TRADING INSIGHTFINANCIAL TIMES SPECIAL REPORT | Friday June 22 2012

www.ft.com/reports/trading-insight-june2012 | twitter.com/ftreports

Greek crisisbrings outthe bears

INSIDE● SMALL PRINT Big problemsas court ruling throws fine detailof spread betting contracts intodoubt, Page 2

● EURO WOE Sustained trendsremain hard to spot despite waveof selling after Greek elections,Page 4

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Trading Insight Trading Insight

ContributorsMatthew VincentPersonal FinanceEditorLucy Warwick-ChingOnline Money EditorTanya PowleyMoney, Mortgage andProperty ReporterSean SmithContributorHuw RichardsContributorAlice RossCurrencies Correspondent

Adam JezardCommissioning EditorSteven BirdDesignerAndy MearsPicture Editor

For advertising details,contact:Rachel Padhiar on:+44 (0)20 7873 3564;or email:rachel.padhiar@ft.com oryour usual FTrepresentative

In This Issue

Greek exit talk brings out the bearsTHE EURO May and June have seensignificant sell-offs of the single currency byprofessional traders, but a sustained trendremains difficult to spot Page 4

Regulation delay will not affect wagersLONDON 2012 Planned regulation aimed atcutting down on illegal gambling during theOlympics will only be introduced after theevent Page 6

IPOs can be a leap in the darkFACEBOOK The volatility in the socialnetwork’s shares immediately after flotationillustrates how traders need nerves of steelPage 8

Volatility sparks scope for gainsCOMMODITIES Investors have been offloadingrisky assets but the more nimble-footed canprofit from weaker oil and gold Page 9

Coffee is now cup of choice for betsCOMMODITIES A potential upward squeeze onbean prices as global supply tightens has ledtraders to raise their exposure Page 10

Technology helps armchair gamblersFOOTBALL Betting-friendly televisionschedules andmobile phonetechnology areproving a boostfor bookies takingbets on theEuro 2012 footballchampionshipPage 10

Big problemsfor small print

A client of a largespread betting firmwho said a five-year-old boy had

been “playing” on his com-puter has so far avoidedliability for £50,000-worth ofonline trading losses after ajudge deemed the firm’sterms and conditions unfair.

But spread bet providersinsist account holders areresponsible for all theirtrades and say no legal loop-hole has been opened up.

At the end of last monthcourt papers revealed thatbetting firm Spreadex hadsought a summary judg-ment to recover lossesincurred by one of its cus-tomers, Colin Cochrane.

According to a review ofthe case by Neil Wallis, apartner at law firm FieldFisher Waterhouse, MrCochrane initially contactedSpreadex to explain his loss-making positions beenextended by unauthorisedtrades placed by his girl-friend’s son, aged five.

Mr Cochrane said that,after he last used his onlinespread betting account, hisbalance stood at a loss of£9,000.

A few days later, he foundthe loss had increased to£50,000 – from trades in oil,gold and silver made with-out his knowledge.

His girlfriend told him herson had been “playinggames” on the computer,which was left switched on.

Spreadex told MrCochrane he was still liableunder clause 10(3) of itsterms, which states: “Yourpassword must be declared,together with your accountnumber, when you wish toaccess your account.

“You will be deemed tohave authorised all tradingunder your accountnumber.”

But a ruling in the unsuc-cessful application for asummary judgment on Spre-dex’s right to recoup thelosses questioned the exist-ence of a contract, and thefairness of terms that ran to49 pages.

“There were certainly con-tracts for the individualtrades, but was there anoverarching contract tocover all trades and the useof the online account?”explains Mr Wallis.

“The judge was not con-vinced. He pointed out thatthe terms . . . did not reallycommit Spreadex to any-thing. Spreadex could refuseto accept bets without giv-ing reasons, and could with-draw access rights when-ever it wanted.

“The judge held that,because there was no com-mitment by Spreadex, the

online account facility wasno more than the partiesputting themselves in aposition to agree trades.”

In addition, the judgeargued that a clause makingMr Cochrane liable if he hadbeen negligent might havebeen fair, but a clause mak-ing him responsible for anyunauthorised trade was not– and was not adequatelydisclosed in four lengthycustomer documents.

In the judge’s words: “Itwould have come close to amiracle if he had read thesecond sentence of clause10(3), let alone appreciatedits purport or implications.”He ruled Mr Cochrane wasprotected under the UnfairTerms in Consumer Con-tracts Regulations (UTCCR).

Spreadex can still seek afull court hearing to argueits case for payment. Peoplefamiliar with the firm also

stress the summary judg-ment does not invalidate itscurrent online terms.

As one put it: “The rulingfrom the judge did not makethe rule book null and void,with the potential for clientsclaiming ‘accidental’ tradesor other similar excuses fortrading losses, which is howsome people seem to haveinterpreted it.”

Other firms say the judg-ment highlights the diffi-

Matthew Vincentfinds that thefine detail of spreadbetting contractshas been throwninto doubt by acourt ruling

culty in explaining complexrules in a concise way.

“We read the Cochrane vsSpreadex decision withgreat interest,” says AndrewEdwards, chief executive ofETX Capital.

“In 2011 we conducted afull review of our Ts&Cs outof a concern that we keepup with our obligation tomeet the Treating Custom-ers Fairly (TCF) objectives,which are part of the Finan-cial Services Authority’sregulatory agenda, and tomake sure our terms wouldhold up to scrutiny underthe UTCCR.

