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GFT UK Contracts for Difference Interview

In this interview we speak to Martin Slaney of GFT Global Markets UK Ltd.

Editor: Please tell us a little about the founders' background. Who owns GFT Global Markets? Is it a private company? Where are your headquarters located?

Martin: GFT Global Markets UK Ltd. is a privately held company, and is a wholly owned subsidiary of Global Futures & Forex, Ltd. Both companies are owned by founder and chairman Gary L. Tilkin. GFT Global Markets' dealing headquarters is located in the Canary Wharf area of London, and its parent company is based in Ada, Mich., USA.

Editor: Having traded traditionally in shares for years, why might I be interested in progressing into a different type vehicle i.e. contracts for difference trading?

Martin: CFDs offer many advantages over traditional share trading, including the use of leverage, or gearing. This allows customers to trade larger positions with smaller amounts of capital. For example, some of our markets such as FX require only a 1 percent margin, so you can receive up to 100:1 leverage. Of course, with the use of leverage, you are also exposed to a higher level of risk.

You can access many markets via CFDs, as our customers can trade CFDs on more than 1850 financial products, including shares, indices, currencies, bonds, interest rates and commodities. You can trade CFDs on the indices and individual shares from the FTSE, S&P, NASDAQ and more.

Another benefit of CFDs is the tax advantages. Although tax laws can change at any time, in the UK there is currently no stamp duty on CFDs because it is a derivative product. This has the potential to save an active trader significant funds over the course of the year.

Editor: For someone located in the UK, what advantages do contracts for difference have over other trading vehicles such as spread betting? How do they compare?

Martin: The advantages aren't obvious but are worth pointing out. First of all, the trading sizes in CFDs can be more flexible than with spread betting. You can trade as small of a position as one CFD with GFT on any market, with no restrictions in increments. One CFD equals 0.01 of a share, whereas with a spread bet you must have a minimum of £1 a point - or 100 shares. Additionally, when trading CFDs with GFT Global Markets, you trade in the same currency of the underlying market, and many traders prefer to mimic the underlying market as closely as possible - whereas with a spread bet you are trading with the one currency in which your account is denominated, usually sterling.

GFT has seen great interest in our FX CFDs. With these, you can trade spot FX without the hassle of rollovers - so your position remains open at the original trade price. This results in greater transparency and makes it much easier for our customers to track their P&L.

Editor: Who uses which - as far as spread betting and CFDs are concerned?

Martin: Customers in the United Kingdom typically use spread betting, while CFDs are more popular in other regions, such as Europe and Australia.

Editor: How much experience do I need to have in traditional share trading before considering CFD trading?

Martin: Since the introduction of MiFID (Markets in Financial Instruments Directive), all applicants for CFD as well as spread bet accounts are assessed on their suitability. Previous trading experience will certainly be relevant to this assessment.

Editor: How do margins on CFDs compare to spread betting?

Martin: They are no different and are based on a percentage of the market price. You offer a trial account, which is great to familiarise oneself with GFT Global Markets' DealBook® 360 platform. Is the trial identical to the live platform (quotes, etc.), or is it offered only for demonstration purposes?

Martin: The trial version is very similar to the live platform. We use mostly live streaming prices for the trial version, although the liquidity may not always reflect that of the actual market. However, it does give you a great feel for our platform. You can familiarise yourself with the workspaces, charts and order capabilities before trading with real money.

Editor: Has GFT Global Markets' DealBook® 360 platform been developed in-house? When have you launched it and how easy is it to use in practice?

Martin: DealBook® 360 was developed by our team of developers. It was launched in 2006 to allow spread betting and CFD trading, but before that, GFT offered DealBook® FX 2, launched in 2003, and DealBook® FX, introduced in 2001.

DealBook® 360 can be very easy to use to trade the markets. We offer visual trading from the charts, which allows customers to trade from the charts via a right-click, or to edit orders by simply dragging an order line. We also have many customisation options, so traders can choose what information they want displayed and how they want to trade.

DealBook® WEB is a streamlined version of our desktop platform, and allows customers to trade CFDs, spread bets and spot forex from any computer with an Internet connection. This platform can be very simple to learn to use.

Traders who want to learn how to use our platforms can attend a free workshop at our London office, and can also arrange for a personalised demonstration over the phone.

Editor: Do you offer Direct Market Access (DMA) or Spreads? Are the prices quoted by GFT Global Markets Level-2 real-time or do you make the market?

Martin: We currently offer only the market-maker style of trading, but are also hoping to introduce a DMA product in 2008.

