same mentality not to be crazy gamblers desperate to get rich quick and with zero comprehension as to what they are doing.
An old colleague who I was a graduate trainee with on the investment broking side where we started out has always held the same view as me that these are great products for investing and hedging and terrible for gambling. He remained as an investment manager but always used CFDs to make low risk trades to enhance client long term investment returns and spreadbets to manage their CGT liabilities.
The long and short is that he is really good at delivering 10-20% a year on small side portfolios that effectively sat alongside larger investment portfolios effectively adding alpha to them.
We've been chatting for years about bringing back a product that we ran about ten years ago and using the new, automated gambling tech to make it easier and more efficient and it's something that we really want to do but I'm not wholly convinced that there is a large enough market for it to be viable like it once was.
The system trades small positions of ftse 100 constituents, typically just one trade per week/fortnight so activity and time in the market is extremely low. Modern trade automation means you can bypass the huge expense of a discretionary license but most brokers who automate are bookmakers so need your clients to lose all their money within six months for them to make profit.
I have managed to find a clearing broker who would do this so the mechanism can be created and Inpersonally feel that there is a strong market for such a product but I'm not convinced that the end investor is there in enough numbers.
The idea is essentially just an automated trading system that looks to add a few percent in returns alongside an investors traditional and much more static holdings.
How much is a "small side portfolio"? 5k or £50k?
The popularity of the PHR fund shows investors have some appetite for a smaller fund with diffferent aims to the bulk of their investments so it could have legs. 10% a year isn't that far off some of the IM funds (& below some of them) so it might need to be nearer the 15-20% mark to make much of an impression.
The popularity of the PHR fund shows investors have some appetite for a smaller fund with diffferent aims to the bulk of their investments so it could have legs. 10% a year isn't that far off some of the IM funds (& below some of them) so it might need to be nearer the 15-20% mark to make much of an impression.
Mr Pointy said:
How much is a "small side portfolio"? 5k or £50k?
The popularity of the PHR fund shows investors have some appetite for a smaller fund with diffferent aims to the bulk of their investments so it could have legs. 10% a year isn't that far off some of the IM funds (& below some of them) so it might need to be nearer the 15-20% mark to make much of an impression.
It could probably be run with a few K. The limitation being that most OTC brokers define their minimum ticket by trade value as opposed to share price because they have very limited experience of equities. What that means is that your minimumdeal size in Glaxo is massive versus that of LGEN etc. The popularity of the PHR fund shows investors have some appetite for a smaller fund with diffferent aims to the bulk of their investments so it could have legs. 10% a year isn't that far off some of the IM funds (& below some of them) so it might need to be nearer the 15-20% mark to make much of an impression.
10% is conservative but that's my preferred style. But that's also the unleveraged return. With blue chip equities being margined at 20% the real return on capital would be about 4-5 times that.
The reason CFDs are used is that they don't attract Stamp which if each trade is only targeting a return of 0.5-1.0% means that using physical is a non starter. You then might as well have the option for people to use a spread bet account and be tax free. Then leave people to decide their own leverage by increasing or decreasing the amount they put in play. Ie £5k would technically operate as £25k.
It would remain arguably a higher risk proposition than a traditional investment product bit the point being that it doesn't replace those but rather sit alongside in much smaller size seeking to boost the overall returns.
Mr Pointy said:
In simple terms (please!) what would be the tax issues on any gains & how much interaction would an investor need? Do I just send you £20k & sit back while you do what ever is needed (like an IM or Vantage fund) or would I actually have to get involved in selection & trading?
The current thinking is to utilise one of the copy trade platforms so that no one really has to do anything or handle any funds. The way we did it ten years ago was to set up a regulated firm and the. Message the clients who had to put the trade on themselves. It was an administrative nightmare for all involved and I wouldn't go down that route again.
The key would be finding a UK broker who can automate equity orders while also having someone with a brain at the end of the phone for people to talk to when they needed to. I don't approve of the call centre/online solutions where the people at the other end aren't qualified to even speak English suitably.
Re the tax aspect, it would probably be booked as CFDs rather than spreadbets because there aren't any copy trade services who have spreadbet licenses or the expertise to book them.
