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July 4, 2011 9:43 pm
Increased volatility since the financial crisis combined with the popularity of smartphones has meant that more and more customers are making trades on-the-go. Spread-betting companies such as IG Group, City Index, CMC Markets and their smaller rivals have tried to take advantage of this trend as well as improving technology, to launch apps for iPhones, BlackBerrys and Google Android phones. iPads are next on the list.
According to the 2010 Trading Behaviour Report, 70 per cent of spread betters and traders of contracts for difference (CFD) – derivatives contracts that work like spread bets – use or plan to use smartphones for trading.
Via a mobile handset, users can access live prices and gauge liquidity in the market, then use the app to place orders while on the move.
However, while user reviews on Apple’s App Store were broadly positive many cited difficulties in using the mobile platforms of the big companies, facing problems such as “frequent crashes” and deeming the apps “too risky to use for live trading”.
“It is still early days and as yet difficult to determine how successful this strategy will be. But you have to ensure that these mobile platforms are robust. If someone wants to trade intraday and they are not able to open or close a position based on live prices, that could be a killer blow for the customer,” says Andrew Mitchell, an analyst at Charles Stanley.
Tim Howkins, the chief executive of IG Group, which includes IG Index, the world’s largest financial spread better by client base, and IG Markets, the CFD business, says he expects a quarter of all group transactions to be conducted via mobile telephone technology in a year’s time.
“Currently, 13 per cent of all our transactions are done through an iPhone, with well over 20 per cent of all log-ons through the device. A third of all clients use an iPhone and the percentage of all clients doing transactions though it is increasing 1 per cent month on month,” he says.
IG Group’s overall IT spend in 2006-07 stood at 3.5 per cent of revenues and analysts expect this expenditure to rise to about 8 per cent in 2011-12. Other companies such as London Capital and Worldspreads are also increasing the amount they invest in technology.
Anecdotal evidence from regular users suggests that the churn rates are very high, and as many as nine in 10 new starters soon quit. Companies hope that by improving the accessibility of their platform users will stick around for longer.
Analysts say that while the technology might be useful for bringing in those clients already familiar with spread betting, particularly though word of mouth, it is less valuable for attracting those who are not involved in the business. Aside from rigorous advertising campaigns which now include publicity about mobile phone apps, other recruitment and retention strategies include web seminars, educational forums and demonstration accounts.
Some analysts say improved technology would also boost a company’s competitive advantage.
“If clients are already using these devices but they find something with better technology at another company it really is an important recruitment tool and particularly useful for taking business away from competitors,” says Ian Poulter, an analyst at Canaccord Genuity. He added that technology innovation would separate larger companies from their smaller counterparts who lack the resources to drive expertise in the mobile phone segment.
“The spread bet market is very competitive and it is inevitable that smaller players will feel the pinch. There could well be some contraction in the months and years ahead which makes it doubly important to innovate as technology moves on,” says Michael Hewson, market analyst at CMC Markets.
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