Editor: What are the minimum/maximum trade sizes? Do you notice any customer tendencies when the trade sizes are raised in terms of customer confidence/strategies?

Martin: The minimum for all markets is one CFD. This does give customers the opportunity to start with very small comparative trading risk. Of course, a natural element of any successful trading system is dealing with the psychological demands of increasing one's trade size, and has to be very carefully applied.

Editor: It is mentioned that you will allow customers to go all the way to £1000/pt! Please comment.

Martin: Maximum trade sizes vary according to the market. Actually for many indices we can go much higher. As a market-maker we often choose to take on larger trades than would be available in the underlying market. This is one of the foremost advantages of our model over the DMA model.

Editor: Please describe your typical customer. How sophisticated do you need to be to get involved?

Martin: It's difficult to define a typical profile, as our customers vary so much in demographics, background, and profession and so on. For this reason it simply isn't possible to pigeon-hole our traders.

Editor: What sort of trading sizes are your customers trading for?

Martin: Again, this varies from market to market. We cater to trades of all sizes, and see a wide range. But I can say that the number of people trading significantly large market sizes is certainly growing rapidly, particularly in indices.

Editor: Do you accept international customers? In which base currencies can customers trade?

Martin: Yes, we do accept international clients, where local laws and regulations permit. The platform currently supports base currencies of AUD, CHF, EUR, GBP, JPY, PLN and USD.

Editor: GFT uses a dealing desk, meaning that in certain circumstances a dealer may re-quote you. In which circumstances will this happen?

Martin: Whilst we endeavour to keep the amount of requoting down to a minimum, in circumstances where the price you are trying to deal at is "off market," i.e. different to the current quote, then this may occur. This works both ways of course - we often requote people a better price than the one they originally clicked on.

Editor: You offer the ability to place trailing stops on all markets - this in itself is great news and something which we have been waiting to happen for years. Please comment.

Martin: Our automated trailing stops are one of our most popular order types. You can simply select the price for your stop, check the "trailing stop" feature and tell the system how far from the market you want your stop to trail. These stops may help customers capture additional profits when the market moves in their favour, while also adding the risk-management of a traditional stop order.

Editor: What happens when a position requires more margin to keep it open; please also provide details on your rollover protocol.etc

Martin: We have an automatic risk notification system, which helps keeps customers aware of their margin requirements, in real-time. So when a customer's risk reaches 75 percent and 50 percent of the variation margin requirement, they will receive an email notifying them of their account status, and any action required to keep their positions open. If a customers risk level falls to 25 percent, or if they fail to pay the required variation margin amount to keep their position open, we will close out their positions. This is a benefit for our customers, and can help them avoid a negative account balance.

Our CFD rollover policy is straight-forward - there are none! To maintain price and position transparency, positions in our spot-based markets (gold, silver, fx and equities) remain open at the original price at which you trade. Finance adjustments are applied if the position is held overnight, but as a clear-cut debit or credit to the account, rather than being reflected in the rollover price. We find this method is a major advantage to our customers.

Editor: What instruments are best suited to beginners? Indices, equities, shares, forex?

Martin: Whichever instrument you know best, and are most comfortable trading!

Editor: Do you offer trading on small caps? ((less than £100 million).

Martin: We offer many global stocks, down to just a few million GBP or currency equivalent. We currently offer the top 350 U.K. stocks, but this is an area in which you will see major expansion from GFT Global Markets in 2008.

Editor: How is CFD trading commonly used? For hedging or speculation?

Martin: Despite the natural attraction of CFDs as a means to hedge one's portfolio, speculation is by far the most popular reason for CFD trading.

Editor: How far out do the contracts go? What types of stop losses are available?

Martin: Of the futures CFD markets we offer, we go out to a maximum of two calendar contracts at any one time, although it has to be said that our cash-based products are much more popular. Although we certainly do have customers with long-term positions, CFDs really come into their own for the short-term trader.

Editor: Please describe one or two interesting strategies which your customers are using to trade contracts for difference.

Martin: Some of our customers play the "spread" between two different but related product types, hoping to take advantage of the supposed disparity between the two. One example of this is to buy FTSE and sell DAX, or sell WTI crude oil and buy Brent. It's an interesting strategy that may reduce the risk of selling one market outright, but is probably better suited to more experienced traders.

Editor: What happens should I have a CFD trading position in a quoted company and the company goes into administration (or is liquidated)?

