Subscribe

feed image

Our FX reports

Adam Solomon's insight into business and corporate FX issues.
Your Questions on foreign exchange sent direct to the professionals.
The Economy News brings you the latest foreign exchange rate news.

FX Latest

The Virgin Spreader chronicles my journey into the world of spread betting.

This spreadbetting blog starts from day one of a novice spreadbetting career. I intend to hunt down as much advice on spread betting as possible, talk to as many professional spread betters as possible and develop a winning spread betting strategy. And I will write it all down here. If you have anything you would like to contribute PLEASE get in touch!

INSIGHT

Forex markets await the stress test
Mark Deans at MoneyCorp gives his morning verdict on the forex markets.Read more...
Standard Chartered warn of increased likelihood of double dip recession
Standard Chartered researchers say premature fiscal tightening could cause double dip recession....Read more...
Conservative dogma: The profound challenges of austerity
Why the Irish debacle of spending cuts is so important to Britain and dispelling the pro-austerity...Read more...
Israel vs Turkey: Concerns for the future of NATO
So what would be the consequences in the unfortunate event that Israel found itself in an armed...Read more...
Barclays: Not having a bank account costs £1000
A new report is issued by Barclays that looks at the challenges of increasing financial inclusion...Read more...
Home The Virgin Spreader The Virgin Spreader London Capital Group sheds some light on the industry
London Capital Group sheds some light on the industry PDF Print E-mail
Written by Virgin Spreader   
Tuesday, 08 December 2009 13:46
One of the more popular searches sending traffic my way derives from the search term: 'How do spread betting companies make money?'

There has been a degree of speculation to this question, as can be read here.

But - I think a more pertinent question is, 'how do spread betting firms not make money?'

Well, just ask the London Capital Group.

Yesterday (Monday 7 Dec) shares in London Capital Group Holdings (LON:LCG) fell some 13% on the FTSE after the spread betting group issued its third profit warning this year. And unfortunately today is panning out to be just as bad. Shares are down 9.72% on yesterday's close.

This is big news because London Capital are one of the largest providers of spread betting services and CFD trading. Apart from their own brands (ProSpreads and Capital Spreads) they derive a great deal of business from their white label partners: PaddyPowerTrader,  FinancialSpreads.com and TradeFair, amongst others.

Reading up on the latest profit warning there are two interesting factors contributing to the profit warning that I think the spread betting community would find of interest:

1) Development of these white label partner sites is proving costly. “Although trading revenue has remained strong, the group has continued to experience lower volatility and lower interest income on deposits,” it said. “These, combined with higher expenditure on infrastructure and white label partnerships, have impacted the group’s profitability.”

Having explored the possibility of becoming a white label partner The Economy News tells me that if a partner is unable to generate enough money in a 6 month period after becoming a white label partner they are obliged to hand over £5000.

However, this apparently does not even cover the cost that the white label site cost to develop.

Perhaps a number of new partners have been failing? That or they are simply yet to realise their potential in a market that some would argue is becoming cluttered.

2) Spread betters are winning more.

This is, if anything, good news for the spread better. All those familiar to spread betting know the difficulty of coming out on top. But when the market is stable, and stays a relatively 'predictable' course, then the odds start to gravitate towards the spread better.

“Less volatility means that people are more confident about sitting on their positions when the market goes the other way,” says an analyst in the Financial Times.

So there are less people closing out their losing positions, which is how spread betting companies make much of their money. With the FTSE notching up some consistent gains since March things have improved for the trader.

However, I believe the volatility witnessed since the Dubai debt fiasco, combined with a US Dollar that is showing itself to be capable of fighting back, things will start getting interesting again.

And this can only help the likes of London Capital Group.