“That review resulted in,among other things, rewrit-ing the terms in more cus-tomer-friendly language.”

IG Group says it checkedits customer agreementsome time ago and, evenafter the Spreadex case,remains confident that itcomplies with UTCCR.

City Index says it reviewsits terms annually, to meetall regulatory obligations.“By definition, we need tobe ‘clear, fair and not mis-leading’,” explains City’schief market strategist,Joshua Raymond. “This is acase of striking a balancebetween having too muchinformation and notenough, making it too com-plicated or too vague.

“We strongly believe thatour terms are not overlylong or complicated. Theywere reviewed in 2007, whenthe TCF rules were imple-mented, then again in 2009,and every year since.”

Simon Denham, chiefexecutive of CapitalSpreads, argues the Sprea-dex ruling was “shocking”as – compared with otherfinancial companies –spread betting firms try tokeep agreements simple.

“At 27 pages, our terms –considering that the clientis opening an account totrade in leverage instru-ments on the financial mar-kets – seem reasonably con-cise, and certainly shorterthan many comparableproducts,” he says.

Nat West online’s termsand conditions are 110 pageslong, and a MoreThan motorinsurance policy runs to 33pages, excluding the terms.

“I have yet to hear a courtclaim that a client could notpossibly know the excep-tions in car insurance, eventhough these are generallyfar more opaque than aspread betting company’s.”

Even so, Capital Spreadsis considering a change tothe way its online terms arepresented, so that clientsare forced to scroll throughthem before proceeding.

But ETX claims addingextra disclaimers and secu-rity checks would disadvan-tage traders. “Our concernis the Cochrane decisionmay force online tradingfirms to impose a furtherlevel of security to ensure itis the customer making thetrade,” says Mr Edwards.

“This might involve set-ting up the system to time-

out after a few minutes andrequiring a customer toresubmit their login details,giving customers randomnumber generator key fobs,much like the high streetbanks use.”

However, it would have anegative impact by slowingdown their access.

“A customer might thencomplain that they hadmade a loss because theywere unable to enter a buyor sell order in time.”

Customers already com-plain about trading errorson providers’ platforms –complaints the firms say

they take very seriously.IG’s compliance depart-

ment will review any dis-puted trades and provide afull written response.

ETX uses system checksand clients’ trading patternsto assess disputes, and hasprovided refunds where sys-tem errors were found.

Mr Raymond at City Indexsays: “We carefully reviewevery claim but, for themost part, the principlemust be that you areresponsible for your accountand actions taken on it.”

For this reason, manybelieve the Spreadex judg-

ment could be overturned ifit proceeds to a full HighCourt hearing and, as oneindustry insider put it, thefull story of the five-year-oldtrader is “fully explored”.

Spreadex may then beable to shift the focus fromthe small print to the smallperson, in Mr Denham’sopinion.

“The ruling was made infavour of the client mainlybecause Spreadex chose notto dispute the claims thechild placed the trades butto rely on their Ts & Cs,” MrDenham says.

Whatever the outcome, it

is unlikely to be the lasttime a brokerage encountersaccidental trades.

According to spread betproviders, spilled coffee, apaper aeroplane, a faultymouse and several cats haveall been previously heldresponsible for unintendedonline dealing.

However, as Mr Edwardspoints out: “We have neveryet had a customer whotried to undo a trade wherethey made a profit, even iftheir child, cat, dog or nextdoor neighbour put thetrade on without theirknowing.”

Spilled coffee, paperaeroplanes, a faultymouse, and severalcats were blamedfor unintendedonline dealing

Illustrations: front page and this page MEESON

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Trading Insight

T he currency mar-ket is one of themost popular andmost difficult to

predict for day traders.Nowhere has that been

more evident in recentmonths than in the value ofthe euro. For most of 2011and the first four months ofthis year the single cur-rency remained stubbornlystrong, despite a stream of

worsening news from theeurozone, ranging fromGreece’s debt burden toSpain’s need to recapitaliseits banking sector.

Many professional traderslost money trying to shortthe euro last year as aresult. Macro hedge funds,many of which had tried tobet the single currencywould fall in value, lost 3.8per cent on average last

year, according to datafrom Hedge Fund Research.

Until May this year somehad given up trying to profitfrom the euro altogether.Currency traders at invest-ment banks reported a lackof activity in currency mar-kets from hedge funds,which had turned to bets onthe bond markets instead.

But when the Greek elec-tions were held on May 6,

the picture changed. Thelack of a clear majorityraised doubts over whetherGreece would meet auster-ity measures in return forbailout funds from the EU.That led to the possibility ofGreece leaving the eurozonefor good being openly dis-cussed. Citigroup, the USbank, now predicts Greecewill leave the euro in Janu-ary next year.

That led to a big euro sell-off, which lost nearly 7 percent in value against thedollar – the most commonway of valuing the singlecurrency – in May alone.New Greek elections in mid-June did little to help theeuro, which still was trad-ing under $1.27, lower thanits level at the start of May,despite pro-austerity partyNew Democracy comingahead in the polls.

Some traders assumed thefalls in the euro would bemuted. Ashraf Laidi, chiefglobal strategist at CityIndex, the spread bettingcompany, says many of thefirm’s clients spent theearly part of May trying tocall the bottom as the eurofell against the dollar. Itwas not until late May orearly June many chose togo short, after the euro lostnearly 4 per cent in the firsttwo weeks of May alone.

