INTENSE competition within the spread betting industry has driven providers to narrow their spreads. A decade ago, eight-point spreads were the norm, today the industry average is just two to three basis points. The most liquid markets such as the European indices and currencies often incur a spread of just one point, making it extremely cheap for traders to enter and exit positions.
Now, just when you thought spreads couldn’t get any tighter, the competition has stepped up another notch. City-based provider WorldSpreads last week announced the launch of the zero-point spread for 10 of its most popular markets, including indices, bonds and currencies. This is good news for spread betters who will benefit from the lower cost of trading.
The markets that benefit from zero spreads are: the FTSE 100, the Cac 40, the Dax 30, the Euro Stoxx 50, the 10-year UK gilt, the 10-year German bund, euro-US dollar, Aussie dollar-US dollar, euro-sterling and US dollar-yen.
In an industry where providers often use promotions and offers to attract customers, Conor Foley, chief executive and founder of WorldSpreads, is keen to point out that the launch of zero spreads is anything but a gimmick: “There are no catches; we intend to offer this in the long-term.”
The zero spread offer is available to both new and existing clients who have more than £5,000 in their Platinum trading account. Foley says that if the zero spreads prove a success over the next three months or so, then the company may decide to extend it to their entire database of clients.
WorldSpreads, which was the first to introduce one point spreads back in 2006, estimates that the zero spreads will save the average Platinum account customer about 10-12 per cent per year. Given that the spread is one of the few places that a provider is able to make money, the more cynical might question the business model. However, Foley emphasises that the zero spreads are not intended to be a loss leader: “We are not losing anything on it, but it is designed to attract new clients.”
He hopes and expects that more spread betters, attracted by the zero spreads, will use WorldSpreads’ platform and trade on the other 2,000 markets offered, which don’t have zero spreads.
While it might appear that WorldSpreads has removed the spread from spread betting, traders will be keen to hear that these markets still count legally as spread bets. Therefore, they still benefit from the existing attractions of zero commissions and zero capital gains tax. For those that day trade the zero spread markets, the trade will cost nothing, while those who hold positions overnight will only have to pay the interest charged.
But will zero spreads become the norm in the industry? WorldSpreads certainly isn’t anticipating a rush to spread-free trading and don’t currently have plans to expand beyond 10 spread-free markets.
With spreads now as low as they can go – after all, providers aren’t going to start paying clients to trade – spread betting companies will have to either follow suit or develop alternative ways of growing their active client base.