LIVING, as we do, in uncertain economic times, it is helpful to take a peek at what the experts are doing. Simon Brown is the person to turn to. He is managing director of ProSpreads, a Gibraltar based spread betting provider catering only to professional traders. Because of its niche clientele, Brown is able to give a sense of the direction of travel expected in the markets by the people that live and breathe them. By looking at their interday positions, he is able to “get a flavour of what the thoughts of traders are.” Brown cut his teeth on the bustling London International Financial Futures Exchange (LIFFE), where he stood, waived his hands and shouted for 12 years. This experience helps him better understand the needs of the professional trader.
ProSpreads is unique in offering the functionality of Direct Market Access (DMA), providing a similar environment used in the day job of the many professional traders the company serves. Building upon its offering in the major indices, commodities and currency markets, it now provides access to individual stocks on the FTSE 100, FTSE 250, Eurostoxx 50 and the Dow 30. In order to gain new clients, ProSpreads relies principally upon word-of-mouth, with Brown stating that over 50 per cent of current traders came to ProSpreads upon the recommendation of existing clients.
As well as trading higher amounts than the average retail client, Brown says ProSpreads benefits from the fact that many of its traders are savvy. As such, they are much less likely to lose their money and stop trading. Professional traders emphasise risk management, focusing as much on where they exit a trade as where they enter one. On being in the futures pit, Brown recalls “trading with his fellow traders, often creating equal and opposite positions to each other.” However, “by the end of the day we would all have made money, because we had effective risk management strategies, which proved to be more important than whether we were long or short in the first place.”
From looking across the positions held by his clients and speaking to them personally, Brown says there appears to be a broad consensus that traders expect a consumer led double dip recession. Nevertheless, they are currently long on European and US equities on the expectation that there will be a rally inside the next four months. Clients are also long on commodities and have been so for a while. Although some may have suffered on the recent pullbacks, professional traders are generally good at getting out of losing positions and continuing to trade to make back any losses incurred.
From speaking directly with his clients, Brown says most “believe market interventions and fiscal stimuli are delaying the inevitable,” adding that a number of clients believe that some banks should have been left to their own devices in the credit crunch. Unlike the wider market, which hasn’t yet coalesced around the expectation of a Greek default, Brown says a significant majority of ProSpreads’ customers think its default is inevitable. The US is still being backed, particularly through the dollar, but this is not so much because of confidence in its economy, but an acceptance that “there is no alternative.” Brown says equities are favoured for similar reasons.
Only time will tell whether these particular traders are right about the big economic picture, but given their expertise and willingness to put a lot of money on the table, their outlook should be taken very seriously indeed.