Martin: With any corporate action, we will mimic what happens to the underlying shares. So in this example, the likelihood is that the position would be worthless, and would thus be closed at zero.

Editor: Is there a greater inherent risk in shorting shares? [there is a saying that the stock markets tend to go up in the long run] Please comment.

Martin: The risk profiles for long and short trades do differ. The most obvious difference with shorting a share is that profits are limited but losses are theoretically unlimited. Secondly, short sellers are more prone to sporadic spikes against them in an equity's price as a result of M&A and takeover rumours. Of course, squeezes such as these which go on to be unfounded can themselves present the shrewd short-seller with additional trading opportunities.

Editor: Does GFT Global Markets' DealBook® 360 trading platform work for news trading?

Martin: We believe DealBook® 360 and our new browser-based platform, DealBook® WEB, both hold up to all types of trading and are fair in execution at all times.

Editor: There are now an increasing number of CFD providers in the UK, and fierce competition is driving spreads down. Do you believe that the market is growing sufficiently to support this number of providers?

Martin: Although the United Kingdom may see some sort of short-term consolidation, with some of the bigger providers setting out on the acquisition trail, there is certainly still room for the CFD market to grow in the United Kingdom. The demand is there. Globally, I expect the CFD market to see continued high rates of growth for many years.

Editor: More and more retail investors are switching to CFD trading. This shift away from share trading to dealing in derivatives concerns some observers as it takes liquidity out of the cash market, particularly for smaller stocks. Please comment.

Martin: This kind of view is rather short-sighted and is often touted by naïve stockbrokers who believe they are losing business to CFDs. If they are losing business, it is because of the attractiveness of the CFD as a product and many brokers are now adding the CFD product to their standard physical share trading range. CFD-related business now purportedly accounts for up to 50 percent of business done on the London Stock Exchange. It's difficult to see how that is reducing liquidity.

Editor: Have you any parting words for our readers?

Martin: I hope I have been of some help to all those who are interested in CFDs as a trading tool and I thank your readers for their interest. I would just like to add that if you are at all daunted, please contact us here at GFT Global Markets UK Ltd., where anyone who is interested in opening an account has the opportunity to spend one-one-one time with one of our trading specialists. We also offer workshops at our London office for those who are interested in learning more about CFDs, spread betting or spot FX.

Thank you for your insight and time, Mr. Slaney.

The Man - Martin Slaney

Editor: How long have you been in the brokering industry?

Martin: Since 1995.

Editor: What does your average working week involve?

Martin: Long and often irregular hours are the norm. We are a 24-hour business, and I often need to speak to our Sydney and U.S. offices, so flexibility is key.

Editor: What effect has your role had on your lifestyle?

Martin: Total dependence on my BlackBerry®!

Editor: If you could go back in time and witness one event in history, what would you go back and see?

Martin: I always would have said, "see Led Zeppelin live," but I have just been incredibly lucky to be at their reunion concert and lived the dream.

Editor: Tell us about your worst investment... and the lesson you learned from it.

Martin: The tech stocks of the 1990s provided several hiccups in my trading history. As with any market, be it financial, property or otherwise, you learn that bubbles cannot last forever.

Editor: Does the Loch Ness monster exist?

Martin: Whether or not it does, I enjoy watching all the videos where people claim to have caught Nessie on tape. Some remarkable ingenuity and creativity goes into some of them.

Editor: Do you favour technical or fundamental analysis?

Martin: A combination of both: bias towards the fundamental with an awareness of the technical.

Editor: What qualities separate winning traders from losers?

Martin: Discipline and commitment.

Editor: Do you have a 'favourite' trading rule?

Martin: Don't fight the trend.

Editor: Do you think discipline is that important?

Martin: Without it, your trading relies on luck.

Editor: What other attributes do you consider essential?

Martin: Commitment to the cause.

Editor: Are you optimistic or pessimistic about the UK stock market over the next 12 months? And why?

Martin: I am personally moderately bearish, but I think volatility will be king of all markets for 2008.

Editor: Make a suggestion to the chancellor of something to include in the next budget?

Martin: Less red tape.

Editor: What books, seminars, and/or courses would you recommend?

Martin: My bible, which has been reread to death, is Market Wizards by Jack Schwager. This book includes invaluable advice from some of the world's most successful traders. Additionally, I would recommend going to the introductory seminars which many CFD providers now hold - and GFT is no exception! Everyone is welcome to sign up by clicking here for our free in-office presentations about getting started in CFD trading, using online trading software and getting an introduction to GFT and our products and services.