I suspect that you are going to have to formulate the offering in a very simple way or you'll be limiting the potential pool of clients to the more financially sophisticated who probably don't need a side bet anyway. I say that because:
DonkeyApple said:
Re the tax aspect, it would probably be booked as CFDs rather than spreadbets because there aren't any copy trade services who have spreadbet licenses or the expertise to book them.
meant nothing to me & I'm very slightly more knowledgeable that the average man on the street. I've given up picking funds & stocks because history has shown I'm not very good at it so I now have IM do it for me. If it were a case of just firing off a sum I might give it a try but I suspect it would take some time for clients to invest significant sums as they'd want to test the waters first, which might make it uneconomic. Yup. In short, spreadbets and CFDs are the exact same thing but from the regulators aspect they have two separate licenses. Few brokers bother with applying for the spreadbet one its only relevant to the UK as as 99.99% of traders lose all their money then almost no one has any CGT issues with CFDs.
I think your difficulty may be convincing serious investors that the underlying “system” is real and is capable of generating that alpha.
To someone who is familiar with investing but not the specifics of CFDs your pitch is hard to distinguish from the standard Ponzi pitch where there is some kind of magic money machine that just needs priming. For the avoidance of doubt I am not suggesting this is the case!
To someone who is familiar with investing but not the specifics of CFDs your pitch is hard to distinguish from the standard Ponzi pitch where there is some kind of magic money machine that just needs priming. For the avoidance of doubt I am not suggesting this is the case!
NickCQ said:
I think your difficulty may be convincing serious investors that the underlying “system” is real and is capable of generating that alpha.
To someone who is familiar with investing but not the specifics of CFDs your pitch is hard to distinguish from the standard Ponzi pitch where there is some kind of magic money machine that just needs priming. For the avoidance of doubt I am not suggesting this is the case!
+1. Like the sound of it but need to better understand CFD's so I can better understand the proposal but initially it's something that piques my interest, both as a potential (small!) investor in the platform should you go the Seedrs/similar route and on the platform alongside my regular investments.To someone who is familiar with investing but not the specifics of CFDs your pitch is hard to distinguish from the standard Ponzi pitch where there is some kind of magic money machine that just needs priming. For the avoidance of doubt I am not suggesting this is the case!
NickCQ said:
I think your difficulty may be convincing serious investors that the underlying “system” is real and is capable of generating that alpha.
To someone who is familiar with investing but not the specifics of CFDs your pitch is hard to distinguish from the standard Ponzi pitch where there is some kind of magic money machine that just needs priming. For the avoidance of doubt I am not suggesting this is the case!
That's the exact issue with the industry these days. It's all gambling junk. It's junkies and snake oil vendors. To someone who is familiar with investing but not the specifics of CFDs your pitch is hard to distinguish from the standard Ponzi pitch where there is some kind of magic money machine that just needs priming. For the avoidance of doubt I am not suggesting this is the case!
It's been reduced to social media links to fake trading systems to entrap £500 gamblers so someone can take an affiliate payment.
I've never wanted anything to do with that side and it was always an issue when you actually had someone with a quality product because it didn't make the wild claims of making people rich.
If you go out into the typical retail traders' spaces with a kosher product you won't get any clients of standing and the clients that do come in will always bail the moment a snake oil vendors promises them a £million.
ellroy said:
For what it’s worth I think you may be on to something. A small exposure, as an alternative, within an overall portfolio would make some sense. Would you be looking to platform it as that’s where you’d get significant buy in volumes?
You'd pretty much have to for their regulatory cover. You could run it as an EA into an MT4 platform but you'd have to do all the marketing and maintenance plus I've never liked MT4 or most of the bookmakers who use it. My current thinking is to use Pelican as the mechanism into the MT4 broker.
The structural side isn't so much of an issue as I have created a large number of the structures and mechanisms in the industry and know all the main players.
It's the marketing aspect that I have never had any grip of. I can build the product easily enough. I can source the right people to run the various aspects and I am confident that the clients are still out there but it's bridging the gap between them that has never been my bag. My fundamental issue is that I have never understood why anyone would respond to an advert. But then I've never understood why someone would place a bet.
Hello DonkeyApple,
Perhaps this place might be a good start? If you are comfortable, would you please let the forum know what total investment would be needed for your idea to be viable? Perhaps you might get an indication of interest from us fellow PHers that might show if you would need to market externally or you might be able to get a year or two worth's of revenue from us before looking to expand?
