The growth of the spread betting and CFD markets are sometimes blamed for making traditional stock markets increasingly volatile. Do derivatives really amplify the share moves?
Angus: Not really. The Financial Service Authority almost proved this is the case when they banned short selling on a number of financial stocks with the result being a little rally for the FTSE followed by the mass selling we’ve experienced recently. Spread betting is really tiny in comparison with the underlying market and appeals to, in general, smaller scale clients. Spread trading accounts must in general also be Segregated Accounts so client funds must be held separate from the funds required to hedge a position. A spread betting company would rarely risk so much of its own capital in hedging a client position that was big enough to move the market. But in any case what is the difference to a CFD or spread bet moving the market as opposed to somebody buying or selling on a margin account in the usual fashion? FSB: If the underlying has a spread and a spread bet (shadow) has a spread is it right to assume that a player pays twice the spread: the underlying has to move up both in i
