IG Markets Interview

Ramy Soliman - Institutional Sales Manager at IG Markets

Editor: First and foremost I want to thank you for being patient with me and taking the time to do this interview for our readers. How's everything on your end?

Ramy Soliman, of IG Markets: Thank you for inviting me. This has been a very turbulent year for everyone in Financial Services, especially within the derivatives market. The equity market crash in October last year and subsequent volatility in global markets made it a very busy period for IG and our customers. Business has been good though. Our annual results came out last week and were very positive. Profits are up 20% to £125mn.

Editor: Without doubt IG Index is the UK's biggest spread betting company and one of the biggest providers of CFDs through IG Markets elsewhere. How does it feel to be the market leader and to stand at the forefront of the industry?

Ramy: We see it as a privilege and a culmination of many years of hard work that we are in a market leading position. Through our product innovation, class leading dealing platforms and excellent customer service, we have striven to give the best possible service and experience for our clients and hope that this has been reflected in the way we have driven the industry.

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?

Ramy: With the volatility in the global equity markets over the last few years, products such as CFDs can offer the customer a more sophisticated way of trading the markets over traditional shares. CFDs are versatile instruments and can be used for speculation or for hedging purposes. The ability to short gives traders double the number of trading opportunities. Over the last few years other asset classes have become more popular amongst the traders, notably commodities like gold and Oil and FX. By trading CFDs, you can gain exposure and trade multiple asset classes from one account.

Editor: For someone located in the UK, how do contracts for difference compare to spread betting? Who should use which?

Ramy: Spread-betting has traditionally been used by newer traders and those who want to 'dip their toe' in the markets. The minimum bet sizes are smaller than the equivalent CFD trades and this helps clients to find their feet. Of course, with the tax legislation, spread-betting also is tax-free for UK traders. Of course this is only relevant if you make a profit! CFDs are very similar in concept to spread betting. The clients who trade equities value the transparency of the direct market access that is offered by CFDs. Also, for traders, the terminology is similar to that is used in traditional broking (number of shares, number of contracts etc).

Editor: Do you ever see the 'no stamp duty' advantage of CFDs (for UK and Irish traders) being removed in the foreseeable future?

Ramy: I don’t think this is likely at the moment, but if this were to happen, CFDs would still be an extremely cost effective instrument.

PureDMA

Editor: It is my understanding that IG is one of the few providers that offers both a market maker and DMA platform. Previously you only offered the DMA service to institutional clients. What has led you to change stance?

Ramy: That is not strictly accurate! DMA trading was always available to all clients, retail and institutional via our 'L2 Dealer' platform. The take up traditionally was by our institutional clients. However, with the increasing awareness of DMA trading in the retail market space, we wanted to widen the access to DMA trading – hence PureDMA – a unique offering allowing true DMA access on a browser-based platform.

Editor: To which exchanges does your DMA platform provide access to? (besides the UK are there any other exchanges where clients can trade via DMA, for instance Australia?). What requirements does a share need to have for it to be quoted on the DMA platform?

Ramy: We offer DMA access to a number of global exchanges. The following are currently available for DMA trading.

Austria; Toronto; Euronext: Amsterdam, Paris, Lisbon, Brussels, OMX; Xetra DAX; Athens; ISEQ; Milan; Tokyo; Oslo; ASX; JSE; Singapore; Madrid; LSE; NYSE and NASDAQ.

As you can see, most of the world’s major exchanges are offered. Hong Kong and other South East Asian exchanges should be on stream soon.

To be quoted on a DMA platform, a stock needs to be a constituent of an 'order-book' based exchange like the SETS on LSE.

Editor: Are all clients eligible for your PureDMA platform or does one have to satisfy certain criteria? (if so which?). I believe you offer both a browser-based platform as well as a downloadable application. Please tell us more.

Ramy: Clients who have a minimum of £1000 on their account are eligible for PureDMA. They can register on the trading platform for the service.

We also offer an institutional level downloadable trading platform called L2 Dealer. This platform has more features and the ability to deal Exchange Traded Futures and DMA FX too.

Editor: What are the main advantages of trading CFDs on PureDMA?

Ramy: The major advantage is the additional market visibility that clients get with Order book Access. Clients will get a closer feel for the amount of buy and sell orders in the markets and this greater information will help them be as informed as possible with their trading decisions.

Editor: Tell us more about your L2 dealer platform. Do clients need to apply for a ‘normal’ IG account and then apply for an upgrade to L2 dealer to use it? What are the specific requirements to use it (minimum volumes, minimum deposit…etc)

Ramy: L2 Dealer is a comprehensive Institutional trading platform allowing clients to deal on CFDs with full DMA visibility.

