Interest in online trading has heated up with banking group Investec now offering "contracts for differences" (CFDs) and news that Global Trader 247 (GT247) has tied up a joint venture with Canada`s largest bond broking firm.
Financial spread trading is based on CFDs, an instrument that allows investors to speculate on price movements of shares, bonds and indices without actually owning them.
CFDs are leveraged contracts that mirror the performance of the share or index, without the investor having to physically own the underlying instrument. It is similar to a futures contract, but has no expiration date.
Online trading, in its various forms, has been considered stillborn in this country as JSE regulations preclude individuals from directly trading shares over the Internet. Only registered stockbrokers may do so. CFDs allow individuals to bypass these regulations, to actively trade in a real-time situation.
For the past three years GT247 has been the only spread trading operation in the country and while the Irish-registered company started in SA, where it does all its product development, it has set is sights firmly on expanding into international markets.
Its new 50-50 joint venture with Canada`s Shorcan means GT247 will be renamed Shorcan Index in that country. It also marks the company`s change in strategy from catering almost entirely for individuals to accommodate institutions as well.
In a statement, GT247 CEO Fleur Gremmen says: "It is envisaged that similar strategic relationships with other institutions is plausible, to allow for more aggressive market penetration and further focus on institutional clients."
Investec has entered the spread trading arena by expanding the offerings on its foreign exchange trading service known as FXIdeal.
It offers CFDs only on foreign indices such as the Australian all ordinaries index, the Dow Jones industrial average and the London FTSE 100 index. CFDs are also offered on individual shares including Microsoft, Nokia, Ericsson and SABMiller.
Gary Gorman of Investec`s Treasury and Specialised Finance division says Investec is examining the possibility of offering CFDs on local financial instruments later this year.
Both Investec and GT247 have been proactive in making it easy for their clients to start trading. One can register by logging onto their respective sites and downloading the software. Both offer training courses on how to trade the CFDs.
Gorman says Investec expects to have about 5 000 individual clients using its service. GT247 says it executes 20 000 transactions worth $200 million in underlying value on a monthly basis.
"We also think this product [CFD] will be attractive for smaller institutions, especially those in Africa, who find it difficult to get the lines of credit available to some of the larger financial houses," Gorman says.
The main difference between the Investec offering and that of GT247 is that the former is aimed at people who have, or want to take money out of the country using the R750 000 allowance. GT247 products allow one to take exposure on foreign markets, but it is conducted in rands and the money does not leave the country.
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