Joe Brennan, Independent
CMC Markets, a UK financial derivatives provider, is set to enter the Irish contracts for difference (CFD) market, offering a new product aimed at saving customers from the bloodbath experienced by investors in these instruments when the markets turned sour last year.
CFDs typically allow investors take leveraged positions in a company, with as little as 10pc of the price of stock required as an initial outlay. Investors can also use CFDs to gain exposure to stock market indices, commodities and foreign exchange rates and bet on prices moving either up or down.
They were a particular favourite among Irish high-rollers playing the rising stock market in recent years. But the love affair ended abruptly last year as the Dublin market slid 26pc, forcing investors to put up more cash to cover their losses.
“It’s fair to say a lot of people got burnt. But why did this happen? Is there something fundamentally wrong with the product? We think it came down to a lack of education and understanding among users of how leverage can work for and against you,” said Declan Bourke, country manager for CMC Markets in Ireland.
“It’s a good product. But so is a 5-series BMW — you don’t just give that to someone who hasn’t learnt to drive the keys and tell them to fire ahead.”
CMC Markets, which is launching in Dublin next Thursday, will hold weekly seminars and one-on-one training sessions for existing and potential clients, he said.
Mr Bourke said the company’s target market is small investors who would not have been the target of private client divisions of Dublin stockbrokers.
The firm’s flagship CFD product is a so-called “fixed risk account”. Unlike traditional products available in the market, it limits possible losses to the funds a client has in his account. Minimum fund requirements can be as low as 10pc of the cost of a frequently traded stock, such as the Irish banks, but rising to 40pc for a stock that changes hands less often.
“By managing risk appropriately, these products aren’t just for a niche audience but allow any investor to participate efficiently in a wide range of financial markets,” said Mr Bourke.
The firm gives investors access to over 3,000 different instruments, including equities, commodities, government bonds and foreign exchange — traded on 20 financial markets globally.