Editor: The Market Maker platform appears to offer more markets and you are able to offer things like guaranteed stop loss protection but you miss out on the perceived 'transparency' of having your orders go direct to market. Please comment.

Ramy: The Market Maker system allows us to offer products that are not available on exchanges such as Binary options. It also allows us to offer services that exchanges cannot offer such as 'guaranteed stops-losses. We believe we give the complete offering and the best service by giving clients the choice between the two systems.

Editor: Why is it that most small caps and companies listed on AIM aren't available through direct market access? [some market makers can claim spreads in excess of 15% on such shares so it would be useful to get in-between in such cases!]

Ramy: By definition, a Market-Maker stock such as those listed on AIM do not trade on an order book system which means that direct market access is not available. Clients can work orders via the trading platform or call our dealing line.

Editor: Can my CFD trades be partially filled and if so can clients request a minimum tranche quantity?

Ramy: CFD Trades can be partially filled, however the commission is calculated once the order is complete. This is the same on the Market Maker system or the DMA platforms. On the L2 Dealer system, clients can request tranches (this is an Iceberg order).

Editor: What types of stops are available? What is an Iceberg order?

Ramy: We offer 2 types of stops; non-guaranteed and guaranteed. Non-guaranteed stops are subject to market slippage if the price requested is not available. Guaranteed stops are guaranteed, irrespective of market slippage.

An Iceberg order is a large order that is broken up into smaller tranches (answered above). Also, why do you place restrictions (minimum limits) as to where stop loss orders can be placed (relative to the current market price)?

Ramy: We only place restrictions on the distance for guaranteed stop-loss orders. This is also dependent on the volatility of the share and the NMS (Normal Market Size) and is designed to prevent adversely affecting the price of the stock.

IG Markets and PureDeal

Editor: On your PureDeal market maker platform you guarantee market pricing on CFD bids and offers - could you detail what this means and how it works in practice?

Ramy: Our equity price feeds come from the respective exchanges and these are the prices that our clients can deal on. The bids and offers are not manipulated and are transparent.

Editor: Your platform allows the functionality to move guaranteed stops at no extra cost and the facility to put on a stop at the same time as entering a trade. Two pluses as far as traders are concerned. What other unique functionality does your platform offer?

Ramy: Another advantage is that because we use multiple providers of liquidity for equities (such as Chi-X) as well as the exchanges themselves, we can provide liquidity to clients if problems occur. An example of this is when the LSE feed was down. We were the only CFD provider to offer a price on many top LSE stocks as we used other pools of liquidity.

Editor: How similar are IG Markets and IG Index? Does the CFD PureDeal market maker platform use the same underlying technology as that for IG Index?

Ramy: The two are very similar. The underlying 'PureDeal' trading platform is the same. The only difference is that IG Index has the prices calibrated as a spread bet and IG Markets will be CFD prices – i.e. the market price for shares.

Editor: Which is your most popular platform at the present time - the PureDMA or your PureDeal market maker platform? Are clients more inclined to use one platform (i.e. PureDMA or PureDeal) or do they tend to use them both? Do both platforms share a common account (i.e. can one opt to deal via your PureDeal platform even if he had originally deposited funds for PureDMA).

Ramy: At the moment PureDeal is the most popular trading platform. 'PureDMA' is an additional feature contained in the 'PureDeal' platform. 'PureDMA' is only relevant for clients’ wishing to trade equities and the take up from existing equity traders has been good.

Clients would still use the same account and platform. The only difference is that clients who have registered for 'PureDMA' will see more when they look to trade equities.

Editor: What are the relative advantages of each - what are the advantages of the PureDeal platform for instance over the PureDMA one?

Ramy: Both are identical except for the information the client sees when trading equities.

Editor: What is the minimum deposit required to open an account? Do you offer credit facilities? Can accounts be overdrawn?

Ramy: There is no minimum deposit to open an account. We do not offer credit facilities.

Editor: What types of accounts are available - what requirements do clients need to satisfy to be eligible for a standard account as opposed to a limited risk account (which I understand comes with built-in guaranteed stops but slightly wider spreads).

Ramy: IG offer 2 account types, a 'Trader' account and a 'Limited Risk' account. The 'Trader' account will require a higher threshold of appropriateness (the MiFID regulatory term).

Editor: IG Markets charts are often praised by traders and referred to as top-notch and if they lack anything at all that would be volume indicators. Please tell us more about them (will you ever consider adding volume stats?)