I have no idea about CFD. However, what you are suggesting, in conjunction with what some of the others have said about your idea, sounds interesting and if I can get myself comfortable with the risk and reward I would definitely be up to join. A lot of what you have said I needed to search and even then I did not fully understand. Perhaps I am not your target, in which case please ignore me
Tl;Dr
How much do you need to be a viable proposition? Can the interest from just PH be enough.
How can you put into very simple terms what you are offering and what my risks are
-FV
Perhaps this place might be a good start? If you are comfortable, would you please let the forum know what total investment would be needed for your idea to be viable? Perhaps you might get an indication of interest from us fellow PHers that might show if you would need to market externally or you might be able to get a year or two worth's of revenue from us before looking to expand?
I have no idea about CFD. However, what you are suggesting, in conjunction with what some of the others have said about your idea, sounds interesting and if I can get myself comfortable with the risk and reward I would definitely be up to join. A lot of what you have said I needed to search and even then I did not fully understand. Perhaps I am not your target, in which case please ignore me
Tl;Dr
How much do you need to be a viable proposition? Can the interest from just PH be enough.
How can you put into very simple terms what you are offering and what my risks are
-FV
DA we have never spoken but I follow your posts (not in a stalker-esq way mind).
I work in Financial services (boring regulatory stuff) and recall a few years back these type of products and specifically some of the dodgy providers were right up there on the FCA's radar due to the number of retail investors who lost a lot of money. The irony is whilst I've lost money in the past on AIM Oil & Mining stocks (never again) I've always put CFD's in the 'dont touch with a bargepole' category. Anyway, I think as mentioned by others here if you can 'package' this such that it removes the jargon and clearly articulates the risks then you are onto something (IMO) as there are investors who have the appetite for these type of products.
As for me I will stick with my boring index tracker for now but will watch from the sidelines and good luck if you decide to launch this!
I work in Financial services (boring regulatory stuff) and recall a few years back these type of products and specifically some of the dodgy providers were right up there on the FCA's radar due to the number of retail investors who lost a lot of money. The irony is whilst I've lost money in the past on AIM Oil & Mining stocks (never again) I've always put CFD's in the 'dont touch with a bargepole' category. Anyway, I think as mentioned by others here if you can 'package' this such that it removes the jargon and clearly articulates the risks then you are onto something (IMO) as there are investors who have the appetite for these type of products.
As for me I will stick with my boring index tracker for now but will watch from the sidelines and good luck if you decide to launch this!
Edited by VR99 on Thursday 24th December 08:41
fatvik said:
Hello DonkeyApple,
Perhaps this place might be a good start? If you are comfortable, would you please let the forum know what total investment would be needed for your idea to be viable? Perhaps you might get an indication of interest from us fellow PHers that might show if you would need to market externally or you might be able to get a year or two worth's of revenue from us before looking to expand?
I have no idea about CFD. However, what you are suggesting, in conjunction with what some of the others have said about your idea, sounds interesting and if I can get myself comfortable with the risk and reward I would definitely be up to join. A lot of what you have said I needed to search and even then I did not fully understand. Perhaps I am not your target, in which case please ignore me
Tl;Dr
How much do you need to be a viable proposition? Can the interest from just PH be enough.
How can you put into very simple terms what you are offering and what my risks are
-FV
Morning. Thanks. This is the reason why I decided to post here. This little sub forum is the only corner of sanity that I've found on the web. It's the only place which even vaguely represents going for a pint at a normal pub with I telligent people who can contribute even on subjects they freely admit are outside of their personal expertise. Perhaps this place might be a good start? If you are comfortable, would you please let the forum know what total investment would be needed for your idea to be viable? Perhaps you might get an indication of interest from us fellow PHers that might show if you would need to market externally or you might be able to get a year or two worth's of revenue from us before looking to expand?
I have no idea about CFD. However, what you are suggesting, in conjunction with what some of the others have said about your idea, sounds interesting and if I can get myself comfortable with the risk and reward I would definitely be up to join. A lot of what you have said I needed to search and even then I did not fully understand. Perhaps I am not your target, in which case please ignore me
Tl;Dr
How much do you need to be a viable proposition? Can the interest from just PH be enough.
How can you put into very simple terms what you are offering and what my risks are
-FV
One of the core problems for doing this sort of thing is that the revenue is actually tiny. The typical introducer within the industry never raises more than about £1m and nowadays that represents needing to onboard Hughes numbers of clients as the average account size has slumped from over £20k to under £1k as the client base has changed from being investors to pub gamblers.