Professionals alsoincreased bearish bets onthe currency as the falloutfrom the May elections inGreece continued. Datafrom the US CommodityFutures Trading Commis-sion to the end of Mayshowed speculators heldrecord shorts on the euro.

Clients at City Index havealso been holding signifi-cantly larger positions over-night compared with thistime last year, indicatinggreater confidence that thefalls in the euro are part ofa more sustained trend.

In fact, trading across thecurrency markets shot upin May as the increase involatility tempted traderswho had been staying onthe sidelines to place newbets. Popular currency trad-ing platforms from EBS,owned by ICAP, and Thom-son Reuters showed thatdaily trades in May hittheir highest levelsall year.

While the eurorose slightly invalue at thestart of June,some believethis is dueto so-calledshort cover-ing in amarket thatis extremelybearish onthe euro. With

speculators holding recordshorts, some see their posi-tions automatically closed ifthe euro dips to a certainlevel – creating a short-termbounce in the single cur-rency.

Brenda Kelly, senior mar-ket strategist at CMC Mar-kets, the spread bettingcompany, says the majorityof the firm’s clients wereselling into these rallies atthe start of June.

However, analysts alsopoint out that part of thereason for the fall in theeuro, as measured againstthe dollar, has been the risein strength of the US cur-rency over the same period.

Along with the Japaneseyen, the dollar was the bestperforming currency in Mayon haven demand from glo-bal investors, who tradition-ally snap up dollars and yenwhen markets are riskaverse.

“As investors adopt arisk-off mode, the capitalflow has ultimately beenchannelled into the safehaven of the dollar, whichnaturally has put extrapressure on the euro,” notesMs Kelly.

Dean Popplewell, chiefcurrency analyst at Oanda,the foreign exchange trad-ing platform, says thefirm’s clients took the riskrecovery at the start ofJune as an opportunity tosell euros again.

The most successfultrades, he says, were thosethat were flexible, withmany taking long positionson the single currencywhen it looked vulnerable.

However bearish retailtraders may feel about theeuro, market analysts saythey should remain alert forthe possibility of futureshort squeezes.

“With regard to makingmoney trading the euro, it’simportant to disregarddeep-seated bias or opin-ion,” notes Ms Kelly.

“Trade off the priceaction and watch what themarket is telling you now.While many believethe euro should be tradinglower, take it one level ata time.”

Greek exit talk brings out the bearsThe euroA sustained trend isstill hard to spot,says Alice Ross

Traders should bealert to eurozonesqueezes AP

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Trading Insight Trading Insight

Cricket The test series provides a wide range of options for puntersIt is not just as cricket fans that TobyCampbell and Will Stephenson regretthat England’s test series against SouthAfrica, starting on July 19, will berestricted to three matches rather thanthe four or five usually be expected ofthe main event of the summer.It is not great for business either,

says Mr Campbell, who is chief crickettrader for Sporting Index: “We’ll do thesame range of long-term markets forany series of three matches or more,but three tests does not give you thesame level of volatility as four or five.”That would seem to be the only

drawback of a confrontation that MrStephenson, chief cricket trader forSpreadex, has been waiting for sinceEngland won in Australia last year. “Itis the two best teams in the world,with the two best pace attacks. Apartfrom an Ashes series, it is hard toimagine anything likelier to attractinterest and business.”Underpinning that is a history of

tightly contested series between thesides, seven since the Proteas werereadmitted to test cricket post-apartheid in the early 1990s. SouthAfrica have won three to two, and 10matches to nine, and no series hasbeen won by a margin of more thanone. ”The best series I remember,apart from the 2005 Ashes, have beenagainst South Africa,” says MrCampbell.Spread betters like markets with

huge potential variations in outcome

and England success. As Mr Campbellsays: “They love uncertainty, andevents that could go either way.” Bothmarket makers expect England to startas marginal favourites on the indicesused for test series results, butemphasise that quotes for the twoteams will be extremely close.The obvious contrast here is with the

recently concluded West Indies series,won – as was universally expected –by England: “We’d expect to do threetimes business on long-term marketsand twice as much on the in-running aswe did on the West Indies series. Oneadvantage is that we’d expect thesematches to run five days. Matches thatend in three or four inevitably meanless business,” says Mr Campbell.The likely extent of betting puts

pressure on the traders, who know amarginal misjudgment may be costly.They will also need to be aware ofplaying conditions. Mr Campbell says:“On a sunny day Lords can be asuperb batting track and you could belooking at a quote of 400 for theinnings. If it starts swinging, you couldbe down to 250. If we’re slow to noticeanything, we know we’ll quickly findourselves in a bad position.”The comparative stability of the two

teams mean markets should be postedin early July, two to three weeks aheadof the start of the series.Mr Stephenson says that he expects

to be quoting South African pacemanDale Steyn in the region of 14 wickets

for the series, with his opening partnerVernon Philander, who has taken 51wickets in his first seven tests, veryclose to that. That England’s spearheadof Jimmy Anderson and Stuart Broadmay be on about 13.5 does not reflecta judgment that they are less effective:“We expect Graeme Swann to take abigger share of wickets than SouthAfrica’s spinners, so that has a knock-on effect,” Mr Stephenson explains.Among the batsmen Kevin Pietersen

remains a draw, he adds. “I’d expect toquote him at 77-8 runs per match, withAlastair Cook and Jonathan Trott in thelow 80s. But that will be lower atHeadingley, or if it starts swinging onany ground. For South Africa, HashimAmla and Jacques Kallis are bothbrilliant players in great form. I’dexpect to quote them in the 80s, withGraeme Smith and AB de Villiers – whobats at number five so may get feweropportunities – a little lower.”The South African roots of four of

England’s top seven batsmen can alsobe expected to form the basis for anumber of markets on theirperformance, Mr Campbell says.Before the series come, there are five

one-day internationals against Australia,starting on June 29. Mr Campbell says:”It is an odd series, but it will stillattract interest because it is Australia –there is still no rivalry quite like it.”

