Try the new FT.com

June 10, 2011 6:31 pm

Call a spade a spade and a spreadbetter a punter

  • Share
  • Print
  • Clip
  • Gift Article
  • Comments

Ithink it was the IG Index billboard poster on a station platform that finally did it in for me. The words “double standards” and “I can’t believe it” formed in my mind as I admired the wonderfully creative advertisement for the spread betting firm.

I was standing on the platform because I’d just been to an event about exchange-traded funds (ETFs). Earlier in the week, Terry Smith of Fundsmith had become the latest industry figure to lay into these low-cost trackers and warn that something was rotten in the state of ETF-land.

Now, I agree that there are some legitimate criticisms that can be levelled at ETFs. Yet, as I stared at the IG Index poster, I couldn’t help but feel that these were dwarfed by the challenges of spreadbetting.

Yes, ETFs can encourage overtrading – many index-tracking aficionados such as Jack Bogle in the US hate ETFs for exactly this reason. But surely this pales next to the trading risks with spreadbetting.

Every once in a while, an ETF might blow up or cause some nasty unintended consequence. But surely the giant poster in front of me presented a greater likelihood of an unfortunate outcome.

ETFs are at least cheap and designed to help investors build a diversified investment portfolio. Spread betting, on the other hand, is a loser’s game. I’ve heard financial journalists talk about loss rates close to 95 per cent for most punters”. More to the point, word on the street has it that most spread betting firms don’t even bother to hedge their exposure to bets because they know their clients will almost certainly lose.

But something else in the advertisement struck me: spreadbetting was being marketed as an investment where investors could take a punt on the direction of oil. To be fair, the advert was incredibly clever and I have only admiration for IG Index and its success as a UK financial institution.

Even so, the idea that it’s OK to persuade the public to take a punt on the direction of oil seemed to me to be peculiar – given that we’re simultaneously being warned that index-tracking ETFs could be toxic.

Belatedly, it seems that the regulators have decided to step in. There’s talk that they will intervene to “protect us” from risks beyond our comprehension. Some leading figures argue that ETFs and all other derivatives-based products should be placed in the “experienced investor” category – roughly described as “only for adventurous fools who’ve signed umpteen forms acknowledging that they could lose everything”.

But if all derivatives-based products are to be so bracketed – a practice I don’t condone – why on earth are we allowing investors to read incessant spread betting adverts on the Tube or in newspapers?

Obviously, the retort would be that this is betting, stupid, not investment – and, thus, outside the financial
rules.

Nevertheless, I would contend that we all know perfectly well that an advert about the direction of oil is basically an investment proposition –– albeit a highly speculative one.

I’m not alone. A recent IMF report recently suggested that betting on the direction of currency – a mug’s game if ever there was one – was probably not a good idea and shouldn’t be allowed.

Personally, I’d rather let investors make their own judgments and I totally accept that spread betting is a respectable activity for consenting adults. Let’s just make sure the rules are applied evenly.

For example, there was once a taxi advert about a Kuwait ETF, but if it were to appear on station billboards now, this stock exchange-listed product would be have to carry umpteen paragraphs of warnings.

As my train drew away, I did have one final thought: if IG Index can be creative and get people interested in the price of oil, why can’t the fund management industry come up with a compelling marketing idea that appeals to the speculator in all of us?


adventurous@ft.com

Copyright The Financial Times Limited 2017. You may share using our article tools.
Please don't cut articles from FT.com and redistribute by email or post to the web.

  • Share
  • Print
  • Clip
  • Gift Article
  • Comments
SHARE THIS QUOTE