These introducers get paid up to 50% of the cash that the client initially deposits. A client lodges £1000 and around £500 can ultimately be paid out as an affiliate reward. That's the equivalent of someone putting their pension with a new advisor and that advisor taking half of it as fees upfront. The only reason a broker can even consider making such an enormous up front payment is because they know the following:
They know that the client will trade too big, too fast and in the most volatile and toxic products.
They know that if an introducer is involved then that introducer is very likely to be giving the client trade signals and that ALL trade signal services lose money.
They know that they can usually talk a client into refunding their account after the first wipe out.
They know that they won't be hedging any of the client activity and that it looks all be B book flow that crosses all the client money onto their balance sheet.
Or put more simply, the industry knows that all clients lose all of their money within 3 months and that half those clients will refund with at least half as much again and lose all of that.
Now, if you're running an account that doesn't over trade, doesn't trade in excessive size, doesn't wipe out the client and is also trading in equities which no bookmaker is set up to process properly then the bookmakers consider that business to be toxic. They make their money from the clients' cash account falling as quickly as possible. They can't make money from low and slow flow that needs to be hedged, A booked.
In regards to risk, the way I look at investments is to start from a position of total loss. The potential for total loss is always there so that's why it is a great starting point. Even pensions and ISAs have that chance. We have sadly seen far too many horror stories of people losing their long term savings due to horrendous activity. I think that is why many people here like what Julian is doing because so much personal trust has been lost over the years and frankly a lot, historically, has been shown to have never been deserved. With Julian, he is standing there, talking to people and being transparent and that counts for a lot. No fund outperforms continuously or is permanently in the top quartile and when you have those periods of underperforming against your peers then having your clients actualling believing in you and your business is invaluable.
From a starting position of total loss you then work backwards. If that total loss is from broker default then is the account that holds my money covered by the FSCS? That's very important. It's what makes drunken gambling on Ripple more legitimate than P2P lending!!!!!
The next step is to look at what rules the regulator has imposed to protect clients. In this case, in recent years due to the arrival of EU passported, mafia backed bookmakers into the market there have been a raft of new protections. Leverage has been reduced, for equities down to 5x (in my book that's about right for liquid blue chips but still fundamentally wrong for the small and mid caps that almost all retail clients punt on but recently most prime brokers have pushed up their marginsnon these so I think we'll see a lot of brokers finally pull smallcaps). The regulator has also stipulated that no retail account can ever go negative and there are various close out levels aimed at ensuring a client still has a positive balance in the event of a violent market swing against them.
But the real risk stems from what is being traded and held. Are they instruments that can move 20% overnight as that at 5 times leverage is a wipeout event. Well most retail traders pretty much only trade those sort of products. Very few go anywhere near the defensive ftse 100 equities. Is the accounts full capital being deployed all the time in huge, overweight positions or is it sitting mostly as cash and taking positions much smaller than the leverage allowed? For example if it is a £10k account is it running a £50k market position most of the time looking for massive returns and taking massive, excessive risk that guarantees total, eventual failure or is that account not really using the leverage but using the Stamp duty savings, fast execution, copy trade tech and low pricing of the product? is that £10k account just executing one £10k blue chip equity position at a time mostly?
The next risk level is that of the copy trade mechanism, does it have any regulated overlay that restricts what the trader can do and has policies in place to protect the client? Or is it simply a mechanism to route order flow that allows the trader to do whatever they want, whenever they want, however they want?
The problem from my side is that to do it properly means you really don't earn much more than 1% on AUM. That's fine for a traditional fund attracting hundreds of millions but the total
Deposits of something like this are limited by multiple factors. The most dominant one being that the leverage and the short term trading style means that you'll be hitting the liquidity limits of your stocks quite quickly. A big, traditional fund when it wants to enternor exit a position will just work an order in the market and get an average price for its clients defined by the amount of liquidity available for that size of trade. Some of the smaller cap investment trusts can take weeks to exit a position. For a fund such as this you don't want to be having to work the orderbook to find liquidity as that means you are paying more than the Best price so for a short term trade that hits performance. This type of fund is probably capped at £5-£10m max. You wouldn't be covering basic running costs excluding salaries until you reached that sort of level.
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