Huw Richards

Regulation aimed atstopping illegal gam-bling during the Lon-don Olympics next

month and punishing the per-petrators will not be availablein time, but the bookies andtrading firms are adamant thatthe integrity of the Games willnot be compromised.

A joint assessment unit,which includes representativesof the UK Gambling Commis-sion, betting and trading firms,and the exchanges, has beenworking over the past year toset up a monitoring system tocombat the predicted increasein illegal gambling at the 2012Games that Jacques Rogge,International Olympic Commit-tee (IOC), said “threatens thecredibility of sport”.

UK-based operators will have

to share information with theGambling Commission underthe one amendment due to bemade to the Gambling Act intime for the Games. HughRobertson, the sport and Olym-pics minister, says: “We areamending the Gambling Act toshare intelligence on suspiciousbetting patterns . . . so our housein Britain is in good order.

“Sports fans have to be confi-dent that what they see infront of them is true and fair.I have been working alongsideJacques Rogge and the IOC intaking a global approach to theissue of match fixing.

“The threat is there and realthough,” Mr Robertson adds.

But offshore bookmakers andtraders, which make up most ofthe betting firms trading inthe UK, will not be obliged toshare information with author-ised sporting bodies until therehas been a change in thelicensing legislation. SusannahGill, public affairs manager forBetfair, says: “There are flawsin the Gambling Act at themoment.

“These are being addressed,

but they are not going to bedone in time for Olympics.

“In theory we are not goingto be regulated by the Gam-bling Commission [for theduration of the Games] but weare going to act like we are.”

Because of the lack of legisla-tion, the betting companies,trading firms and exchangeshave themselves decided toissue a statement of intent in abid to plug the holes in the act.

In it they promise not to offerbets on the Olympics thatthreaten the integrity of theGames, to report all unusualbetting patterns to the Gam-bling Commission, to notknowingly take bets from any-one accredited by the IOC, offera 24-hour reporting service, andsuspend any bets if ordered todo so by the GamblingCommission.

The steps are being discussedas amendments to the Act, butnone was announced in theQueen’s Speech in May, thelast chance before the actionstarts on July 25.

However, Mike O’Kane, trad-ing director at Ladbrokes and

chief bookmaker at the Euro-pean Sports Security Associa-tion, a Europe-wide bettingintelligence unit, believes theattempt by parliament tocreate legislation in time forthe Olympics was not onlyfutile, but a red herring.

Mr O’Kane, who is a memberof the joint assessment unit,says: “I have worked with theIOC quite a few times on bet-ting integrity. They tend tostart with the classic issues[for them] of drugs and thenmove on to team ethics . . . waydown the list is whether anathlete is going to throw anevent,” Mr O’Kane said.

“The greater concern for usis how sport is regulated. Whois there to regulate football,for example? Uefa and Fifaare world bodies, but theydon’t manage national associa-tions – they have very littlesway over the Romanian foot-ball federation, for example.The IOC only regulates theOlympics – it doesn’t regulateoutside the Games.

“It leaves that to nationalsporting bodies that are, in

some cases, no more thanorganisers of tournaments.”

Despite the dangers of cheat-ing, betting firms are notexpecting high volumes of trad-ing during this summer’sevent. Ms Gill agrees: “Themain sports for betting arefootball and horseracing. In

terms of the Olympic Games,we are not expecting a vastamount of betting. It’s notsomething our customers nec-essarily will want to bet on.”

Andy Mackenzie, a spokes-man for Spreadex, the spreadbetting firm, agrees: “If youcompare the Olympics with

Euro 2012 [football], it’s a tinyfraction of the business we doover the summer. We’re look-ing forward to it, but we arenot expecting much.”

Trading firms say that,despite low expected interest,they will offer as many Olym-pics markets as possible. “We

are looking at offering on mostsports – even if some are morelimited than others,” says MrMackenzie.

“Betfair will offer a marketon every medal – but I’m notsure what volume and liquiditythose markets will have,” MsGill added.

Betting regulation delay willnot affect wagers on GamesLondon 2012Sean Smith looks atefforts to clamp downon illegal gambling

Regulation timing: attempts by parliament to prevent illegal gambling on the Olympics will not come force until after the event Dreamstime

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Trading Insight Trading Insight

A head of Facebook’sinitial public offer-ing (IPO), spread-betters predicted

the share price would riseby more than 40 per cent onthe first day of the socialnetwork site’s trading.

But, after an initial 0.6per cent rise from the floatprice of $38, the shares fellback, and experts believetraders should have bet on

falls because this is “themore typical – and inevita-ble – performance of IPOs”.