Ramy: We do offer volume indicators on IG Markets! They are available on our charting packages and will be available on 'PureDMA' for equities.

Editor: One of your selling points is the ability for clients to trade when the markets are closed. What markets are available after-hours and are they really tradable round the clock? And are there any markets which one can trade on a 24-hour basis including weekends? [I believe that would be forex pairs?]

Ramy: Major Indices, FX and some commodities are available on a 24hr basis. I believe that Oil can be traded on the weekend, however most other products are available during the week.

Editor: Can stops be moved when the markets are closed?

Ramy: Yes, Stops can be moved (online or over the phone). However, this will depend on the market and the type of stop. Guaranteed stops cannot be moved closer to the market price for example.

Editor: Are stop loss orders always available or are they unavailable for certain illiquid companies? Or will stop losses be always available even for stocks with low trading volumes but the bid/ask spread is wider than the physical market? Also, why do most cfd providers insist that a stop loss is set a certain minimum distance from the market price?

Ramy: Stop loss orders will always be available. However, the ability to offer guaranteed stop losses will always depend on the volatility and the liquidity of the stock (this point was answered earlier). Our dealers will always be able to advise you on the best way if traders are unsure.

Editor: Could you give us an insight of IG Market’s hedging mechanisms? Do you trade risk similar to an insurance company by balancing long trades against other customers who have shorted the same share and offset the remaining exposure in the futures or cash markets?

Ramy: Our hedging policy is similar to the method you describe. We are a listed company and our business model is market-neutral in risk.

Editor: Some CFD industry participants are sometimes criticized for being known to take the other side of the clients trade and given the leverage expect most clients to lose. Certain providers are also criticized for manipulating the market price to trigger client stops. Please comment.

Ramy: That is something that we at IG do not participate in. Most importantly, this affects the obligation to give 'Best Execution' and our obligation to 'Treat Customers Fairly'. Our revenues come from commissions and spread that clients pay, not from client losses. Our trading 'book' is there for hedging efficiencies.

Education

Editor: What is the biggest risk involved in CFD trading?

Ramy: The risk of leverage and the risk of lack of understanding (the product and the markets clients are trading). These are issues that we try and assist clients with through education.

Editor: I understand you run training workshops to help get potential customers up to speed. What goes on? Do you offer any demo trading facilities?

Ramy: We offer a comprehensive training education resource called 'TradeSense'. New clients can sign up for a 6 week course designed to help clients with their first steps in CFD trading. The package contains 6 PDF modules covering all aspects of trading. This is combined with a structured reduction in minimum trade sizes to help clients build confidence.

In addition, there are a number of educational seminars (both online and in person) that clients can view or attend. These cover a number of issues such as a basic introduction to CFDs up to more comprehensive topics such as Direct Market Acces and Forex Trading.

Clients can also sign up for a 2 week demo account to help familiarize themselves with the platform.

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

Ramy: The best instruments are products that the clients have an understanding of! In practice, many clients start with indices or FX as these are very liquid, relatively understandable markets.

Trends

Editor: Which are your biggest markets as far as trader head count goes and which are the markets you are currently experiencing most growth? (UK, Australia, Germany?)

Ramy: In terms of revenue, our newer global offices are experiencing excellent growth. Singapore, Germany, France, Spain, Italy and the US grew by 333%. Client procurement followed similar patterns.

Editor: What betting markets are most popular with clients?

Ramy: Similar to CFDs – equity indices, FX, shares and commodities.

Editor: What important features distinguish IG Markets among other CFD brokers of your kind? Why should traders pick you among others?

Ramy: IG Markets offers the most comprehensive range of products with the most advanced trading platform combined with competitive rates. Unique features such as 'PureDMA' give traders the best chance of success.

Editor: What's your view on the trading in general? Do you see any regulatory hurdles in the way of growth of the CFD industry in general - for instance it is sometimes said that unregulated financial derivatives threaten a global banking crisis from systemic risk; now we all know that CDOS and credit default swaps are a different instrument to CFDs but do you think that this will affect how regulatory bodies look at margin trading?

Ramy: I think that the volatility in the markets is here to stay for the foreseeable future and I think it will move from asset class to asset class. As a result, I think that CFDs are the right product at the right time.

I think that unlike in other industries that have encountered problems, CFDs are products that the providers have a financial exposure to. IG Markets are the counterparty to clients trading with us; therefore it is in both IG’s and the clients’ interest that risk is managed sensibly.

Editor: This concludes our interview with Ramy Soliman, of IG Markets.