“IPOs can be a highly vol-atile experience, as recentlaunches prove testamentto,” says Joshua Raymond,chief market strategist atCity Index. “Looking at pre-vious headline IPOs, theshare price performanceafter the initial hysteria hasnot been fantastic.”

He says that LinkedIn’sshare price more than dou-bled on the first day of itsIPO, from a price of $45, toclose at $94.25.

However, the hysteriasoon mellowed and the com-pany’s share price subse-quently lost a third of itsvalue within a few weeks.

The share price recoveredback to its $94 first dayclose a month later.

By contrast, Google’sshare price doubled withintwo months and it hasnever looked back, hitting apeak of $747 after just threeyears as a publicly listedcompany, having launchedat $85.

“The lesson here is thatIPOs are never a smoothprocess and the first day’sshares trading performancetypically bears no relationto how shares perform overthe subsequent first two tothree months,” says MrRaymond.

Even so, strategists donot say there are no oppor-tunities to be had, just thatconsidering the historicalvolatility that normallymeets IPOs, any opportu-nity undertaken by a spreadbetter or contracts for dif-ference trader on an IPO islikely to be a highly riskyone.

With that being the case,experts say that many expe-rienced traders typicallyallow a period of price cool-ing before deciding whetherto trade the price of arecently launched IPO ornot.

So, why is it harder topredict the performance ofIPOs than listed companiesshare prices?

Simon Denham, chiefexecutive at CapitalSpreads, believes it is all todo with investor behaviour.

“A new investor will treathis investment in an IPO ina completely different wayto his holdings in a com-pany with a long record,”Mr Denham notes.

“Poor performance from along-established companycan be explained away by‘the current trading envi-ronment’ and most execu-tives will be given time tosort through issues.”

But, he adds: “For a newcompany, a poor perform-ance by a recent IPO is nat-urally seen as the fault ofthe management team andthe investor feels that hehas been sold a pup.

“Confidence is lost andthe shares can spend yearsin the doldrums, with thecompany unable to raisefresh capital or borrow atreasonable rates due to aconstrained capital valua-tion.”

But even if that is so, noteveryone is so down ontrading IPOs.

IG Index’s market analystChris Beauchamp says that,while Facebook was some-thing of a damp squib, thereis always a buzz aroundIPOs, “even when they’renot whizzy social mediacompanies”.

IG provides its clientswith a way of gettinginvolved in these IPOs asearly as possible, providinga grey market for traders.

In the case of Facebook,its clients began trading in

February of this year, basedaround the company’sexpected market cap.

IG initially set this at$90bn, but enthusiasm rap-idly pushed it to about$110bn on the first day.

The company has repli-cated its grey market withother companies, includingcommodity trader Glencore,whose arrival on the FTSEwas hotly anticipated.

Others believe it is tooearly to know whetherFacebook’s shares will rise,with some experts remind-ing clients that the stockhas only been trading a fewweeks and is still finding itsfooting.

“It’s important in timeslike this to separate thestock from the company,”says Colin Cieszynski, mar-ket analyst at CMC Mar-kets. “Because there is notrading history, focus in theIPO process is mainlydriven by the popularity of

the company going publicand excitement about itsprospects.

“Once the IPO is over, itis on its way to becomingjust another stock, but itisn’t quite there yet.”

And once the researchrestrictions that affect allnewly listed companies arelifted and they can startreleasing news and earn-ings reports the stocks thentend to rebound – as long asthe news is positive, MrCieszynski adds.

David Morrison, seniormarket strategist at GFTMarkets, agrees. He saysthat once the quarterlyearnings start coming outfor Facebook and the ana-lysts can get stuck into theresearch, then it will bemuch easier to establish afair price for the stock.

Mr Morrison says: “Forthe meantime, however,there’s no shortage of dig-ging going to take place todetermine just what needsto be done the next time wesee a dot.com or social net-working site bidding forpublic ownership.”

IPOs can be a leap in the darkFacebookFlotations are nevera smooth process,writes LucyWarwick-Ching

Loss of face: shares can fall

Once they canstart releasingnews and earningsreports the stockstend to rebound

For the past 10 years it hasseemed there is only one directionfor commodities, and that is up.

In recent months, however,crude oil and other commoditieshave been battered, leading ana-lysts to suggest the boom is over.

ICE July Brent, the globalbenchmark, has fallen from ahigh of more than $128 a barrel atthe beginning of March to about$106, while US crude, the NymexJuly West Texas Intermediate,dropped below $90 a barrel from$110 at the start of March.

On May 30, US oil prices fell totheir lowest levels since mid-Octo-ber last year at $88 after pendinghome sales for April slid sharply,according to CMC Markets, thespread betting company.

Meanwhile in mid-May a sharpturnround in gold saw the metalprice briefly enter bear marketterritory, down 20 per cent fromits high to $1,530 an ounce.Experts say the metal has suf-fered on the back of better eco-nomic data from the US that has

dimmed hopes of further quantita-tive easing.

“We have seen significant weak-ness for commodities lately,” saysDavid Jones of IG Index, thespread betting company. “Thelikes of copper and oil have beenhit by the continuing downbeatnews surrounding global eco-nomic growth – or rather the lackof it.”

Experts say the continuing con-cerns about the eurozone crisishave weighed heavily on senti-ment in recent months as inves-tors have moved to unload riskyassets.

“Commodities do tend to sell offsharply during periods of intensemarket stress – as we are seeingnow with the eurozone sovereigndebt crisis, as investors liquidatepositions to pay for lossmakingtrades elsewhere,” says KathleenBrooks, research director atForex.com, the online currencytrading platform.

Oil prices have also suffered asvolatility in the equity marketshas sent haven capital flow to theUS dollar. “As most commoditiesare priced in dollars, price actiongenerally moves inversely, so astronger dollar has for the mostpart resulted in weaker oil andgold prices,” says Brenda Kelly ofCMC Markets.

While some analysts remain

bullish about prices in the longterm, others warn the so-called“commodities supercycle” could becoming to an end amid concerns ofslowing demand from China.

“If economic confidence dropsfurther the outlook for commodi-ties does not look good and, withEuropean politicians seeminglyincapable of forcing through asolution of the over-indebtedsouth, the momentum will proba-bly continue to the downside,”says Simon Denham, chief execu-tive officer of Capital Spreads, thespread betting company.

But experts say the increasedvolatility of oil prices has pro-vided more trading opportunitiesfor retail investors.

“The resultant volatility meansthe potential for profits – andlosses – in this area remains thekey attraction,” explains MsKelly. “As with most derivatives,the ability to take short positionson commodity prices also helps.”

Mr Jones says crude oil is afavourite with the “more nimble”traders, those who are happy toflip positions from long to short,depending on the prevailing short-term trend in that market.

Traders typically are taking ashort-term view, looking to ridethe next $1-$2 move, rather thantaking a medium-term view.

“The simplistic way to profit is

to get the direction of the com-modity correct, whether yourtimescale is hours, days or evenweeks. This, of course, is easiersaid than done, particularly whenwe have the increased volatilityseen in recent weeks,” says MrJones.

Ms Kelly adds CMC Markets hasseen an increase in short positionholdings over the medium termfor oil, while in the shorter term,some traders have had intradaypositions running contrary to theoverall trend to take advantage ofprice corrections.

In comparison, IG Index saystraders still prefer to buydips in gold andhold the posi-tions for them e d i u mt e r m ,l o o k i n gfo r ab o u n c eand a pos-sible hedgeagainst fur-ther euro-zone shocks.

“With goldthere is still abuy - and - ho l dmentality, nodoubt as a resultof the perceivedhaven status and

the prevailing trend over the past10 years plus,” notes Mr Jones.

However, experts say the vola-tile conditions also mean tradersneed to consider having widerstop losses to give the markettime to prove them right.

Mr Denham says traders shouldkeep their bets small. “If you arethinking of placing a trade andyour usual size is X, only do 30per cent of X. In this way you willmaintain liquidity and enableyour account to ride through therough points.”

As prices decline, analysts saysome traders have chosen

to go long on com-modities, eventhough the euro-zone sovereigndebt crisis is stillraging.

“At a certainpoint commoditieslike oil and gold,due to its per-

ceived haven sta-tus, are going to beviewed as cheap andgood value, especiallyin comparison with

bond markets,” notesMs Brooks.

Volatility sparks selling and boosts scope for gainsCommoditiesThe nimble-footed canprofit from weak oil andgold, says Tanya Powley

Commodities tend to selloff sharply during periodsof market stress Dreamstime

10 FINANCIAL TIMES FRIDAY JUNE 22 2012 FINANCIAL TIMES FRIDAY JUNE 22 2012 11

Trading Insight Trading Insight

Traders are increasing theirexposure to coffee onrumours of a potentialsqueeze on supplies.

Coffee prices breached 18-month lows during midApril, then became highlyvolatile – recording intra-day moves in excess of 5 percent throughout the month.

But some traders are bet-ting the 18-month low willprove to be a support levelfor the price, and providerssay many investors believeprices have further to rise.

Investors have been prof-iting by placing spread betsand contracts for difference(CFDs) on these assets.

Spread bets are typicallybased on the pricing in thefutures market for the indi-vidual commodities. Theyoffer a way to speculate onfurther price appreciationor bet on the end of a rally.

Chris Beauchamp, marketanalyst at IG Index, says:“Commodities trading hasalways been something of aniche activity for the aver-age UK trader, especiallywhere the ‘soft’ commodi-ties are concerned, withinvestors tending to preferto stick with the likes ofgold and oil.”

“Still, with coffee marketsfacing potentially serioussupply deficits, experts saythere is potential for anupward squeeze on prices,bringing coffee off its lows.”

IG’s clients are bullish oncoffee, with its insight plat-form – an indicator of whatpeople are trading – show-ing that, of all trades openon coffee, 81 per cent wouldprofit from a rise.

Mr Beauchamp says oneof the factors pointing to anupward surge is that Bra-zil’s main producer goesinto a ‘low’ year in 2013,taking out a significantchunk of global supply.

“The International CoffeeOrganisation has also saidthat coffee will becomemore expensive, as con-sumption soars in emergingmarkets, more than offset-ting a drop in coffee drink-ing in more developed mar-kets,” he adds.

Others agree. David Mor-rison, senior market strate-gist at GFT Markets, says:“Global consumption con-tinues to grow and outputisn’t keeping pace with this.

Furthermore, while demandlooks set to grow steadily,supply will always be sub-ject to big swings.”

He says that, with pro-duction concentrated in afew areas, a bad harvest ora political shift can havesignificant ramifications.

“Technically, the pricemay be returning to more‘normal’ levels but it wouldbe foolish to ignore thepotential for some sharpjumps higher off the back ofthe shifting fundamentals.”

The numbers would seemto support this. Coffee istrading below its 50 and 20-week average.

Sandy Jadeja, chief tech-nical analyst at City Indexsays on the daily chartstraders will be watching the185.40 high as a pivot point.

“Only if coffee can moveabove this resistance levelcan we expect higherprices. Even if prices domove higher, then 195.00 to204.30 could see a barrierthat needs to be cleared toexpect any meaningful cor-rection to the upside.”

Some experts are posi-tively bearish on the sector.

Angus Campbell, head ofmarket analysis at CapitalSpreads, says: “Commodityprices have been comingunder pressure due to theturmoil in the eurozone andslowdown in China. If theoutlook for global growth isuncertain, then in generalthe demand for all commod-ities is going to fall and, asa result, their price.”

Richard Nathan, commod-ities and options broker atETX Capital, says a numberof factors could affect theprice. These include theweather, shipping costs andthe strength of the dollarbecause many companiesreport profits in dollars.

Soft commodity marketshave shorter trading hoursthan currency markets orequity indices and can openat very different levels fromthe close the night before.

These markets are suscep-tible to sudden price move-ments if there is, say, anearthquake or a weatherchange that affects crops.Markets are also at themercy of political pressuresover imports and exports.

In one sense, this is wel-come for spread-betters, asit means they can makelarge profits from relativelysmall bets – but it also putsthem at risk of large losses.

Beverageoffersa pickme upCoffeeExpected shortagesoffer openings, saysLucy Warwick-Ching

Has bean?Volatile market conditionsare proving a boon tospread betters as they aimto profit from daily priceswings – but the risks arecorrespondingly large,experts warn.

Equity market volatilityincreased in recent monthsas concerns deepened about

the continuing eurozonesovereign debt crisis and apossible Greek exit from theeuro.

In May alone, the FTSE100 Index had a tradingrange of almost 600 points,while the FTSE VolatilityIndex, a gauge of marketfear, hit its highest levelssince December last year.

Joshua Raymond, chiefmarket strategist at CityIndex, says: “Spread bettersactively pursue volatilemarkets, as they can oftencreate some interesting andopportunistic price swingsthat they try to take advan-

tage of.” Spread betting pro-viders point out that trad-ing volumes typically risein line with volatility. Asvolatility increases, so doesthe number of trades.

While traders will bequick to take advantage ofvolatile conditions, expertssay there is a “markedshift” to betting on “biggerassets”.

David Jones of IG Indexsays many of its clients stoppicking individual stocksand focus more on the indi-ces such as the FTSE 100and the Dow Jones.

Mr Jones says traders are

reluctant to stock-pickwhen markets are reallyfalling.

“If the FTSE is falling offa cliff, everything tends toget dragged down with it, soclients do exhibit a prefer-ence to trade the indexitself rather than individualshares,” he explains.

Angus Campbell, head ofmarket analysis at CapitalSpreads, notes that duringthe month of May, the pro-portion of trades taken inindices rose from its usualaverage of 50 per cent toover 60 per cent.

“It’s the indices that tend

Trading the index is preferredto following individual stocksVolatilityPrice swings attractspread betters,says Tanya Powley

to attract the most businessduring volatile times,” hesays.

Currency trades continueto be popular with traders,says Mr Jones.

In recent years, volatilityhas tended to be driven byvarious crises in the euro-

zone, which have pushedforeign exchange marketsinto the spotlight.

Spread betters will alsobecome more short term innature, in order to try andmaximise the opportunitiespresented by the biggerswings.

However, while current

levels of volatility providemore opportunities for trad-ers, it can also work againstthem, experts warn. “Biggerintraday swings mean thatstop placement is extremelyimportant,” says DavidMorrison, senior marketstrategist at GFT Markets.

“This is where tradershave to utilise technicalanalysis to help identify sig-nificant levels of supportand resistance.”

In volatile markets, pricescan “gap” significantly.This is where a marketjumps from one price toanother, without trading atthe levels in between.

Mr Raymond says that inthis instance, a standardstop loss does not providefull risk protection, as itwill automatically close outthe trade at the best availa-ble price after the gap.

“In this sense, spread bet-

ters will do well to considera guaranteed stop loss,which closes the trade outautomatically at the levelspecified regardless of anymarket gapping,” he notes.

This added protectioncomes with an extra subcharge – for example, threetimes the stake for theFTSE 100 – but provides asafety net.

Some traders react differ-ently to volatility.

Kathleen Brooks ofForex.com says some inves-tors like to hold positionsfor a long time and maychoose to hedge against vol-

atility in order to protectthemselves from adverseprice movements. Conserva-tive traders will typicallybide their time and wait formarkets to come to them,explains Michael Hewson,senior market analyst atCMC Markets.

“These type of traders areknown as level traders.They don’t get distracted bythe noise of the marketsand wait for prices to cometo them and trade in andaround the levels,” he says.

But spread betting provid-ers agree that most inves-tors will trade more

actively in volatile condi-tions, even if they are notalways successful.

“It is definitely easier saidthan done,” admits MrJones. “It is very temptingto look back on a big slidein a market – for examplethe FTSE slide of 500 pointsin the first three weeks ofMay – and think how hardcan it have been to makemoney there?”

Experts say crude oilprices have been a popularplay by traders, particularlythe Brent Crude Oil price,which has generally been apopular shorting opportu-

nity given its premium overWest Texas Intermediate(WTI) crude oil.

“The narrowing of thepremium has generally seena long WTI-short Brenttrade work quite well whenthe differential has movedanywhere above the $20mark,” notes Mr Hewson.

Currencies have also beenpopular with traders, suchas euro/pound which, MrHewson say, s has by andlarge respected its supportand resistance levels inMay. When it has brokenout, it has generally tradedas expected.

If the FTSEfalls, so doeseverythingelse, saysDavid Jonesof IG Index

While fans inw e s t e r nEurope havebeen less than

keen to travel to Polandand Ukraine this summerfor the Euro 2012 footballchampionships, their reti-cence is providing a boonfor the bookies.

Trading firms, bookiesand exchanges are predict-ing record volumes of trad-ing thanks to favourable TVscheduling of the 31matches and the explosionof in-play betting, whichincreases the offering tobetween 200 and 250 mar-kets.

But it is the advance ofmobile technology – and thenumber of customers withaccess to it, particularlysince the previous WorldCup in South Africa in 2010– that is driving up interest.

“Mobile is being seen as akey driver for Euro 2012and beyond,” George Hud-son of Sportingbet says.“Technology has finallycaught up with expecta-

tions and this is the firstbig football tournamentwhere customers can placetheir bets on mobile devicesas easily as through laptopsor desktops.

“Our marketing is gearedto mobile-specific messagesand campaigns to talk totech-savvy customers whoexpect to interact usingmobile and tablets.”

Providers are expectingthe proportion of wagersthrough betting apps onsmartphones and tablets tobreak through the 30 percent barrier for all wagersplaced on the tournament.

Punters in the UK andIreland are also benefitingfrom the TV schedule,which saw all groupmatches kick off at either5pm or 7.45pm (BST), whileknockout matches are alldue to kick off at 7.45pm.

Wayne Lincoln, tradingspokesman for SportingIndex, says: “TV timingsare absolutely perfect forbusiness for us. Our clientsare not generally travellingfootball fans, so being ableto watch games on TV isextremely important.”

One of the few dampenerswas the muted reactionfrom customers to the Eng-land team – a traditionaldriver of ante-post bettingin the UK – but that was

countered by patriotic bet-ting elsewhere in Europe.

Sportingbet, which makesa significant percentage ofits revenue in continentalEurope says one Germancustomer placed a £40,000wager on his side to beatPortugal during the groupstages.

Andy Mackenzie, spokes-man for Spreadex, says:“Normally, we go into thesetournaments supportingEngland but not wantingthem to do well from a busi-ness point of view. But thistime, with the lack of patri-otic money we are able tocheer them throughout.”

Mike O’Kane, tradingdirector at Ladbrokes, says:“The level of enthusiasm inEngland was pretty low pre-tournament. But, when itstarted, the football tookover. wWe expect it to be agreat tournament overall,” .

Mr Lincoln adds: “As faras England’s progress isconcerned, it didn’t stop

business when they wentout early in the World Cup[in South Africa], so wedon’t expect it to be anydifferent this time.”

With a number of teamscompetitively priced behindthe strong pre-tournamentfavourite Spain, puntershave been congregating insome interesting markets insearch of value.

Andy Wright, a trader forsporting index, says: “Thedodgy keepers market hasbeen our most intriguing,with people speculating onhow many times keeperswill punch the ball overall.At the start of the tourna-ment, we had a spread of55-59 punches over the 31-game tournament, andpunters were buying intothat.

“Also, tournament hostsPoland were one of ourearly movers in the out-right market on the back ofthe fact that three of theirplayers were regulars for

Technologyeases wayof armchairgamblersFootballTV and phones area boost for bookies,writes Sean Smith

German Bundesliga win-ners Borussia Dortmund.Poland is our worst result.”

Mr Mackenzie says: “Mostintriguing is our biggestmarket, the number of pen-alties scored. People werebuying heavily at 16.5-18.

“Now we are at theknockout stages, punterswould expect that spread togo a bit higher.

“We’ve also seen lots ofmoney on Holland and Ger-many, but not quite asmuch as on Spain. Lots ofpeople bought France pre-tournament.”

Trading firms are predict-ing robust turnover and ahealthy return. AndrewMcIver, Sportingbet’s chiefexecutive, says Euro 2012would underpin perform-ance in the fourth quarterwith a predicted net reve-nue lift of between £2m and£3m – if all goes well.

A lack of surprises in thegroup stages – no 0-0 drawsand teams winning games

by 2-1 and 3-1 – will be biglosers for the betting firms.

Despite a general consen-sus that illegal gambling isunlikely to be a factor in atournament of this size, thefact it is being played ineastern Europe, which hasseen fixed matches has keptthe danger fresh in theminds of betting firms.

Mr O’Kane, head book-maker at the EuropeanSports Security Association,which monitors suspiciousbetting patterns, says:“Dead rubbers and matcheswhen one team has littlechance of success get thealarm bells ringing.

“We have been lookingfor betting activity thatmight raise the profile ofsuch a match. That said, Idon’t think there is a seri-ous risk of anything hap-pening at Euro 2012.”

One German Sportingbetclient won £40,000 when

his side beat Portugal AP

12 FINANCIAL TIMES FRIDAY JUNE 22 2012